Sports betting and fantasy sports giant DraftKings has entered a business combination agreement with Diamond Eagle Acquisition Corp. (DEAC) and sports betting and iGaming platform supplier SBTech, reincorporating as a public company.
The merger is effectively a reverse acquisition by DEAC, a Nasdaq-listed company founded by media executive Jeff Sagansky and founding investor Harry Sloan for the purpose of effecting such mergers.
DraftKings co-founder and CEO Jason Robins will lead the combined company.
Boston-based DraftKings, known for its industry-leading daily fantasy sports and mobile sports betting platforms, and SBTech, an international turnkey provider of cutting-edge sports betting and gaming technologies, will combine to become the only vertically integrated pure-play sports betting and online gaming company based in the United States. The transaction is expected to close in the first half of 2020. In connection with the closing of the transaction, Diamond Eagle intends to change its name to DraftKings Inc., reincorporate in Nevada and remain Nasdaq-listed under a new ticker symbol.
“The combination of DraftKings’ leading brand and data science expertise and SBTech’s highly innovative and proven technology platform creates a vertically-integrated powerhouse,” said Robins. “I look forward to building significantly upon our goals of continuing our state-by-state rollout and creating the most entertaining and engaging customer experiences for sports fans globally.”
Robins said he will retain DraftKings’ management team, including co-founders Paul Liberman and Matt Kalish. The SBTech management team, which will bring a wealth of international markets, trading and risk management experience, will also be integrated into the organization.
Institutional investors (including funds managed by Capital Research and Management Company, Wellington Management Company and Franklin Templeton) have committed to a private investment of $304 million in Class A common stock of the combined company that will close concurrently with the business combination. Subject to any redemptions by DEAC stockholders, there is $400 million currently held in Diamond Eagle’s trust account. It’s anticipated that the combined company will have an equity market capitalization at closing of approximately $3.3 billion and more than $500 million of unrestricted cash on the balance sheet.
“We are pleased to bring DraftKings and SBTech together as one public company,” said Harry E. Sloan, founding investor of Diamond Eagle. “DraftKings is already a premier online fantasy sports and betting platform. With the full integration of SBTech’s technology and innovative product expertise coupled with the right capitalization, DraftKings will be in a great position to continue its ambitious expansion plans in the United States. I have known Jason Robins for four years, and consider him a true entrepreneur. I believe our investors share my utmost respect for his vision and leadership.”
Since becoming the first mobile operator to launch in New Jersey in August 2018, DraftKings has consistently maintained greater than 30 percent 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. DraftKings currently offers mobile and online sports betting in Indiana, New Jersey, Pennsylvania and West Virginia, and retail locations in Iowa, Mississippi, New Jersey and New York.
DraftKings’ daily fantasy sports product is available in 43 states and eight international markets including Australia, Canada and the U.K., has approximately 60 percent market share and leverages its customer acquisition and cross-selling model for its sportsbook and iGaming offerings.
DraftKings established a “one-platform” model by launching features like single sign-on, an integrated wallet and universal user profile, which allows a user to move seamlessly between a DFS contest, a sports wager and a hand of blackjack. The system enables the company to quickly bring to market new offerings without reinventing the wheel of an entirely new back-end infrastructure.
SBTech is a premier global full-service B2B turnkey technology provider with omni-channel sports betting solutions, trading services, and marketing and bonus tools powering some of the world’s most popular sports betting and online gaming brands. The company has more than 50 partners in 20-plus regulated markets around the world. In the U.S., the company has an exclusive contract to offer mobile and retail sports betting for the Oregon state lottery with its Oregon Lottery Scoreboard brand.
“The combination of DraftKings and SBTech brings together two tech-native companies with the customer at their cores,” said Gavin Isaacs, SBTech’s chairman. “SBTech will maintain its core business and continue its B2B focus. We are excited about the opportunity to join a company with a similar innovation DNA and create a unique and differentiated player in global sports betting and online gaming.”
The respective boards of directors or managers, as applicable, of DraftKings, SBTech and Diamond Eagle have unanimously approved the proposed business combination. Completion of the proposed business combination is expected in the first half of 2020.
DraftKings has indicated it will reincorporate in Nevada but maintain its headquarters in Boston, where it’s one of the city’s largest tech companies, with roughly 600 workers in its recently opened headquarters in the Back Bay neighborhood.
DraftKings was founded in Boston in 2012 as a daily fantasy sports supplier. Since the May 2018 U.S. Supreme Court decision repealing the federal ban on sports betting, the company has expanded into online and retail sports books operations in the handful of states that have legalized sports betting, including Indiana, New Jersey, Pennsylvania, West Virginia, Iowa, Mississippi, New Jersey and New York. The company is positioned to remain one of the front-running companies as sports betting expands further in the U.S.
Pairing with SBTech gives DraftKings access to risk management tools which will allow them to offer a wider variety of betting odds.
“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,” Robins told Bloomberg. “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.“
The combined company projects to have $540 million in revenue next year, with $400 million of that coming from DraftKings and $140 from SBTech, Robins told the news service. It’s expected to grow to $700 million in 2021, with $550 million coming from DraftKings.
The odd man out in the merger is the Kambi Group, the leading sport-betting platform supplier and SBTech rival, which only recently expanded a partnership with DraftKings. After news of the merger, Kambi’s stock price plunged by more than 30 percent. The stock had already plummeted 20 percent after reports that the DraftKings/SBTech merger could happen.
After last week’s announcement, Kambi CEO Kristian Nylén said in a statement, “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 U.S. states. No notice of termination has been given; should that type of information be given, we will inform the market.”
