DraftKings made its public market debut on Friday under less than auspicious circumstances.
With the vast majority of major professional sports sidelined due to the effects of COVID-19, DraftKings’ highly anticipated foray into public markets comes at a crossroads for the industry. Undeterred by the daunting challenges, DraftKings CEO Jason Robins expects the headwinds from the global pandemic to slowly recede as the Boston-based daily fantasy sports and mobile sports betting company continues its expansion into new states.
“Eventually we do expect to return to a new normal,” Robins said on a Friday morning conference call. “At that time we expect the momentum across the states for global sports betting will resume.”
Coronavirus impact on financial results
DraftKings began trading Friday morning on the NASDAQ Global Select Market under the symbol DKNG. DraftKings’ debut as a publicly listed company came one day after it completed a business combination with SBTech and Diamond Eagle Acquisition Corp. (DEAC), a special-purpose acquisition company.
Under the deal, DraftKings becomes the first vertically integrated, pure-play sports betting and online gaming company based in the United States with full control of its back-end technology and trading platform.
“By bringing together our leading consumer brand, data science expertise and industry-leading products with SBTech’s proven technology platform, we will accelerate our innovation, growth and scale,” Robins said in a press release.
Robins, who took part in NASDAQ’s virtual opening bell-ringing ceremony Friday morning, noted that the company is evaluating the effects of COVID-19 on its financial and operating results. The ultimate impact of the pandemic on DraftKings’ Fiscal Year 2020 results depends on the length of the disruption and whether certain sports leagues will resume their seasons, he added.
“Needless to say, we are, like so many in the U.S. and across the world, excited and hopeful for the resumption of sports soon,” Robins said. “Our investment in automation, data science and machine learning means that in a situation like this operationally DraftKings is functioning without a big need to shift talent resources.”
“Our products flourish as we continue to roll out innovative content that does not rely on major sports seasons and sports events.”
DraftKings CEO @JasonDRobins watches himself from the DraftKings studio in Boston during Nasdaq’s virtual bell-ringing ceremony this morning. Eight years ago, Robins, @mattkalish and @PaulLiberman launched DraftKings, now trading under the ticker symbol “DKNG.” pic.twitter.com/oxXnG1PR2P
— David Payne Purdum (@DavidPurdum) April 24, 2020
Playing the long game
DraftKings completed the business combination roughly eight years to the day after Robins launched the company with co-founders Paul Lieberman and Matt Kalish from a spare room in Lieberman’s home in Watertown, Mass. DraftKings also closed on a private investment of $304 million in the company’s Class A common stock with a group of institutional investors, including funds managed by Capital Research and Management Company, Wellington Management Company and Franklin Templeton. Under the assumption there aren’t any stock redemptions, DraftKings will have approximately $500 million in unrestricted cash with access to capital markets for future growth prospects, Robins noted.
“This capital infusion will allow DraftKings to expand into new states as they legalize online sports betting and iGaming,” he said.
Diamond Eagle is a special purpose acquisition company (SPAC) founded by Harry Sloan and Jeff Sagansky, two veteran Hollywood executives. Prior to the outbreak, the SPAC’s share price skyrocketed to as high as $19.50, representing a roughly 70% gain from its baseline share price of $10 per share. In spite of the hurdles presented by COVID-19, a gaming industry advisor does not envision an environment where DraftKings and its chief rival FanDuel are not big winners in the U.S. sports betting and online gaming space.
“They have the brands, national footprint, and trusted product to capture and maintain significant market share in America,” the advisor told Sports Handle. “Remember, we are barely in the top of the second inning in legal sports betting and online gaming in the U.S. There are a handful of public listings yet to come.”
Down the road, some challenging corporate governance issues may arise. Of the 2.1 billion shares being floated, the majority of shares that will be available to the public are through DraftKings’ Class A common stock, which carries one vote per share. By comparison, DraftKings’ Class B common stock, under the company’s dual-class structure, carries 10 votes per share. Robins is expected to hold approximately 90% of the voting power of the capital stock of DraftKings, according to an SEC filing.
Last month, DraftKings drew down $44.5 million from its revolving credit facility to provide financial flexibility amid considerable uncertainties brought about by the impact of COVID-19, the company wrote in the filing.
The ultimate severity of the coronavirus outbreak is uncertain at this time and therefore we cannot predict the full impact it may have on our end markets and our operations; however, the effect on our results could be material and adverse. Any significant or prolonged decrease in consumer spending on entertainment or leisure activities could adversely affect the demand for our offerings, reducing our cash flows and revenues, and thereby materially harming our business, financial condition, results of operations and prospects. –- DraftKings SEC Schedule 14A Filing, April 23, 2020
Robins downplayed concerns associated with DraftKings’ mounting short-term losses in January, while asserting that he remained more focused on the company’s long-term growth prospects.
“For investors who have convictions in the industry, they don’t get too hung up in what happens this quarter or even next year,” Robins told Sports Handle inside the Aria’s Ironwood Ballroom in Las Vegas. “If you have conviction and believe in the ultimate market, you’ll be patient as it unfolds.”
Casino companies suffering
The company is going public against a unique economic backdrop. With casinos across the country shuttered due to the COVID-19 crisis, gaming companies have suffered mightily in the stock market over the last month. During the period, prominent companies such as Caesars Entertainment Corp., MGM Resorts International, Penn National Gaming Inc., and William Hill Plc all suffered stock declines in excess of 35% each.
It has been about a month… here is an update on share price performance since the WHO declared a pandemic…
Not a recommendation to buy/sell/hold! pic.twitter.com/4Hn2BVSR3g
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) April 21, 2020
DraftKings goes public one day after the opening round of the NFL Draft, by far the biggest sporting event in more than a month, since the spread of COVID-19 shut down American professional sports on March 12. The next major event in the U.S. appears to be the PGA Tour’s Charles Schwab Cup at Colonial Country Club in Fort Worth, Texas, beginning June 11. The Tour announced that it will re-start its season with four events with no fans.
“That’s a temporary thing,” Robins told Yahoo! Finance. “And as long as our customers continue to engage with us, people will be eager to reactivate when sports do come back. We always have people deactivate at the end of the NFL season, reactivate at the start of the season, so there’s always a seasonality to it anyway.”
DraftKings has digital sports betting platforms in six states — New Jersey, West Virginia, Indiana, Pennsylvania, New Hampshire, and Iowa. DraftKings also became the first operator to accept a mobile sports bet in New Jersey, months after the Professional and Amateur Sports Protection Act (PASPA) was overturned in May 2018.
DraftKings closed Friday at $19.35 per share, up $1.82 (10.38%).