DraftKings shares jumped 5% in pre-market trading on Friday after reports surfaced that the sports betting operator is close to landing a substantial exclusive partnership with ESPN.
The reports come several weeks after Disney CEO Bob Chapek indicated that ESPN needed to latch on with a partner to make its much-ballyhooed debut into the U.S. sports betting ecosystem. While ESPN does not plan on launching its own full-fledged sportsbook, the network instead could partner with a third-party sportsbook to make the entry, Chapek told CNBC at the time.
The report from Bloomberg did not specify the details of this potential partnership that could transform the landscape of the sports betting industry.
Disney $DIS owned ESPN is said to be near a large partnership with Draftkings $DKNG, according to Bloomberg. pic.twitter.com/YEKXT5bPzt
— Roundhill Investments (@roundhill) October 6, 2022
“We have a great, longstanding relationship with ESPN. However, we speak to a variety of companies on a regular basis and don’t comment on the specifics of those conversations,” a DraftKings spokesman told Sports Handle on Friday morning.
Will Disney open its doors to sports betting?
Speculation on ESPN’s possible entry into the sports betting market dates back to August 2021, when reports surfaced that ESPN held discussions with several sportsbooks on a multi-year deal to license its brand for sports betting purposes. At the time, ESPN sought a deal that would fetch a minimum of $3 billion from a prominent sportsbook partner, The Wall Street Journal reported. Since then, market dynamics have changed with major U.S. indices down more than 25% this year. The WSJ, citing sources, reported that the major sports conglomerate held discussions with DraftKings and Caesars Entertainment back in 2021.
Last summer, as the NFL prepared for the 2021 regular season, a potential deal was widely viewed as a game changer for the sports betting industry. Immediately upon aligning with ESPN, a sportsbook that lands the exclusive partnership will benefit from the network’s vast database of sports enthusiasts. Last October, ESPN Digital set a new company record for most unique monthly visitors in the sports category at 120 million, topping the record set in July 2021 of 118.6 million.
“If Disney is embracing betting, we have truly reached mainstream acceptance in the U.S. market,” Roundhill Investments CEO Will Hershey told Sports Handle last August. “That’s a big stamp of approval for the entire industry, and especially speaks to the way large media companies view the size of the opportunity.”
An exchange-traded fund from Roundhill Investments, The Roundhill Sports Betting & iGaming ETF (ticker BETZ), is the first rules-based index designed to track the performance of the online sports betting and iGaming markets. As of Thursday, DraftKings represented the top holding in the BETZ basket of stocks with a portfolio weighting of 6.37%. Flutter Entertainment, the parent company of DraftKings’ archrival FanDuel, ranks second at 5.78%.
Disney, the parent company of ESPN, acquired a stake in DraftKings in 2019 as part of its acquisition of several Fox Corp. entertainment assets. ESPN already has marketing partnerships with both DraftKings and Caesars. DraftKings, whose stock has fallen more than 40% this year, would immediately benefit from a transformative deal with ESPN at a time when sports merchandiser Fanatics is nearing an entry into the sports betting space.
An analyst from Oppenheimer & Co. said in a research note on Friday that the partnership could impact DraftKings positively from a live, in-game perspective. Sportsbook operators are searching for ways to differentiate themselves through in-game betting as the U.S. market transitions from a pre-game to live betting focus.
DraftKings Gains on ESPN Partnership Report, Analyst Says Announcement May Come Soon https://t.co/dCom3Hg7eP pic.twitter.com/SyMSvhO1D6
— Trade the journey (@JourneyTrade) October 7, 2022
“We see any agreement providing more odds integrations to better direct consumers to wagering opportunities that accelerate same-game parlay and live betting adoption,” reads the Oppenheimer client note. “We believe DraftKings is in a favorable negotiating position as the only operator with the budget scale to meet Disney partnership standards, following FanDuel’s investments in its own OTT channel and operators scaling back advertising.”
Oppenheimer analysts believe a deal could be announced by the start of the NBA regular season on Oct. 18. The potential deal could be worth “well under $3 billion,” according to Oppenheimer.
DraftKings shares rose 5.8% to $16.97 in response to the news. An ESPN spokesman did not comment on any potential negotiations when reached by Bloomberg on Thursday night.
