DraftKings Walks Away from Entain Bid
US sports betting operator DraftKings has walked away from its £18.4 billion takeover bid for UK gambling operator Entain. The decision comes a week after Entain granted an extension to the bid deadline. The deal is thought to have grown too complicated to resolve, due to Entain’s existing sports betting venture with MGM Resorts.
Entain was keen to join forces with DraftKings and make headway in the US sports betting market. ©Pixabay/Pexels
No Firm Offer
Following weeks of tense negotiations with leaders at betting and gaming group Entain, DraftKings has confirmed that it will not make a firm offer for the company. CEO of DraftKings Jason Robins issued a statement on the matter, explaining that further analysis and meetings with the operator’s board of directors had caused it to come to the difficult decision. Robins went on to say:
“Based on our vertically-integrated technology stack, best-in-class product and technology capabilities and leading brand, we are highly confident in our ability to maintain a leadership position and achieve our long-term growth plans in the rapidly growing North America market.”
While DraftKings has made it clear that for now a firm offer is off the cards, it did state that it retains the right to disregard its statement. This means that it could still come to an agreement to acquire Entain, although the likelihood of that scenario remains to be seen.
DraftKings could also reverse its decision if a third party announces its intention to bid for Entain. Likewise, if Entain announces a “whitewash” proposal or a reverse takeover. DraftKings has also reserved the right to reconsider if its takeover panel find that there has been a change of circumstances.
Speculation over the potential merger has been rife for the last month, and while it seems that DraftKings has made it up its mind, it is still keen to keep its options open. Nevertheless, its decision has come as a surprise to analysts following the talks.
Last week Entain agreed to extend its “put up or shut up” deadline for DraftKings to make a firm offer. As a result, the fantasy sports operator had until November 16th to reach its decision. The early breakdown of talks has been described as abrupt, and sources say that the two firms failed to agree on the potential value of the equity for sale.
Diversifying Entain’s Markets
After DraftKings revealed that it no longer intends to make a firm offer, Entain’s shares fell by ten per cent. Its shares recovered to a fall of six per cent by the afternoon of trading. The news may be a disappointment for those involved, but Entain’s statement strikes a positive note:
“The Board strongly believes in the future prospects of Entain, underpinned by its leading market positions, world class management team and industry-leading proprietary technology. Entain has an outstanding track record of growth having delivered 23 consecutive quarters of double digit online NGR growth, representing a 3-year CAGR of 19% across 2021.”
Entain’s response goes on to explain that its management remains focused on carrying out its growth and sustainability strategy, as well as delivering on the opportunities laid out in August’s capital markets event. It plans to treble its addressable market to around $160 billion by expanding into new and growing markets, such as esports and US sports betting.
Entain has just finished its acquisition of esports platform Unikrn. The purchase includes the brand’s products, technology and platform, as well as Unikrn’s international team of 50. Entain’s new assets will help it to establish itself in the growing esports market, which it plans to enter in 2022.
Entain has not disclosed how much it spent on the acquisition, although it does fall into a £50 million investment into its future esports platform. Entering the esports market serves as a great way for Entain to diversify its assets while tapping into a source of entertainment that is watched by 450 million viewers a year.
The operator also plans to build on its collaboration with MGM Resorts, increasing its presence in the North American sportsbook market. Following the end of the PASPA sports betting ban in 2018, MGM joined forces with Entain to create BetMGM, a sports betting and online gaming platform catering to the US market.
BetMGM a Problem for Negotiations
MGM Resorts already had a presence in the US and Entain had years of sports betting experience. Together, the joint enterprise has already become a leading force in a market that is still growing as sports wagering becomes legal in new states. Despite the success of BetMGM, Entain refused to accept a takeover bid from MGM Resorts at the beginning of the year.
MGM’s £8.1 billion offer for the newly rebranded Entain was described by then CEO Shay Segev as significantly undervaluing the company and its prospects. In a surprising twist of the events, Segev then handed in his notice in the midst of negotiations, jumping ship to tech unicorn DAZN.
Entain’s BetMGM subsidiary posed a significant problem for the potential of a DraftKings takeover. Any new owner of Entain would not be permitted to operate BetMGM without the permission of MGM Resorts. Alternatively, had DraftKings completed the purchase, it may have been able to sell Entain’s 50% stake in BetMGM back to MGM Resorts.
DraftKings could also have sought its own merger with BetMGM, offering MGM a stake in its new company. As a company that is already at the forefront of the US sports betting market, DraftKings had little interest in acquiring assets from BetMGM. Entain, on the other hand, is a FTSE 100 leading operator with experience and authority in the online gaming market.
Had the deal gone ahead, DraftKings would have gained a lucrative stake in Entain’s UK high-street bookies, as well as its numerous international online gambling licenses. It had been hoped that the extended November 16th deadline for the bid would allow DraftKings enough time to iron out these issues. In light of this accommodation, it is all the more surprising that it has instead elected to leave negotiations early.
