Rumors have been floating around for the past several months regarding DraftKings and its possible desire to go public on the stock market. In order for that to happen, it would need to perform a special sports gambling dance that would allow it to prance around various regulatory guidelines currently in place in the US.
The company has apparently figured out which moves are necessary, and has announced that it is going to become a publicly-traded company. It all comes down to the choreography it has practiced with SBTech and others.
DraftKings Stock Market Moves
DraftKings and SBTech, two of the leading sports gambling-centered companies operating around the world, are going to join forces, in a manner of speaking, and become part of Diamond Eagle Acquisition Company. Diamond Eagle is a special purpose acquisition company (SPAC) that is already traded on NASDAQ.
As a result, the two merged entities will have a combined market valuation of around $3.3 billion, provided the deal isn’t put off by regulators first. The transaction is expected to be completed sometime before this summer, and the new company will also pick up an additional $500 million in cash through its institutional investors.
The SPAC, nothing more than a shell company that launches an initial public offering (IPO) ahead of its intention to merge with an established business, will be rebranded from Diamond Eagle to DraftKings Inc. and will subsequently reincorporate itself in Nevada. A new ticker symbol will be issued, and DraftKings will, at that time, become the first sports gambling-centered business to be listed on a major exchange.
In a press release about the convoluted setup, DraftKings co-founder and CEO Jason Robins explained, “The combination of DraftKings’ leading and trusted brand, deep focus on customer experience and data science expertise and SBTech’s highly innovative and proven technology platform creates a vertically-integrated powerhouse. I look forward to building significantly upon our goals of continuing our state-by-state rollout and creating the most entertaining and engaging customer experiences for sports fans globally.”
The deal is a sweet one for DraftKings in more ways than just the ability to become publicly traded on the stock market. It is already a leading sports gambling brand in the US, and SBTech is a leading gaming technology company. The merger gives DraftKings the ability to capitalize on SBTech to increase its innovation and cut costs ahead of a more crowded sports gambling market that is coming to the country. Access to SBTech’s assets also gives it the ability to set odds more effectively and to increase hold percentages, which translates into higher profits.
Diamond Eagle founding investor Harry E. Sloan adds in the press release, “With the full integration of SBTech’s technology and innovative product expertise coupled with the right capitalization, DraftKings will be in a great position to continue its ambitious expansion plans in the United States.”
As with any merger or acquisition, there are always victims, and this deal is no different. Since August 2018, DraftKings has had a partnership with Kambi to power its sportsbooks. That partnership was reportedly set to be a “multi-year deal” when it was signed; however, the new merger between DraftKings and SBTech is essentially a death notice to Kambi. DraftKings stock market value has already fallen over 30% since the news first broke.
The same won’t be said for DraftKings. Investors are almost certainly going to be lining up to make purchases once the deal is finalized. However, it’s important to keep in mind that the Federal Trade Commission may jump in and extinguish the fire. It prevented DraftKings and FanDuel from merging in July 2017 and, even though online sports gambling has become more acceptable across the country, there may be concerns about the company’s market control after the merger is complete.