In a press release Monday morning, DraftKings announced a merger with former Hollywood executive Jeff Sagansky’s special purpose acquisition company, Diamond Eagle Acquisition Corp., and a more familiar name in the sports betting industry, SBTech. The three-way deal will take the daily fantasy sports and sports betting company DraftKings public sometime in the first half of 2020.
Diamond Eagle currently trades on the Nasdaq under DEACU. Once the merger is finalized, the combined entity will go by DraftKings Inc. and will trade under a not-yet-disclosed ticker symbol. The new company is expected to have a market cap of about $3.3 billion and will become the only U.S.-based vertically-integrated pure-play sports betting and online gaming company.
“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,” Jason Robins, co-founder and CEO of DraftKings, said in a statement.
Diamond Eagle will be reincorporated as DraftKings Inc. in Nevada, and the new DraftKings will continue to be led by Robins and co-founders Paul Liberman and Matt Kalish. As of Monday afternoon, Diamond Eagles’ shares were up 9.64%.
DraftKings and SBTech: Why the deal?
DraftKings is going public, and it’s forgoing the typical IPO process. Here’s what you need to know about the fantasy sports company’s new 3-way deal. https://t.co/BWbAXDT3Jo pic.twitter.com/8GsRdImyw9
— CNBC (@CNBC) December 23, 2019
Speaking Monday morning on CNBC’s Squawk Box, Robins explained why DraftKings saw value in the three-way merger. Using a special purpose acquisition company, such as Diamond Eagle, allows DraftKings to both secure desired capital and go public in one fell swoop. Otherwise, DraftKings’ road to going public would have likely been a more extensive process, requiring two separate transactions.
In addition to expediting the process of going public by foregoing a more traditional IPO acquisition, the deal leaves an estimated $500 million-plus of unrestricted cash on the balance sheet that DraftKings Inc. will use to help expand in the rapidly-growing U.S. sports betting market, as well as launch new betting markets for customers with the help of SBTech’s platform.
“There’s a lot of new states that have recently legalized online sports betting. Michigan recently, Colorado about a month before,” Robins said. “We have a lot of really exciting new markets we would like to launch, and that requires capital investment.”
The vertical integration with SBTech, a global B2B tech provider with its own risk-management services, will bring technology in-house to DraftKings that has been outsourced up to this point.
Some revenue projections for the new combined @DraftKings/@SBTech_ entity:
2020: $540 million ($400 from DK, $140 from SB)
2021: $700 million ($550 from DK, $150 from SB)https://t.co/hUd11hhBbV #SportsBiz
— Eben Novy-Williams (@novy_williams) December 23, 2019
Kambi takes hit
Not everyone is as excited about the deal as DraftKings, SBTech and Diamond Eagle. Kambi Group, the B2B provider of sports betting technology service that had supplied DraftKings’ backend technology for the past 18 months, saw trading in KAMBI stock (FN Stockholm) halted after prices fell as much as 31% Monday morning.
Kambi helped DraftKings launch its sports betting product after the two companies linked up in June of 2018.
In August, the companies extended their agreement to include DraftKings’ expansion into eight additional states: Colorado, Indiana, Iowa, Maine, New York, Pennsylvania, Tennessee and West Virginia.
That’ll be the case no more — well, eventually.
In a statement released by Kambi following Monday’s news, Kambi CEO, Kristian Nylén said Kambi would continue to provide services to DraftKings for the time being.
“It is of course not up to me to comment on the strategic choices of DraftKings, but in this context I would like to emphasise that Kambi has successfully built a strong position in the US and our partner network consists of high-quality, visionary operators, both in the US and across the world. Furthermore, we believe the combination of a competitor and a high-profile operator has the potential to strengthen the appeal of Kambi in future sales processes.
“Kambi recently signed a renewed deal with DraftKings and, as per that agreement, we will continue to provide the same high levels of product and service that enabled DraftKings to become a leading player across multiple US states. No notice of termination has been given; should that type of information be given, we will inform the market,” says Nylén.
Most recently, the New Hampshire State Lottery selected DraftKings to operate its mobile and retail sports betting, beating out Kambi among other bidders for the contract. The company’s online sportsbook will launch in New Hampshire on Dec. 30.
Beyond expanding into new markets, domestic and globally, DraftKings Inc. will take advantage of SBTech’s trading and risk management tools, bespoke risk and liability strategy, its own platform, managed services, and casino integrations, all things provided by the merger with SBTech that were not otherwise available in-house within the DraftKings-Kambi partnership, per DraftKings’ investor presentation.
SBTech supplies backend technology and trading services to more than 50 partners in more than 20 markets, including Denmark, Spain, the U.K., and recently won the exclusive contract to operate the sportsbook through the Oregon Lottery Scoreboard.
Less than three months ago in October, FanDuel’s parent company Flutter Entertainment acquired The Stars Group (TSG) in a roughly $6 billion purchase. TSG now operates the sportsbook FOX Bet. Thus rapid consolidation in the very young U.S. sports betting market rolls on, and the range of legal sportsbook options for consumers narrows once more.