GNOG stock skyrockets over 50% on news of its impending acquisition by DraftKings

DraftKings To Acquire Golden Nugget Online Gaming In All-Shares Transaction Worth An Estimated $1.56 Billion

DraftKings, the second-largest sports betting operator in the US, is set to acquire Golden Nugget Online Gaming (GNOG), one of the biggest names in online casino products.

The deal, announced Monday, is an all-stock transaction. Current GNOG shareholders will receive 0.365 shares of the resulting company for each share of GNOG they hold currently. As such, the value of the deal will change based on movements in DraftKings stock value between now and its closing date. Based on the price at the time of the announcement, however, it values GNOG at an estimated $1.56 billion.

The announcement also reveals a second, related deal with GNOG’s parent company, Fertitta Entertainment. Details on this are sparse, but in general terms, Fertitta Entertainment will continue to use its retail properties (including those bearing the Golden Nugget name) and other assets to assist with GNOG’s online business.

Jason Robins, DraftKings CEO and Chairman made the following statement:

“Our acquisition of Golden Nugget Online Gaming, a brand synonymous with iGaming and entertainment, will enhance our ability to instantly reach a broader consumer base, including Golden Nugget’s loyal ‘iGaming-first’ customers. This deal creates meaningful synergies such as increased combined company revenues driven by additional cross-sell opportunities, loyalty integrations and tech-driven product expansion as well as technology optimization and greater marketing efficiencies. We look forward to Tilman [Fertitta] being an active member of our Board and one of our largest shareholders.”

One potentially interesting aspect of that is that Fertitta Entertainment owns the Houston Rockets NBA team. That will synergize well with DraftKings’ sports focus, particularly if Texas eventually legalizes sports betting. Las Vegas Sands has been pouring a lot of money into lobbying the state to legalize both retail casinos and sports betting, but without success so far.

DraftKings’ biggest acquisition to date

DraftKings holds roughly a quarter of the US sports betting market by most estimates. Golden Nugget Online Casino has been expanding more slowly, and treating sports betting as an afterthought. Yet it was once the number one online casino license in New Jersey, and still holds the number two spot.

Industry watchers have known that a big acquisition for DraftKings was coming. Back in March, the company raised $1 billion in new capital for unspecified purposes.

One popular guess at the time was that DraftKings would be trying to buy up Score Media and Gaming. However, that company has just gone for $2 billion to Penn National, one of DraftKings’ major competitors.

GNOG will be the single biggest addition to DraftKings’ empire to date. Previously, that honor went to SBTech, which it merged with at the same time as it went public by way of a special purpose acquisitions company.

DraftKings purpose in merging with SBTech was to bring its tech stack in house. It it currently in the process of making that migration, from its previous tech supplier Kambi, which remains independently. This should be complete by the fall.

Penn’s acquisition of Score has an element of the same strategy to it. Score is powerful in the tech department, and Penn said it’s looking to control its own tech stack.

DraftKings is on course to becoming a full-featured gambling company

But while those deals focused on vertical intergration, the GNOG acquisition is much more horizontal in nature. There is a technological element to it, but running the other way: DraftKings says that it expects to use SBTech’s platform to reduce GNOG’s B2B costs and thereby increase profitability.

For DraftKings, the acquisition is more about slots, and the sorts of players who prefer them.

After all, DraftKings Casino already exists and is doing well. It operates in all four states with legal private sector online casino gaming, and is a top two site (or operating in partnership with a top two license holder) in each.

However, in expanding into that vertical, DraftKings was catering to its existing sportsbook customers. These are a different demographic than the average casino user, and prefer different games. Pennsylvania taxes slots differently from table games, so the breakdown is visible in the revenue numbers it reports. There, it’s easy to see that the licenses which include DraftKings and FanDuel (Penn National and Valley Forge respectively) earn comparatively more money from table games than others.

By contrast, Golden Nugget is a very traditional casino, heavily focused on its slots. It has a huge catalog of them on offer. In NJ, it is a top performer, though recently surpassed by Borgata, and routinely has some of the biggest progressive jackpots on offer.

Once the GNOG acquisition is complete, the only thing DraftKings will be missing is a poker product. It’s rumored that one could be coming. Moreover, the all-stock nature of the GNOG deal means DraftKings still has most of that $1 billion in new capital lying around. It’s entirely possible that a DraftKings Poker product could be one place that some of that money is going.

Was GNOG a bargain basement purchase?

One aspect of the deal that DraftKings didn’t go into detail about was the price point.

GNOG itself only went public at the very end of 2020. It did so in similar fashion to DraftKings, by way of a special purpose acquisitions company. At the time the deal completed, GNOG stock was trading at around $20. It has been sliding steadily since then, and closed at $12.27 on Friday.

Perhaps its early performance in Michigan has been a disappointment to investors. Alternately, it could simply be that there was a lot of hype around the company going public, and relatively fewer headlines about GNOG since, while its competition has been making more noise. Whatever the reason, its price has been slipping while its revenue has held steady in New Jersey, and increased overall due to its Michigan launch.

At DraftKings’ current share value, the ratio being offered to GNOG investors makes it worth about $19 per share, more than a 50% premium. While not as dramatic as the markup Penn National paid for Score, it’s still a blessing for GNOG shareholders, who saw the value of their holdings jump on the news, not quite back to December highs but not far off.

DraftKings’ own stock was up a more modest 1.56% over the course of Monday trading, closing at $52.36.

Does that mean that DraftKings saw GNOG as undervalued prior to the deal? Not necessarily. It could simply be that it sees the two companies as greater than the sum of their parts, though slumping share prices do often make for tempting targets for mergers and acquisitions.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for OnlinePokerReport, he has been writing about poker and the online gambling industry in various capacities since 2014.
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