DraftKings, one of the largest players in the online and mobile sports wagering arena, is planning a 2020 initial public offering (IPO) after announcing a merger with investment firm Diamond Eagle Acquisition Corp. (NASDAQ:DEACU) and SBTech.
The transaction that will combine the three entities is expected to close in the first half of next year and will include Los Angeles-based Diamond Eagle assuming the DraftKings name, reincorporating in Nevada, and changing its stock ticker.
The investment firm, which is structured as a special purpose acquisition corporation (SPAC), will continue to list its shares on the Nasdaq after the deal closes. At this writing, Diamond Eagle shares are up 7.90 percent on almost five times the average daily volume.
It is anticipated that the combined company will have an equity market capitalization at closing of approximately $3.3 billion, and have over $500 million of unrestricted cash on the balance sheet,” according to a statement issued by the companies.
Earlier this year, speculation swirled that DraftKings was mulling a takeover of Isle of Man-based SBTech, a provider of sports betting software and related solutions. SBTech has partnerships with such gaming companies as Pala Interactive, Churchill Downs, and Golden Nugget Casinos, and runs the Oregon Lottery’s recently launched “Scoreboard” mobile betting app.
The new DraftKings will be the only vertically integrated sports betting company in the US. Vertical integration is business lingo used to describe a company that owns or control its suppliers and distributors, allowing that firm to lower costs and bolster efficiencies. The downside of this business model is that it’s usually cost-intensive.
Still, the combined DraftKings/Diamond Eagle/SBTech appears appealing to institutional investors, as funds run by Capital Research and Management Company, Wellington Management Company, and Franklin Templeton are committing $304 million to the new venture.
Today’s news caps roughly two months of flirtation between DrafKings and Diamond Eagle, which was formed earlier this year by Hollywood producer Jeff Sagansky and actor Eli Baker and went public in May.
DraftKings previously tried to merge with primary rival FanDuel, but that marriage was thwarted by regulators, citing competition concerns.
Dominant Market Share
DraftKings initially burst onto the scene as, along with FanDuel, a purveyor of daily fantasy sports (DFS) contests. Today, the company remains one of the dominant names in that market, controlling 60 percent of the domestic DFS landscape. DraftKings has leveraged that expertise into becoming one of the fastest-growing sportsbook operators, particularly when it comes to mobile and online sports wagering options.
Since becoming the first mobile operator to launch in New Jersey in August 2018, DraftKings has consistently maintained greater than 30% online market share, and for the nine months ended September 30, 2019, the company recorded 8.5x year-over-year revenue growth in the state,” according to the firm.
In addition to the Garden State, DraftKings offers online betting services in some of the fastest-growing sports wagering states, including Indiana, Pennsylvania, and West Virginia. The company was also recently selected as New Hampshire’s only online and retail sportsbook operator.
The company also manages brick-and-mortar sportsbooks in Iowa, Mississippi, New Jersey and New York.