Big Waiver Wire Moves Ahead? DraftKings Issues $1.27B Convertible Notes

eResearch| The third phase of sports entertainment is here: engagement.

DraftKings (NASDAQ: DKNG), a leader in that segment, recently announced $1.27 billion in convertible notes.  DraftKings plans to use the funds for working capital and business expansion, such as mergers and acquisitions.

DraftKings might need the cash.  In 2020, it recorded a loss of $844 million on $615 million revenue.

The loss was driven, in part, by sporting interruptions from COVID-19.  Major sporting events such as the 2020 Master’s Tournament and the Toyko Olympics were postponed, combined with shortened MLB, NBA, and NHL seasons to negatively impacted revenues.

Impressively, DraftKings converted bottom-line losses into a 90% revenue gain despite the pandemic by launching new iGaming products like eSports betting and casino games.

DraftKings’ growth is off the charts with a 90% year-over-year revenue growth but difficult for investors to value, currently trading at over 30x revenue.  There is lots of excitement, leading to a fantastic 419% share price gain over the past year.

FIGURE 1: DKNG 13-Month Stock Chart

The convertible notes have an initial conversion price of $94.85 per share on or after September 15, 2027.

The addition of the convertible notes will bolster its cash position. As at December 31, 2020, DraftKings had $1.8 billion in cash and $742 million in total liabilities.

The overall capital structure of DraftKing remains consistent despite increasing the debt since it has a market capitalization of $25.4 billion as of March 26, 2021.

Fantasy Sports

Fantasy sports creates additional entertainment value for sports fans, giving a financial motivation to cheer for an empty-net goal or an inconsequential late-game field goal.

A 2018 Supreme Court decision allowing for sports gambling that has opened the door to sports betting in U.S. states supports the recent growth.

Fantasy sports are popular.  Estimates put the total number of fantasy sports players in the U.S. at 60 million – that is almost the same as the 63 million Americans who engage in daily IRL (in real life) sports!

The fantasy sports segment is forecasted to grow at a 10.7% CAGR over the next five years, according to Research and Markets.  IBISWorld estimates that the US market will be worth $8.4 billion in 2021.

FIGURE 2: DraftKings Sportsbook Mobile App

About DraftKings

Headquartered in Boston, Massachusetts, DraftKings is an entertainment company focused on Daily Fantasy Sports “DFS”, sports betting, and digital casino games.

Founded in 2012, DraftKings has emerged as a leader in iGaming.  Arguably, the third phase of sports entertainment, iGaming allows fans to participate directly with the game.  The first two phases were the game itself and peripheral news products.

Notable DraftKings partnerships include ESPN and Fox, both subsidiaries of Disney (NYSE: DIS | BMV: DIS | FRA: WDP | BVMF: DISB43 | VIE: DIS ).  Disney reportedly owns 6% of DraftKings.  Potential juicy synergies likely make investors excited.

Draftkings has emerged as one of the more dominant companies in fantasy sports, along with Yahoo! and Flutter (LSE: FLTR| ISEQ: FLTR), owner of FanDuel.

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