DraftKings Raising $200 Million to Complete Pivot to Sports Betting

Draft Kings

DraftKings is raising a $150-$200 million funding round to complete its pivot from a DFS company to a legalized sports betting business (with web-based and mobile offerings). Earlier this month, the company announced it had partnered with Resorts Atlantic City (land-based casino partner required) and formally applied for a New Jersey State Gaming License, so that it could take sports bets within the state. No information pertaining to valuation has been disclosed.

Howie Long-Short: DraftKings is reportedly telling investors that it’s expecting DFS to continue driving corporate profits for “years to come” as nationwide legalization will be a slow process. I give the company points for honesty, but that’s not news that will excite me as a prospective investor. The company lost $92 million on $160 million in revenue in ’16, so it’s reasonable to assume it wasn’t profitable in ’17 on $192 million; and with DFS set to begin losing market share to legalized sports betting (see: Yahoo! DFS, FanDuel in Europe) one can’t assume 2018 will be any better. The announcement of this round would seem to imply the company currently lacks the runway to complete a pivot that it acknowledges will take time.

Axios has also reported that Platinum Eagle Acquisition Corp. (EAGLU) has expressed interest in a reverse merger; an expedient and cost effective way for a private company to trade on a public exchange. No details have been released relating to the equity percentage at which EAGLU would acquire the company or the valuation DraftKings holds; FanDuel calculated its fully diluted value to be $1.2 billion in 2017, though its user base is smaller (6 million versus 10 million).

The Legal Sports Report has reported that Kindred Group (STO: KIND-SDB) is also kicking the tires on a potential DraftKings acquisition. That news is interesting as KIND-SDB announced back in May intentions to enter the U.S. market and it’s believed that a subsidiary (Kambi Group) is working with DraftKings to develop a mobile sports betting product. The European online gaming and sports betting company, best known for subsidiaries Unibet and 32Red, did just shy of $1 billion in revenue last year.

Fan Marino: Penn National Gaming (PENN) is another company that has an opportunity to get in on New Jersey’s sports betting gold rush. The company, along with Greenwood Racing, owns a proposed OTB site in Cherry Hill that could qualify for a sportsbook under a bylaw that covers “former racetracks”. The joint venture also owns the Freehold Racetrack.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Reverse Merger Could Take FanDuel Public

FanDuel

FanDuel, Inc. may be going public, but it won’t be through an IPO. The DFS company is in “advanced talks” with Platinum Eagle Acquisition Corp. (EAGLU) to partake in a reverse merger; an expedient and cost effective way for a private company to trade on a public exchange. No details have been released relating to the equity percentage EAGLU would acquire or the valuation FanDuel holds; though, the company calculated its fully diluted value to be $1.2 billion in 2017. One can speculate FanFuel will use the capital infusion to position itself to capitalize on legalized sports betting; the company owns an extensive database of DFS players that it could convert into mainstream sports gamblers.

Howie Long-Short: EAGLU is a special purpose acquisition company, formed by well-respected media execs Jeff Sagansky (Sony, CBS, Scripps Networks Board Member) and Harry Sloan (MGM, SBS Broadcasting, Lionsgate Board Member). The publicly traded company launched in January, having raised $325 million to acquire another business (or businesses). As for FanDuel, they’ve raised +/-$435 million to date; but, none since April ’16. A reverse merger is another way for the company to raise the capital it needs.

Fan Marino: FanDuel won’t be the only DFS company to enter the sports betting space. DraftKings announced last week that it had hired a “Head of Sportsbook”, and DRAFT, owned by Paddy Power Betfair (PDYPY), is also expected to chase a share of the U.S. sports gambling market. Of course, all 3 will have strong competition from established gaming operators like of William Hill (WIMHY), Caesars Entertainment (CZR), MGM Resorts International (MGM), Penn National (PENN), Boyd Gaming (BYD) etc.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!