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If DraftKings is able to raise an additional $200 million at a $1.5 billion valuation, we believe the management team and their bankers should get a lot of credit for their uncanny ability to raise capital,” said Adam Krejcik, a principal with gaming industry analysts Eilers & Krejcik Gaming.
For DraftKings to make a serious run at being a player in the US sports betting market, it was widely believed it would have to raise more money. That became even more necessary when its main competitor in DFS got a boost to enter the sports betting realm.
Just this week, FanDuel was officially acquired by European gaming company Paddy Power Betfair. The new combined US business — which includes a New Jersey online casino and an online horse betting site — is now called FanDuel Group.
It will operate its first sportsbook in the NJ sports betting industry, serving as the brand for the offering at Meadowlands Racetrack near New York City. It will be called a FanDuel Sportsbook. FanDuel also has a deal to offer West Virginia sports betting with The Greenbrier, a private casino in the state..
DraftKings has plans that go far beyond the DFS space, currently. The new plans involved offering sports betting around the country via DraftKings Sportsbooks.
Its only known deal to offer sports betting exists in New Jersey, where it has a partnership with Resorts Atlantic City. A deal to work with sports betting platform provider Kambi came to light last month.
DraftKings has been raising money — and a lot of it — since it was founded in 2012. The company is known to have raised south of a billion dollars.
Some of the biggest rounds:
It’s not clear how a valuation of $1.5 billion can be justified currently. The cash in the PPB deal to acquire FanDuel was less than half a billion and resulted in the founders of the company getting no money.
“From a valuation perspective we have a hard time coming up with how to justify a $1.5 billion valuation considering they have yet to turn a profit — and unlikely to do so in the near future — and the fact that their closest competitor FanDuel just sold for under $500 million, Krejcik said.
“Moreover, this would imply investors would be paying 6-8X last-12-months revenue multiple, which we believe is lofty considering the DFS industry as whole is only growing low-single digits and our base case forecast for the DFS market is essentially no growth over the next five years. DraftKings has been able to demonstrate year-over-year revenue growth, but it has largely come via market share gains.”
But does the promise of the legal sports betting around the US make this a good deal?
“Finally, while there is a lot of enthusiasm regarding the US sports betting market opportunity the numbers still don’t quite add up,” Krejcik continued. “For example, our baseline forecast assumes the regulated US sports betting market will generate gross gaming revenue of just over $5 billion by 2022, if we assume DraftKings is able to capture five percent share — which would be a remarkable accomplishment — that still only implies an additional $250 million in revenues and a best-case scenario of $50 million in incremental EBITDA, assuming they could get to 20 percent margin.
“Suffice to say we are on the skeptical side, but again I think they have proven themselves as some of the best capital raisers in the market today, so I would not bet against them being able to close this funding round.”
While DraftKings’ brand and database of potential sports bettors is certainly more valuable than FanDuel’s, making up the rest of the gap in value is a bit difficult. Of course, DraftKings also appears to be situated to offer sports betting on its own, something FanDuel was not going to be able to do without PPB’s resources. If DraftKings delivers a sports betting product in New Jersey and shows avenues to partnerships in other states, the prospective valuation would seemingly come closer to reality.