Evaluation: Why DraftKings USD22 Billion Bid for Entain Doesn’t Add Up

DraftKings shook up the gaming world final week with information it had made a USD22.5 billion money and inventory supply for Entain.

Entain stated its board is rigorously contemplating the supply.

However there are causes to consider the deal would possibly by no means be consummated.

What’s in it for MGM?

MGM says it will probably nix the deal solely because of its contract with Entain for the BetMGM three way partnership. The online casino big stated its precedence is controlling BetMGM. That veto energy provides it some fascinating leverage.

Actually, Bloomberg reported the corporate thinks it has sufficient leverage to achieve management of BetMGM with out spending gobs of money. Consequently, it’s unlikely to make a counteroffer for Entain, and even a proposal to purchase out BetMGM, Bloomberg stated. As an alternative:

“The corporate is contemplating different methods to achieve management, similar to acquiring a majority of the board seats or searching for to take BetMGM public.”

That association may contain licensing expertise from a mixed DraftKings and Entain.

BetMGM management is essential

However the place is the profit for MGM? Why would it not permit a rival to achieve technological parity, then pay licensing charges to that very same rival?

There’s a probability MGM is ‘negotiating through the press’ to attempt to decrease the asking worth for BetMGM. Proudly owning BetMGM outright is definitely the very best consequence for the online casino operator, because it confirmed inside its earlier rejected Entain bid of roughly USD10 billion.

As Truist analyst Barry Jonas stated in a be aware:

“We predict it makes extra sense for [MGM] to simply purchase Entain’s 50% share of BetMGM. MGM proudly owning all of its online enterprise could be a transparent long-term constructive in our view, although worth would clearly be an essential issue.”

What’s BetMGM value?

Financial institution of America stated it was “robust to worth” BetMGM however pegged it between USD3 billion-USD6.6 billion for half the corporate.

That’s effectively inside MGM’s grasp, with greater than USD11 billion in money available.

One potential issue right here. MGM says it has veto energy, however the language of the contract will not be solely identified. As Fox and FanDuel have proven, corporations can interpret contracts otherwise.

What’s in it for Entain shareholders?

They might get round USD4.5 billion in money and USD18 billion in inventory within the mixed DraftKings-Entain enterprise. However that inventory may very well be below stress.

It’s already down some 8% because the proposal was first introduced and will drop farther as DraftKings US pure-play narrative is eroded. There’s loads of room to fall, with DraftKings at the moment richly valued at ~15x revenues.

Moreover, in the event that they do must unload BetMGM to make the deal work, do Entain shareholders need to hitch their wagon to DraftKings quite than BetMGM?

BetMGM stated in April it surpassed DraftKings because the second largest operator within the US.

Supply: MGM Q2 outcomes presentation

What’s in it for DraftKings?

Does DraftKings need Entain’s international revenues that would flip the mixed enterprise worthwhile?  That may be regarding in itself.

As one investor advised LSR:

“It looks like DraftKings is admitting the USD1.7 billion EBITDA goal from its latest investor day will not be that simple.”

Or does DraftKings need the Entain expertise powering BetMGM?

Jeevan Jeyaratnam, COO at Abelson Odds, stated that could be the case given a few of the points with SBTech via the primary a part of the NFL season.

At one level in the midst of the Week 1 NFL slate, DraftKings had no soccer product accessible in any respect.

Tech improve potential

The Entain expertise due to this fact seems to be like an improve, particularly with the added experience in online gaming.

Numis analyst Richard Stuber famous Entain had the “main cross-product proprietary tech stacks within the trade.”

However once more, why would MGM permit a key competitor to enhance its expertise until it will get an excellent deal on BetMGM? That, in flip, won’t be nice information for DraftKings and Entain shareholders.

There’s additionally the problem of integrating each Golden Nugget and Entain.

To sum up, it’s robust to seek out an consequence that advantages all three key decision-makers.

Does that imply a deal received’t occur? Nicely, who ever stated the US sportsbook betting market needed to make sense?