DraftKings expands igaming footprint with $1.56bn GNOG purchase

DraftKings has agreed a $1.56bn all-stock deal to acquire Golden Nugget Online Gaming (GNOG). Under the terms of the transaction, a new holding company called New DraftKings will serve as the public company for DraftKings and GNOG until the transaction completes in Q1 2022. At completion of the deal, New DraftKings will become DraftKings Inc. GNOG shareholders will receive a fixed ratio of 0.365 shares of class A common stock in New DraftKings for each commonly held share in GNOG. Golden Nugget owner Tilman Fertitta, who currently owns a 46% stake in GNOG, has agreed to hold onto all DraftKings shares issued to him as part of the deal for a minimum of one year. GNOG’s board of directors have voiced their approval of the acquisition following advice from an independent committee. However, the deal will be finally approved by shareholder vote. DraftKings CEO Jason Robins insisted the transaction would allow DraftKings to increase its chances of success in recruiting igaming players as it continues to diversify outside of DFS and sports betting.

“Our acquisition of Golden Nugget Online Gaming, a brand synonymous with igaming and entertainment, will enhance our ability to instantly reach a broader consumer base, including Golden Nugget’s loyal igaming-first customers,” Robins explained. “This deal creates meaningful synergies such as increased combined company revenues driven by additional cross-sell opportunities, loyalty integrations and tech-driven product expansion, as well as technology optimisation and greater marketing efficiencies,” Robins added. Fertitta, who also owns NBA franchise the Houston Rockets, has agreed to join DraftKings board of directors as a part of the transaction. He will become one of DraftKings’ largest shareholders. Addressing his desire to pursue an all-stock transaction, Fertitta said: “I wanted only stock. I wanted to ride this thing all the way up with these guys. “Let’s be honest, DraftKings is the clear market leader – they are the Coca-Cola,” he added. Under the terms of the deal, DraftKings has entered into an exclusive commercial agreement with Fertitta Entertainment Inc. The firm serves as the parent company of Golden Nugget, which administers land-based casinos, as well as Landry’s LLC, which serves as the umbrella brand for a restaurant empire spanning across the US. The agreement will see DraftKings benefit from reduced market-access rates through preferred pricing at Golden Nugget-owned properties and an exclusive commercial deal across DFS, sportsbook and igaming with the Rockets. DraftKings will also become the exclusive DFS, sports betting, and igaming partner of the team and intends to open a sportsbook at the Toyota Center, pending state legalisation and regulatory approvals. DraftKings said the GNOG acquisition will deliver “significant” strategic benefits, as well as expected synergies of $300m at maturity, with the Boston-based firm committing to a multi-brand strategy of promoting sports betting and igaming at completion. The operator will gain access to GNOG’s existing databases across New Jersey and Michigan, as well as GNOG’s existing live dealer product, which first launched in New Jersey in 2016. DraftKings has committed to rebranding existing Golden Nugget retail sportsbooks and all future developments to DraftKings Sportsbook as part of the deal. In addition, DraftKings will gain access to the Golden Nugget 24K Club and Landry’s Select Club loyalty programmes, which boast more than 5.5 million members. Regulus Partners Paul Leyland suggested the buy-out was a good deal for both businesses and GNOG was “roughly cashflow break even”. GNOG recorded record revenue of $91m in 2020. “Not many deals are genuinely win-win and very few US-led transactions currently seem all that sensible, but this one ticks both boxes for us,” Leyland explained. “The underlying profitability of GNOG’s igaming footprint, with its leading share in NJ, is a welcome boost to the DK business model, which is not yet achieving much if any operational gearing. “GNOG’s operational online gaming expertise is also fertile ground for DK synergies, while a multi-brand strategy is likely to make increasing sense in a maturing and therefore segmenting market. “Finally, since the deal is all paper, the transaction does not put any further hard-earned capital at risk, while GNOG is very easily accretive to DK at both the valuation and cash flow level,” Leyland added.