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Rumors are circulating that DraftKings has made a $20 billion bid to buy Entain. The fact that it made some sort of proposal is now official, but the details remain secret.
If such a takeover were successful, the US online gambling and sportsbook powerhouse could end up entangled with its main rival in the US iGaming market, BetMGM. Entain is half-owner of that brand, as a joint venture with its namesake, MGM Resorts International.
A DraftKings spokesman told Online Poker Report today:
“DraftKings can confirm a proposal has been sent to Entain. Under the UK Takeover Code, we cannot provide any further comment at this time.”
So, aside from the fact that some sort of negotiations are underway, we don’t know any specifics. Everything else is a matter of speculation. What is certain, however, is that now that the rumors are confirmed, under UK law, DraftKings has only one month to make a firm offer or take any possibility of a deal off the table. That clock will expire on Oct. 19.
In the meantime, we’re left with three big questions.
Entain is a big company with a lot of brands in a lot of different markets. BetMGM is only one of them, but it’s obviously going to be an important aspect of any deal. It is, after all, the US market leader in online casino, and a top three brand for iGaming and sports betting combined.
“Any transaction whereby Entain or its affiliates would own a competing business in the US would require MGM’s consent. MGM’s priority is to ensure that BetMGM continues to capture the growing US online opportunity and realizing MGM’s vision of becoming a premier global gaming entertainment company. MGM believes that having control of the BetMGM joint venture is an important step towards achieving its strategic objectives. MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives.”
In other words, MGM is signaling that it’s not interested in selling off its portion of BetMGM to DraftKings. However, DraftKings being in direct competition with a company it only owns half of seems like a recipe for conflict, and possibly a legal battle down the road.
It seems like the most likely scenario, then, would be for DraftKings to negotiate with both Entain and MGM to acquire all of Entain except the joint venture, while offloading the latter to MGM. That would, in the process, accomplish MGM’s longtime goal of taking full ownership of the digital brand. MGM previously made its own offer of $11 billion for Entain, which Entain firmly rejected.
David Faber, co-anchor of CNBC’s Squawk on the Street, set the online gambling world atwitter this morning. During his broadcast, he said DraftKings made the bid to go global “a few days ago, I’m told.” By 2:30 p.m., the video attached to the @CNBCnow tweet had nearly 114,000 views.
Faber didn’t name his sources. However, the fact that the companies have confirmed negotiations suggests that he knows what he’s talking about.
His claims include details that the companies themselves aren’t at liberty to discuss:
Essentially, $20 billion is a lot of money to spend – especially when DraftKings is barely worth that much itself. Analysts worry that its current price overvalues the company.
Also, $20 billion may be what DraftKings, Entain and Faber think Entain is worth, but BetMGM’s failed Entain bid in January was only for $11 billion. At the time, that offer was already 22% above the stock’s trading value.
As of the time of publication, DraftKings stock dipped to $53.22 from its opening value today of $56.31. Entain’s grew to $33.37 from $29.02.
Travis Holum wrote today for The Motley Fool:
“[DraftKings] shares are also extremely highly valued, with the company’s market cap at $23 billion and revenue expected to be just $1.21 billion to $1.29 billion in 2021. If a financial crisis does grip the global economy, it could be tough for DraftKings to live up to that valuation.”
Investors may also be selling off out of fears that their stock will be diluted if DraftKings issues new shares to pay for the deal.