One of the hottest industries right now is sports betting. Illegal in virtually every state for most of the last century, and illegal at the federal level since 1992, sports betting was legalized in 2018 when the Supreme Court struck down the federal ban, leaving the decision of whether to allow sports gambling up to the individual states.
Since that decision, there has been a flurry of state legislatures passing bills to allow sports betting in their states. To date, over twenty states have legalized betting on sports, while a further seven states have bills either passed and waiting to take effect or in the final steps of approval.
This explosion in legal sports betting has led to a dramatic rise in online sports betting. The online sports betting market is expected to grow at a CAGR of 13.6%, rising from an estimated $25 billion in 2019 to an estimated $59 billion in 2026. The money flowing into the industry has resulted in numerous upstart sports betting sites and apps.
One of the most famous sports betting apps is DraftKings (NASDAQ: DKNG). Founded in 2012, the company started daily fantasy, which remains its most recognized product today. In only a few years, it became one of the most popular sports apps in the country, with millions of users across the U.S. logging in daily to submit rosters for football, basketball and baseball.
Not content to simply grow their business organically, DraftKings has been very active on the M&A front. The company’s first significant deal was when they agreed to merge with FanDuel, the other central daily fantasy platform in the U.S. However, this combination would have given DraftKings a stranglehold on virtually the entire daily fantasy market, resulting in regulators shooting down the deal before it could be completed.
After being denied a near-monopoly on the daily fantasy market, the company expanded into sports betting. DraftKings broke into the sports betting industry in 2018, debuting DraftKings Sportsbook in New Jersey, the first legal online sports betting platform in the state. Since then, DraftKings Sportsbook has expanded into other states, including Indiana, Pennsylvania, West Virginia and New Hampshire.
Management knew that the online sports betting market was expanding more rapidly than they could adjust to, so they began to look at opportunities to consolidate the industry. To jumpstart their acquisition spree, the company went public via a reverse merger with special-purpose acquisition company Diamond Eagle Acquisition Corp and sports betting technology firm SBTech Global Ltd.
Since going public, the company has been busy adding to its online gaming platform. In August of this year, DraftKings announced plans to acquire Golden Nugget Online Gaming, adding a host of iGaming features and, most importantly, access to Golden Nugget’s database of 5 million players. That’s 5 million online gamblers that DraftKings can market daily fantasy and sports betting too.
In their most ambitious move to date, DraftKings announced a plan to acquire Entain (LSE: ENT) (OTC: GMVHY), a British sports betting firm. Entertain owns online gambling brands Ladbrokes Poker and Bwin. The company also has a joint-venture called BetMGM, with MGM Resorts International (NYSE: MGM) as their partner. BetMGM is one of the largest sports betting platforms in the industry, with an estimated 21% market share of online NFL and NBA betting. If the deal comes to fruition, DraftKings will have a significant lead as the top sports betting company in the U.S.
Video Source: CNBC YouTube
The King of Sports Betting
One would be hard-pressed to watch ESPN without hearing the name DraftKings. Whether football analysts are suggesting sleepers for your daily fantasy lineup or former UFC fighters are offering bets on fight outcomes, the DraftKings brand is nearly ubiquitous as the worldwide leader in sports. DraftKings also has major advertising deals with other major sports networks, including Fox Sports and Bleacher Report.
In addition to their strong partnership with sports media, DraftKings is also closely partnered with the major sports leagues (and individual teams) in the U.S. DraftKings are the official partner of the MLB, NFL, NASCAR, UFC, and nearly 50 professional teams across baseball, basketball, football and hockey. This type of exposure ensures that no matter where one lives in the U.S. or which major sport they follow, they will most likely be exposed to the DraftKings brand.
Not Just For Gamblers
While daily fantasy and sports betting are their bread and butter and will remain so for the foreseeable future, DraftKings has ambitions not just to be the global leader in sports gambling but also be one of the leading names in sports, period. To accomplish this, management has begun to build out an entire sports ecosystem.
The company recently revealed the DraftKings Marketplace, an online platform for exchanging digital sports memorabilia. The block-chain supported platform will allow users to buy and sell sports-focused NFT’s. The company plans to sign exclusive deals with leading sports figures to the Autograph platform, allowing fans to receive digital signatures from their favorite players. An example of a product available on DraftKings Marketplace would be a winning daily fantasy ticket digitally autographed by players in the lineup.
Seeking more exposure, DraftKings acquired Vegas Sports Information Network and Blue Ribbon Software. The company will use these acquisitions to launch DraftKings’ own sports-betting-focused media network. Plans include live sports reporting and original content creation. Management believes this network will keep not only current users engaged but also attract new users through their original content.
The future is exceptionally bright for sports betting, primarily online. More and more states are expected to legalize sports betting shortly, and companies like DraftKings will be there to benefit. Not all of those companies have the name recognition or breadth of products that DraftKings offers. As the country enters a future where sports betting is a normal part of everyday life, DraftKings should become a household name; investors should be richly rewarded as a result.
Wealthy VC does not hold a position in any of the stocks mentioned in this article.