DraftKings takeover reports unsurprising – but don’t expect too much too soon

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In late October, Diamond Eagle Acquisition was said to be in advanced talks to purchase DraftKings.

The acquisition firm, reportedly founded by Hollywood producers and actors, was rumoured to be in “exclusive negotiations” with the operator and, when contacted by Gambling Insider, DraftKings didn’t refute the story.

A DraftKings spokesperson said at the time: “DraftKings speaks to a variety of companies regarding various matters in the normal course of business and it is our general policy not to comment on the specifics of any of those discussions.”

The story itself was far from a surprise, due to one key factor: Flutter Entertainment’s mega merger with Stars Group. In early October, Flutter announced it will acquire Stars to form a company with an £11bn ($13.46bn) market capital and combined pro forma revenue of £3.8bn for 2018.

Immediately, that left DraftKings in a tougher position within the US market, as rival FanDuel is owned by Flutter and now has the likes of PokerStars and Fox Bet to align with. With FanDuel already leading the New Jersey sports betting market, the strategic advantages it stands to gain working with Stars Group’s brands threaten to extend any existing gaps.

DraftKings still finds itself in a strong position within US gaming, of course. But it just doesn’t look as strong while Flutter continues to add so many strings to FanDuel’s bow.

DraftKings looking at potential M & A of its own in response, then, was a no-brainer, even if it does eventually decide against taking this route and goes it alone. The operator’s gaming and fantasy sports success, as well as its technological achievements, make it an appealing prospect for potential buyers.

What it needs to compete in tougher market conditions however, is scale. Gambling Insider has already speculated about potential DraftKings M & A, proposing the idea of the operator acquiring UK-facing brand Football Index. Deals like that though, must currently go on the backburner in favour of partnerships of a larger size and nature.

The business already has previous history attempting large-scale M & A, failing to conclude a 2016-17 merger with FanDuel – when the two organisations were fantasy sports giants and had not yet entered the sports wagering arena.

A more pertinent and current example is the reports of DraftKings purchasing supplier SBTech, which surfaced in June. Such was the nature of those links, rival supplier Kambi saw its share price fall 19% on the Nasdaq, declining to comment on the impact a potential merger would have on its existing partnership with DraftKings.

Since, Kambi has extended its ties with the operator and nothing has developed of the DraftKings-SBTech rumours. But that is not to say talks aren’t in the works.

DraftKings didn’t deny the SBTech talks, nor did they rule out the Diamond Eagle negotiations. A company in its current position also needs to assess every option. Even its failed FanDuel merger was long and drawn out.

An external takeover is one potential outcome. But what if DraftKings acquired, or merged with, another gaming firm. William Hill would be one of the last remaining big-name candidates on the market; yet if the mathematics of purchasing a smaller firm worked out, could it be worth pursuing?

After all, looking at another gaming firm was exactly what Flutter and Stars both did, combining market share and aiming to utilise synergies across the board.

These are all factors to consider for DraftKings, which may well become the gaming sector’s biggest individual talking point – at least as far as the US market is concerned.

So while reports of DraftKings being acquired are no surprise given Flutter’s purchase of Stars Group, the lesson here is for the market not to expect too much too soon in the way of concrete confirmation. There’s plenty to think about and, as the SBTech reports showed, DraftKings may have many irons in the fire.

RELATED TAGS: Online | Industry | Sports Betting | Mergers & Acquisitions | Feature

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