What could DraftKings’ move for Entain mean for the industry?
“All that matters on a chess board is good moves”. Famously articulated by US chessmaster Bobby Fischer, the symbolism behind this is clear and, equally relatable in business.
If the online gambling industry is a chessboard, then arguably Entain is the ‘King’ that after one attempt at being taken already, could finally lose its crown.
Closing in, strategically, almost stealthily from its flank is US company DraftKings in a move that even Entain didn’t see coming.
Having fought off two bids from MGM Resorts International in early 2021, in what was a direct attack, Entain have perhaps been blindsided by a mega swoop from the Boston-based fantasy sports company.
While one plus one still equals two as far as the industry is concerned, for outsiders looking in, they could be forgiven for thinking that this bid of $21 billion has shades of steroid banking.
Following the rejection of two bids, MGM were precluded from making a further bid for six months, which has since elapsed, however, whether they can match or even better the bid from DraftKings errs on the side of unlikely as opposed to this materialising.
DraftKings have undoubtedly been clever in their approach; business, like chess, is all about timing and there is no doubt that the company has made a move that not only corners Entain, but also blows their competition away.
While their main and original business offering was built on a more abstract model, perhaps with shades of grey, following ventures have been more about painting by numbers. Their first customers were those who indulged in putting together sports players to create a ‘fantasy team’ that allowed them to wager against each other. The winner would be the one whose players accumulated the most amount of ‘points’ predetermined by the actions that they would make on the field of play and as a result take their share of the prize money.
Now with an established sportsbook to complement their fantasy sports model, DraftKings are in a prime position to strike, with funding to boot and, clearly, they are ready to dominate the board.
How will this play out in the US?
Already we have seen Caesars Entertainment; the land-based casino and hotel resort company reveal their hand, following their $3.7 billion acquisition of British-based bookmaking giant William Hill. Adding an online arm to their business is clearly a move that is going to give them legs. However, as we are seeing, this will not be a sprint, but more a marathon as more US companies shore up their assets in order to compete.
Selling off the European division of William Hill to 888 Holdings for a staggering $3 billion demonstrates the sharp acuity that exists in the US gambling industry - essentially when all things are considered, they have made a profit. It was certainly smart business from Caesars who have freed up some capital, though nowhere near enough to compete for Entain, that said, perhaps another European brand that already has a US presence, could be in mind.
MGM’s failed, final bid of more than $10 billion for Entain has been smashed out of the park by DraftKings who obviously mean business. The UK conglomerate has in excess of 25 brands under its umbrella that includes giants Coral and Ladbrokes in addition to Bwin and DraftKings and will no doubt want to make sure that this deal goes through without taking on too much water.
The likelihood is that they will keep the UK and European market open, though with more of an emphasis on building out these already, very established brands in the US and using the expertise available to them that exists in a company that boasts over 10,000 employees.
With increasingly popular markets in the US covering such states as New Jersey, Pennsylvania and the recently regulated Michigan (January), which continues to break revenue records, they should be confident of hitting the ground running.
Add to that, the potentially lucrative market of New York, when you consider Wall Street and the substantial disposable income, aimed at prospects such as financial traders and hedge fund managers, who already have a proclivity for gambling, access to over 20 new brands will help to dominate their competition.
Should the bid be accepted, which has been given more time to finalise the finer points, it would see DraftKings, almost overnight become the largest player in the US and the biggest, baddest bully in the playground.
A potential stumbling block, is that Entain has a joint-venture with MGM; a sportsbook called BetMGM, which was launched in 2018 and there are several possibilities surrounding this. The land-based firm are in a position to hold up any deal and have at least a mediocre negotiating vantage point. A continued joint-venture between DraftKings and MGM; who are both direct competitors, could be the subject of a conflict of interest waiver, however, this scenario is unlikely.
One thing that has become transparent, particularly over the last year though, is that there is a significant demand for online gambling across the US; Michigan being a case in point. Revenue figures for June highlighted that $114.2 million had been generated by sportsbook and online casinos and it is predicted that the figures could exceed $1 billion for the state’s first year.
The wider global industry is predicted to be worth just under $93 billion by 2023, however, after recent events in the US in terms of relaxed regulation, this could well catapult well beyond the $150 billion mark.
Can other US online gambling entities compete?
Should the DraftKings deal go through, it will pose an interesting question, though one that is likely to be contingent on how many other states become regulated. Also, there will be the matter of how many of Entain’s brands their potential new owners decide to make available to the US market, which will mean that they will no doubt strategise and, as a result, could be the most receptive. When also considering the cost-to-profit ratio for each one, plus further investment such as marketing, this suddenly becomes even more intriguing.
However, we have seen the UK and European market perform consistently over the last decade and competition is not necessarily a bad thing. UK brands such as Bet365 and Betfred have been relatively unharmed by the Entain reach when it has come to market share.
New Jersey currently has 20 online gambling sites and sportsbooks available to customers and most of these already have the advantage of brand presence due to having physical premises on the boardwalk of Atlantic City. When you stop to consider this, entering and dominating the New Jersey market, might not be as easy as it appears for DraftKings’ potential new brands.
With Nevada also applying for an online gambling license, it will also provide further, traditional Las Vegas resorts (well-known to the market), the opportunity to build out their brands online in a bid to compete.
Watch this space
Things will certainly become a lot clearer as we head into November as to how the immediate future of the US online gambling market will play out, though DraftKings knows that this is one opportunity that they simply cannot afford to waste.
They have been patiently waiting for a time to pounce and the emphasis is on them to close it out and while it might not be a case of ‘checkmate’, Entain are certainly locked in a choke-hold.
Certainly, there is nothing fantastical about where DraftKings wants to go. This move is a statement of intent, designed to shock and awe. Rook to bishop four.