The wonder, perhaps, with the news that DraftKings has pulled the plug on its bid for Entain is why it took so long.
“After several discussions with Entain leadership, DraftKings has decided that it will not make a firm offer for Entain at this time,” the company said in a statement.
Having received an extension from the London Stock Exchange just last week, it seems curious that it should then need another week to decide that it’s takeover plans didn’t stack up.
Stack is perhaps the key word here. Central to the discussions would have been who gained control of the Entain tech stack and what that might mean for the future of the BetMGM JV.
As MGM made abundantly clear when the news broke, this was always a three-way negotiation and one that was fraught with complications.
Not the least of these, of course, would have been the price. The top-line number of $22bn looked impressive – less so the proposal to pay the majority of this in DraftKings paper.
Why the deal beached
Yes, there is huge momentum behind sports-betting and igaming in the US.
But DraftKings was offering UK shareholders too much of a promise of jam tomorrow rather than hard cash.
Meanwhile, MGM would have seen no need to help matters along.
Perhaps we were guilty of not reading enough into MGM’s own statement at the time of the news breaking that it would “engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives.”
A solution that would meet “all parties’ objectives’ was likely never available and MGM likely knew that.
Leader no more
At the same time as the negotiations were ongoing, it has become evident from the most recent figures from Michigan that BetMGM is not just breathing down the neck of the market leaders including DraftKings.
Indeed, by the metric that actually counts – gross gaming revenue – the data for September suggests it already pulled ahead in that state.
DraftKings may lead in handle with 28% to FanDuel’s 23%. But looking at GGR, BetMGM is now the top dog. Before we get to any subtractions via bonusing, it generated $10.1m or a 37.3% market share. It’s margin was 10.6%.
In contrast, DraftKings made a GGR of $3m with a margin of 2.8%. That is before bonuses of $7.8m wiped out its GGR and left it making a $4.7m AGR loss.
Of course, these are only one-month figures in one state and we should be wary of drawing too many conclusions.
But the impression has been formed that DraftKings needed the Entain deal more than might be supposed.
Losing money while battling out for supremacy in individual states is fine – as long as you are winning.
The fat lady isn’t singing
Meanwhile, the future of Entain is also far from settled. As the analysts at Jefferies headlined their note yesterday afternoon, “there’s no tapping out of a tag team match” and Entain “prospectively” remains in play.
It’s attraction as a takeout target remains in place. It is a well-established market leader in many large territories and via BetMGM it has a half-share of what is likely to be one of the long-term winners in the US.
As has been identified in all the commentaries about the company, it makes a profit.
DraftKings licks its wounds
As for DraftKings, while it is not exactly back to the drawing board, it does now need to regather and take stock.
Notably, shareholders appeared to like the news that the company wasn’t taking its Entain bid any further. The shares shot up over 6.5% in early trading in New York yesterday.
The company had previously talked up the benefits of a combination with Entain. But in exiting the deal seemed somewhat defensive, talking up its “vertically-integrated technology stack, best-in-class product and technology capabilities and leading brand”.
Macquarie’s analysts suggested it won’t remain long in such a defensive posture.
While the company is, as they say, “confident in its tech” following the Golden Nugget Online Gaming acquisition, it will “likely have to look elsewhere to fulfill its strategy of expanding into new markets and verticals”.
Keep an eye on the moving parts
Meanwhile, others will also be looking at the current landscape and pondering their next moves, including the other two in this particular threeesome.
When the bid was still in play, one suggestion had it that it was a ploy designed to sniff out the competition.
But should MGM now find an easier route to gaining total control of BetMGM and its tech, then that ploy might in time be said to have backfired.
As DraftKings might find out soon enough, the issue with being a change agent in a dynamic industry is that change can happen with or without your involvement.
