DraftKings acquires Golden Nugget Online Gaming
A rich seam: DraftKings acquires Golden Nugget Online Gaming in an all-stock transaction valuing GNOG at approximately $1.56bn. The offer is at a 7.6x multiple on 2022E revenue and is a 51% premium on GNOG’s closing price on 6 August. GNOG will own 6.6% of DraftKings going forward. The transaction is due to close Q1 2022. In prepared remarks (no Q&A), DraftKings CEO Jason Robins was clear about the rationale for the acquisition of GNOG. “DraftKings has done a tremendous job to become an iconic sports betting brand and has been great at cross-selling into igaming, but it has not yet reached non-sports fans who are igaming customers.” He added that DraftKings has a “mainly male clientele” and the acquisition will diversify the user base and enable it to access GNOG’s 50% female customer base.
“We’ve achieved top three in states where we are active, but there is a substantial segment that is not into sports but highly active in igaming: it’s a tremendous opportunity to broaden demographics and deepen market share.”
Tied in: The agreement means GNOG is now one of the largest DraftKings shareholders. GNOG chairman and CEO Tilman Fertitta said the group “wanted only stock” when discussing the transaction, “to drive up the value, be part of a winner and something bigger.”
“We want to be market-leader, the brand in the industry and build the best platform in the space,” Fertitta added.
Robins added that the all-stock deal “preserves our very strong balance sheet, means no debt and shows the excitement GNOG and Tilman have for the combined company.”
Live and direct: Being able to incorporate and leverage GNOG’s live dealer/igaming offering was another key factor in driving the acquisition. GNOG has developed its live dealer studios since 2015 and its live offering has made it one of the leaders in icasino. Golden Nugget’s land-based casino estate was another. Robins said it had been “very difficult for DraftKings to break through without a brick-and-mortar presence” and coordinating GNOG’s 5m-strong database and rewards program with DraftKings’ own across GN casinos, Landry’s restaurant chain and as part of the Houston Rockets NBA franchise belonging to GNOG owner Tilman Fertitta will maximize marketing efficiencies and create synergies of $300m at maturity.
The big kick-off: Ahead of the news this morning, analysts were last week digesting the company’s Q2 results where beat and raise should be the mantra after the company once again came out with forecast-busting numbers with the guidance for 2021 now at between $1.21-1.25bn or 14% up at midpoint on the previous target. But losses for H2 are also scaling up; Deutsche Bank are forecasting yearly EBITDA losses of up to $590m. It’s indicative of how the market is set to heat in the coming weeks.
“We expect the 3Q21/4Q21 periods to be the most competitive the OSB arena has experienced to date, with two large scale casino operators poised to spend considerably, as they make their respective entrances, in a dedicated fashion, into the space.”
Stand and deliver: DB suggest the ability to grab or retain market share will be the key differentiator during the coming NFL season and that DraftKings’ relatively conservative forecasts are “perhaps allowing for the potential for share losses as new entrants roll out.” Macquarie noted that using a calculation of market share vs market cap, DraftKings’ current valuation implies market share of 30%. The challenge presented by Caesars, Penn National and MGM means DraftKings’ retention tools “will be put to the test”. Meanwhile, the marketing pressure is already telling; DB noted that DK will be “incorporating’ a small element of nationwide spend this NFL season. But at least it has the spare change; at quarter end it had $2.6bn of cash on the balance sheet.
Asia no more: Alongside the notification of a subpoena from the SEC to explain itself in light of the content of the attack from the short-seller Hindenburg, DraftKings also said in its 10-Q that the Asian reseller relationship at the centre of many of the allegations had come to an end. Recall, this Asian reseller – named as BTI/Coretech by Hindenburg – was accused of being a front entity for DraftKings’ “undisclosed illegal gaming division.” The question now is whether the severing of ties is enough for the SEC.
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