DraftKings, SBTech Merger Further Develops US Sports Betting

DraftKings, SBTech Merger Further Develops US Sports Betting

American digital sports gaming leader DraftKings will merge with Bulgarian sports betting technology provider SBTech as part of a larger corporate merger, creating another major gaming conglomerate in the growing U.S. market.

Now joined under a business combination agreement with Diamond Eagle Acquisition Group, a special purpose acquisition company (SPAC), DraftKings and SBTech are expected to have an even larger presence in the United States and continue to keep up with rival FanDuel atop the online sports betting sphere.

“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,” said Jason Robins, co-founder and CEO of DraftKings, in a news release Monday. “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.”

For bettors, this sets up a more streamlined product that will try to keep its edge against a growing number of competitors. The acquisition allows DraftKings, which has built up years of equity with U.S. customers since it ingrained itself in the American public with a barrage of advertisements for its DFS products in 2015, to better integrate with a key technology provider.

From an industry perspective, it reiterates America’s role as a focal point in the global sports betting industry just 18 months after legal betting opened up nationwide. Diamond Eagles’ move will take a leading U.S. gaming company public, merging it with a leading European tech provider and creating a new gaming conglomerate that will likely only beget further corporate actions.

Draft Kings' Expectations

Already one of the top sports betting companies by revenue, DraftKings believes the SBTech deal better positions itself in a market that is still in its relative infancy.

  • U.S. Market: The U.S. online sports betting market is expected to be the largest globally once it reaches maturity. By 2023, New Jersey alone is expected to reach $18 billion in gross gaming revenue. The entire U.K. is projected to reach $22 billion GGR that same year.
  • Nearly A Third Of Market? According to an investor presentation about the merger, DraftKings expects to capture between 20% to 30% of the U.S. sports betting market once it reaches maturity, which would generate between $2.3 and $3.5 billion in gross online sports betting revenue.
  • Keeping Pace: DraftKings, using projections from its New Jersey offerings, expects to keep pace with FanDuel, it’s long-time rival and a fellow leading daily fantasy site. From September 2018 through September 2019, FanDuel recorded 40% of the online sports betting share in the Garden State and DraftKings held 37%. U.K. bookmaker William Hill was third at 14%.
  • Current Status: There are four states with DraftKings mobile betting (New Jersey, Indiana, Pennsylvania, West Virginia) and retail locations in Iowa, Mississippi, New Jersey and New York. DraftKings will likely enter online betting markets in several additional states in 2020, including Michigan, Colorado and Tennessee. The Boston-based company is also set to be the sole online operator in New Hampshire.
  • Main Goal: On an investor call Monday, Robins said DraftKings will be the only pure play, vertically focused sports betting company in the U.S., one that will look to "forever transform" the way people experience sports. The combined company wants to vertically integrate in a similar fashion to a tech startup, one that not only controls its own customer base but can maintain its own tech stack and value chain.
  • Impact: The merger allows the company to oversee the entire user experience, including odds compilation, trading, risk management, user interface development and overall sports betting functionality. Robins said this will mean unique betting experiences, specifically parlay and in-game options.

Kambi Stock Crushed In Wake of Deal

Kambi, the sports betting technology provider that had worked with DraftKings since June of 2018, took a hit with Monday’s news. Its stock, traded on NASDAQ Stockholm, plummeted by as much as 31% upon the announcement.

Planned DraftKings-Kambi extension into burgeoning sports-betting states such as Colorado, Indiana, Iowa, Maine, New York, Pennsylvania, Tennessee and West Virginia is effectively snuffed.

"It is of course not up to me to comment on the strategic choices of DraftKings, but in this context I would like to emphasize 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," Kambi CEO Kristian Nylén said in a statement. "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 (in August) 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."

Market Changes

This is the latest salvo in the dynamic U.S. sports betting market. American companies such as DraftKings and FanDuel are working to stave off, and sometimes partner with, more-established foreign providers looking to enter what should be the most lucrative sports betting customer base in the world.

  • First Big Deal: Flutter Entertainment, parent company of iconic European sports betting sites PaddyPower and BetFair, landed the first major acquisition when it scooped up FanDuel in May 2018, just days after the Supreme Court struck down the federal sports betting ban.
  • More Deals: Since then, gaming titans Caesars and Eldorado subsequently merged, MGM and GVC created a super company of their own, and even PaddyPower and Betfair expanded further by acquiring The Stars Group and creating the world's largest online betting group. That's not to mention dozens of gaming partnerships between American sports leagues and individual teams as well as many more technology partnership deals.
  • History: With a federal single-game wagering ban in place since 1992, DFS contests were the closest the vast majority of Americans came to sports betting. FanDuel and DraftKings are now household names for many in the U.S., and that have helped give them a leg up so far. Top European bookmakers such as William Hill and Bet365 have, comparatively, struggled in big new markets in New Jersey and Pennsylvania.
  • Key Point: There are four million DraftKings players nationwide, including thousands in New Jersey, the largest sports betting market on the East Coast. About 40% of all-time New Jersey DraftKings customers have placed a single-game sports bet online through the site, and 98% of all DraftKings sportsbook customers had played a previous company product, such as a DFS contest. Because of this, rumors about a DraftKings acquisition circulated this previous summer, and its wasn’t much of a surprise a deal like this took place.
  • The Future: The deal still leaves unanswered questions. It remains to be seen how this deal affects partnerships with SBTech's existing clients, including Golden Nugget and Churchill Downs. There are also questions about how this partnership could affect its trajectory in the U.S. as it looks to enter regulated markets in more states.
  • Bottom Line: There are 20 states (plus Washington D.C.) that either take bets or are poised to do so in 2020. At least another dozen states are expected to consider bills to do the same. Market cap will only increase, especially if heavily populated states such as California, Florida and New York can pass online sports betting legislation measures circulating their respective statehouses.

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