Industry insiders say DraftKings is having M&A talks with a range of potential targets. Here are the companies that could be on its shopping list and why.
- The sports-betting industry is abuzz with chatter that DraftKings is about to make a major acquisition.
- DraftKings is exploring a range of potential buys, four industry sources said.
- Insider analyzed some of the potential targets and what they’d mean for DraftKings’ business.
- Visit the Business section of Insider for more stories.
The sports-betting industry is abuzz with speculation that DraftKings is about to make a major acquisition as it looks to shore up its early mover advantage in the growing US market.
DraftKings is exploring a range of potential acquisitions, and four industry sources told Insider it’s had talks with a handful of companies in sports, media, and online poker. These insiders, who include investors, entrepreneurs, and a consultant, were close to companies involved in the talks and spoke anonymously because they did not have permission to discuss them.
DraftKings CEO Jason Robins told investors in November that the company would “explore opportunistic and accretive M&A” and be “considering companies that may help us fuel our growth and bring more excitement to the skin-in-the-game fans.” The company said in February that ended 2020 debt-free and with about $1.8 billion of cash on its balance sheet, which it could potentially put toward deals.
DraftKings is trying to take on top rival FanDuel and hold onto its market share as more brands enter the industry. DraftKings was the second largest US sports-betting brand by revenue in 2020, after FanDuel, research firm Eilers & Krejcik Gaming estimated.
Bankers have been floating lots of targets by DraftKings, from a European operator, to a tech supplier, to an online-gambling company that could expand DraftKing’s gaming purview, to a media company. Front Office Sports reported in May that DraftKings was eyeing Bleacher Report, though the companies denied the speculation.
Some of the names rumored more recently to be on DraftKings’ radar are media companies including TheScore and John Skipper and Dan Le Batard’s nascent Meadowlark Media venture; small sports properties including the X Games; and a poker company including Run It Once.
Each would serve a different strategic purpose for DraftKings.
DraftKings did not confirm or deny any talks were underway. “DraftKings speaks to a variety of companies regarding various matters in the normal course of business,” a spokesperson said. “It is our general policy not to comment on the specifics of any of those discussions.”
Media companies are rumored to be high on DraftKings’ shopping list
Let’s start with TheScore, which analysts have speculated for months to be a potential target for DraftKings, but seems less likely now that the media company is planning an IPO in the US.
TheScore is a Canadian media company that jumped into sports betting in 2018, and now runs its own sportsbook. Its main differentiator is that it has a sports-media app that’s pretty popular in Canada and is gaining traction in the US. It ties into TheScore’s betting app so that users can set bets as they catch up on sports news and highlights in the media app and tap to place their wagers from the betting app.
TheScore would offer DraftKings a media partner that could help funnel more sports fans to its sportsbook, and a larger foothold in Canada, which is considering legislation to approve single-game sports betting that would expand the market.
But, riding the wave of excitement around gambling momentum in Canada, TheScore has filed to go public in the US, which might make it too pricey for DraftKings to seriously consider.
Still, TheScore is the type of company that be make a solid strategic move for DraftKings. Another is Meadowlark Media, a startup from ESPN veterans John Skipper and Dan Le Batard that Front Office Sports reports is raising money. It plans to create sports content ranging from TV shows to podcasts that it will license to distributors. One industry source said they had heard chatter that DraftKings had talks with Skipper and Le Batard about a deal related to the venture, though this person did not have direct knowledge of any talks. Skipper did not respond to requests for comment from Insider.
Such an acquisition would expand DraftKings’ media ties and could help it reduce the cost of marketing and promotions.
DraftKings’ stock has been riding high in the last year over enthusiasm over the US’s emerging sports-betting industry. Research firm Eilers & Krejcik Gaming projected in February that sports betting would generate $5.8 billion in revenue by 2023, up from an estimated $920 million in 2019.
With its merger with SBTech, DraftKings also positioned itself as the only integrated sports-betting stock on the market and Wall Street has rewarded its pure play. Shares are up 24% year to date while the S&P 500 is up 4.5%. And the company is worth $22.6 billion today.
But, as rivals like Penn National Gaming’s Barstool Sportsbook steal market share in states like Michigan and Pennsylvania without spending as much on marketing and promotions as DraftKings, the company’s cost of acquiring customers is looming larger in investors’ minds.
The Barstool Sportsbook hasn’t needed to spend as much money as its competitors on splashy ad campaigns because Dave Portnoy and other Barstool personalities have become de facto spokespeople for the platform, plugging it to fans on social media, podcasts, and other touchpoints.
In Michigan, which launched online sports betting in January, the Barstool Sportsbook tied for second place in market share by handle, or the amount wagered, according to a February 22 Bank of America Securities report that analyzed the state’s revenue report. And Penn National reported customer acquisition costs in the state of less than $200, well below the industry average of $300 to $800, the Bank of America report said.
DraftKings, which reported earnings on Friday, didn’t detail its customer-acquisition costs in Michigan. But overall sales and marketing expenses increased 167% year-over-year to $495 million, as live sports returned in the second half of the year and online gambling launched in new states. Revenue also rose 90% to $614.5 million, beating analysts’ expectations. The 9-year-old company is not yet profitable.
What might DraftKings buy besides media properties?
Then, there’s the possibility of DraftKings buying a sports property like the X Games, which The Information reported ESPN is looking to unload, and two sources told Insider had held talks with betting providers.
X Games or another small sports organization would give DraftKings greater control over how people bet on competitions, a direct line to the sports’ data, and the ability to weave gambling into the broadcast experience or promote its platform at live events. However, DraftKings would still need to line up partners to handle distribution and production. It currently has partnerships with ESPN and Turner Sports.
Taking a different avenue, DraftKings could pursue a company that would give it a hold in the online-poker industry to better compete with top rival FanDuel, owned by online-gaming giant Flutter. Run It Once, a poker software company founded by poker pro Phil Galfond, is one such company DraftKings has explored opportunities with, according to one source with knowledge of the talks. Run It Once did not respond to a request for comment.
Despite the overall enthusiasm around US sports betting, it’s a historically low-margin business. In Las Vegas, for example, casinos usually make more money off people who stop at the slot machines and poker tables on their way to and from the retail sportsbooks than from gambling on sports alone.
Sports is so ingrained in DraftKings’ DNA that online poker would make natural bridge into this broader online-gaming industry. But the company has not talked publicly about wanting to pursue this business.
These are the types of the companies that come up most often in industry chatter about what DraftKings is targeting. But one analyst said DraftKings could throw industry watchers for a loop by acquiring an unexpected, adjacent business, in the vein of StockX, a marketplace for collectibles including sports memorabilia, or a crypto company.
“The major acquisitions they make are more likely to surprise us than not,” one of the industry insiders said.
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