DraftKings Goes Public After Shareholder Approval, Business Combination

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Draftkings merges with Sbtech goes public

DraftKings is now a publicly traded company.

The acquisition of DraftKings and SBTech received shareholder approval Wednesday, and DraftKings announced late Thursday that it completed the complex transactions to finish its reverse merger.

The company will begin public offering Friday morning under the DKNG ticker symbol on the Nasdaq.

“By bringing together our leading consumer brand, data science expertise and industry-leading products with SBTech’s proven technology platform, we will accelerate our innovation, growth and scale,” Jason Robins, co-founder and CEO of DraftKings, said in a statement.

How is the DraftKings deal structured?

Diamond Eagle Acquisition Corp., a special-purpose acquisition company, will pay $2.7 billion in cash and stock for both DraftKings and sportsbook technology supplier SBTech.

DraftKings gets the lion’s share of the transaction with $2.055 billion in cash and stock. Cash considerations for the deal will be funded by available DEAC cash and private placements of Class A stock. Those placements, at $304.7 million in commitments as of April 15, were priced at $10 per share.

The acquisition is a means of taking the company public and not a change in ownership or direction. DraftKings CEO Jason Robins will receive Class B shares to give him about 90% of capital stock voting power.

It’s important to note that the shareholder vote is not the final step in the process. The actual business combination still has to be completed, which has no timeline.

It also comes as DraftKings finds itself with little in the way of meaningful revenue outside of its New Jersey online casino operations. It depends largely on sports betting and daily fantasy sports, both of which have slowed during the coronavirus pandemic.

DEAC forecasts significant growth for DraftKings

DraftKings should achieve a compound annual growth rate of more than 31% from 2017 through 2021. That would mean revenues would grow $460 million, DEAC estimates.

The combination of DraftKings and SBTech establishes one of the largest online sports betting, iGaming and daily fantasy sports platforms, according to the DEAC board of directors in the prospectus.

Median estimates suggest $18 billion in online sports betting revenue at maturity and $21 billion in mature iGaming revenue for the US. That gives DraftKings an opportunity to hit anywhere from $2.9 billion to $4.7 billion in annual revenue, according to the investor presentation from December. That includes estimates of 20% to 30% market share for sportsbook and 10% to 20% market share for iGaming.

DraftKings is well-positioned to continue its US growth as SBTech is integrated and product offerings and geographic reach expands, according to the board. The company’s DFS product currently has more than four million paid users across 43 states.

All of those estimates, of course, come from a pre-coronavirus betting environment. Once DraftKings is public, the industry will get an idea of how hard it’s been hit since sports shutdown mid-March.

DraftKings reported big losses in 2019

DEAC isn’t taking over a cash-cow just yet.

DraftKings reported a nearly-doubled net loss of $142.7 million last year despite revenues rising 43% to $323.4 million.

The company said the higher loss came from continued platform development and three new state launches.

SBTech issues as deal closed in

SBTech brought DraftKings more headaches than expected before they’re even combined.

SBTech’s global sportsbook partners were down from a cyberattack that began March 27. International partners came back online within six days but US partners waited longer through mid-April. The DEAC shareholder vote was originally scheduled for earlier in April.

It’s also costing the legacy SBTech owners some serious cash. DEAC added a new indemnity clause in the acquisition for $30 million in cash and stock to be held in escrow for two years to cover any claims because of the attack.

That could rise to $25 million in escrow cash and $45 million in locked-up shares if that $30 million isn’t enough.