DraftKings and SBTech to Combine as Listed Sports Betting Powerhouse

DraftKings and SBTech to Combine as Listed Sports Betting Powerhouse

Sports betting giant DraftKings is planning to go public as part of a $3.3 billion three-way merger with SBTech and Diamond Eagle Acquisition Corp. The combined company will become a formidable player in the battle to emerge as the market leader in the burgeoning US sports betting industry. DraftKings and SBTech will both allow themselves to be acquired by blank check company Diamond Eagle and the firm will then trade under the name DraftKings Inc. The merger and public listing should go through in the first half of 2020 and it will remain on the Nasdaq under a new ticker symbol.

DraftKings is battling with FanDuel – its old DFS rival – to become the biggest sports betting company in the US. It holds the number two position in New Jersey and in its current guise it may have struggled to compete with FanDuel, which is backed by the might of the Flutter Entertainment empire. Flutter, which owns Paddy Power and Betfair, is planning to merge with The Stars Group to form the world’s largest online betting company. DraftKings needed to respond and it has done precisely that.

SBTech is one of the world’s best white-label sportsbook providers. It powers sports betting for a huge range of online operators, including 10Bet, NetBet, BetAmerica, Grosvenor, Mansionbet, Bethard, BetRegal, FansBet, Karaba and more. It will continue to operate as a B2B company within DraftKings Inc, while DraftKings will embark on an ambitious customer acquisition program after hopefully securing significant capital from the public listing. Diamond Eagle is the fifth special purpose acquisition company set up by serial dealmaker Jeff Sagansky, who founded Diamond Eagle with investor Harry Sloan.

A Vertically Integrated Powerhouse

Institutional investors have committed to a private investment of $304 million in Class A common stock of the combined company. There is also $400 million currently held in Diamond Eagle’s trust account. It is anticipated that the combined company will have an equity market capitalization at closing of approximately $3.3 billion and have over $500 million of unrestricted cash on the balance sheet. The combined company projects to have $540 million in revenue in 2020, with $400 million coming from DraftKings and $140 million from SBTech.

“The combination of DraftKings’ leading and trusted brand, deep focus on customer experience and data science expertise and SBTech’s highly innovative and proven technology platform creates a vertically-integrated powerhouse,” said Jason Robins co-founder and chief executive of DraftKings. “I look forward to building significantly upon our goals of continuing our state-by-state rollout and creating the most entertaining and engaging customer experiences for sports fans globally.”

A Bipartisan Win

Elsewhere, Michigan became the 20th state to legalize sports betting when Gov. Gretchen Whitmer signed H 4916 into law. Lawmakers hope to see the first legal sportsbooks up and running in time for March Madness, with online books following shortly afterwards. Whitmer also signed into law bills that permit online casinos and poker sites to launch in the state, along with daily fantasy sports games.

The sports betting bill passed with bipartisan support through both chambers and it was simply awaiting the governor’s seal of approval. She was initially concerned that the revenue tax rate of 8.4% was too low, as she was hoping for 15%, but her fears were ultimately assuaged. “My top priority in signing this legislation was protecting and investing in the School Aid Fund, because our students deserve leaders who put their education first,” said Whitmer. “Thanks in part to the hard work and leadership of

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Hertel and Representative [Elizabeth] Warren, these bills will put more dollars in Michigan classrooms and increase funding for firefighters battling cancer. This is a real bipartisan win for our state.”

The legislation permits three commercial casinos and 23 tribal casinos to launch retail sportsbooks at their properties. They can also each launch one online sportsbook on their licenses. A license will cost $150,000, and there will be an annual renewal fee of $50,000. The tax rate of 8.4% is supplemented by a 1.25% city tax to Detroit for the commercial casinos.

Plenty of Potential

Those terms all look attractive compared to the 36% tax rate and $10 million licensing fee that Pennsylvania charges. The only bone of contention is the requirement to buy official league data to settle in-play wagers, with the fee not yet specified. DFS operators will also pay an 8.4% tax rate, with an initial $20,000 licensing fee and a $5,000 annual renewal fee. Online casinos will be charged a tax rate of anything from 20% to 28%.

Michigan is the 10th largest state by population and there are three pro sports teams in Detroit: the Lions, the Red Wings and the Pistons. There are also several big college teams in the state, and collegiate wagering is including in the bill. It means that Michigan could become one of the top states in the country for sports wagering, along with Nevada, New Jersey and Pennsylvania. Indiana has also legalized sports betting, with Illinois poised to launch soon too, forming a Midwest sports wagering hub.

Where Next?

Michigan is the ninth state to legalize sports betting in 2019 and the 20th overall. Of the four biggest states – California, Texas, New York and Florida – only New York has permitted sports betting, and that is confined to a handful of retail sportsbooks at upstate casinos. It is almost six years since New York voters gave sports betting the green light, provided the federal ban, PASPA, was struck down. The Supreme Court wielded the axe on PASPA last year, but New York has struggled to come up with an effective framework for online sports wagering since then.

It might require another referendum on a constitutional amendment to legalize mobile sports betting in 2020. Sen. Joe Addabbo Jr. hopes to place sports betting on the New York budget by April 1, 2020, and then push legislation through before the session ends on June 2. Gov. Andrew Cuomo still needs to be convinced, as does Assembly Speaker Carl Heastie, and it will be up to proponents to champion the cause in the months ahead.

They argue that sports fans are leaving the state to place legal sports wagers in neighboring New Jersey, or they are turning to illegal, offshore books, so they believe there is a compelling economic argument for legalization. Kansas, Kentucky, Louisiana, Maine, Massachusetts, Missouri, North Dakota, Ohio and Virginia could also legalize sports wagering in 2020, so it promises to be another exciting year.

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