DraftKings Going Public in $3.3 Billion Deal

In a three-way deal DraftKings Inc. is going public joining SBTech, a gaming technology provider, and an acquisition fund that was founded by Jeff Sagansky, former Hollywood executive. The new firm has a value of around $3.3 billion.

DraftKings stated that they and SBTech were in agreement to be purchased by Diamond Eagle Acquisition Corp., which is a publicly traded company dealing with the special purpose to pursue acquisitions. While it is a new firm it will still be traded under the DraftKings Inc. name.

Diamond Eagle is Sagansky’s fifth special purpose acquisition company (SPAC) that he has set up and he founded the company with investor Harry Sloan. SPAC’s are set up in order to raise funds in order to go after further acquisitions and this allows a company that is private to go public but there is not an initial offering to the public. DraftKings takes care of three goals in this deal, which are combining with a solid gaming technology company in SBTech, raise funds in order to improve growth in their company, and go public. This according to Jason Robins, who is the co-founder of DraftKings as well as its Chief Executive Officer.

Robins, who will be the CEO of the new firm, stated, “A lot of companies wait to go public until they’ve hit the end of what is their very obvious growth phase, when they’re already at their scale level. We’re going public in the early days of what we hope will be a very expansive and large market in the U.S. that develops over the coming years, so it gives public shareholders a real opportunity to ride that growth.”

In a phone interview Robins said that the company expects a $540 revenue stream in 20202 with DraftKings accounting for $440 million and SBTech accounting for $140 million. One year later in 2021 the expectations are for $700 million with DraftKings accounting for $550 million.

Gambling Business Mergers Aplenty

The new DraftKings deal is one of several recent mergers in the US sports betting market. DraftKings rival FanDuel was sold to Paddy Power Betfair Plc, which is an Irish bookmaker, in 2018. Later they merged with Stars Group, which is a Canadian betting company, and they are a partner of FoxBet in the US through a Fox Sports joint venture.

At closing $304 million will be committed by institutional investors and will include money managed by Capital Research and Management Co., Wellington Management Co., and Franklin Templeton. There will be in excess of $500 million in cash, which is unrestricted, for the new company according to a recent report. In the New York Stock Exchange Diamond Eagle saw a stock increase of 5.2% to $10.70., which is the biggest jump the company had seen since going public this year.

Kambi Group Pic, which is the technology partner of DraftKings as well as a competitor of SBTech, saw their stock plummet as much as 31% on Monday December 22 before trading stopped in Stockholm, Sweden. Robins has state that there are still plans for DraftKings to launch their product in several states keeping up their part of the deal with Kambi. However, those plans are long term ones and now that DraftKings owns back-end technology they would save money as well as giving them more flexibility to directly expand the offerings of their product.

Robins stated, “This is not a knock in any way on Kambi and it shouldn’t be perceived that way. For us it’s important to own our own technology and own our own product, and regardless of who our partner was, it was something we felt was important over the long-term.”

DraftKings was founded back in 2011 as a company that deals with fantasy sports and early investors were New England Patriots owners and the Raine Group.

SBTech gives gaming companies the world over backend technology as well as trading services. They have in excess of over 50 partners in 20 markets where gambling is legal. Recently, they nabbed an exclusive contract in order for the operation of sports wagering in Oregon to be done through the lottery in that state.