eResearch | DraftKings, the largest company in the daily fantasy sports betting industry, is planning on listing on the NASDAQ exchange through a US$3.3 billion merger with SBTech and Diamond Eagle Acquisition Corp., which is expected to close in H1/2020.
DraftKings has been vertically integrating its business since acquiring its main competitor FanDuel in 2018, and SBTech will further support DraftKings integrating its business by providing backend technology capabilities for digital betting.
Diamond Eagle, a publicly traded Special Purpose Acquisition Company founded by veterans Harry Sloan and Jeff Saganksy, will support the merger with US$400 million in capital.
In addition, institutional investors including funds managed by Capital Research and Management, Wellington Management and Franklin Templeton have committed US$304 million in private investment for DraftKings’ newly listed stocks.
The newly incorporated DraftKings Inc. will have no change in leadership and will retain current management, while SBTech’s management team will be synergistically integrated into the organization.
Revenue and Earnings
In the prospectus for the merger, filed with the SEC, DraftKings’ 9-month revenue was US$192.0 million, a 44% year-on-year increase with a net loss of US$114 million. SBTech reported revenue of US$76.8 million, down almost 7% year-on-year but with a profit of US$7.3 million.
Valuation
According to the filing, SBTech was valued at approximately US$655.8 million or 8.5x revenue or 89.8x earnings.
This valuation bodes well for Newgioco (NASDAQ:NWGI) which would value the company at almost US$300 million and it is currently trading at an Enterprise Value of only US$50 million.
U.S. Sports Betting Industry
In the past five years, the U.S. sports betting industry has been growing since New Jersey won a U.S. Supreme Court Ruling which opened the doors for all 50 states to legalize online betting, with sports betting now considered a game of skill rather than gambling.
According to Zion Market Research, the global sports betting market was valued at US$104.3 billion in 2017 and is expected to reach US$155.4 billion by 2024, growing at a CAGR of 8.83%.
The sports betting industry in the U.S. is regulated by each respective state, and for companies such as DraftKings to operate in a state, they must get licensed as a supplier by regulators then partner with existing casino companies to receive rights to do business in each state.
Last year, DraftKings partnered with Caesars Entertainment Corporation to allow online betting operations in 12 states in exchange for equity in DraftKings’ business from each state. Fanduel also made a similar partnership with Boyd Gaming prior to its acquisition by DraftKings.
Currently DraftKings’ sportsbook is available on Mobile and Desktop in Indiana, New Hampshire, New Jersey, Pennsylvania, and West Virginia.
DraftKings currently dominates the U.S. market with a vertically integrated option, but the competitive landscape is expected to increase as more states legalize online betting and start to distribute multiple operating licenses.
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