Good morning. After a day of M&A drama, this morning we bring you up to speed with the latest analysis and comment on DraftKings’ surprise bid for Entain. Suffice to say, there are a lot of potential moving parts and there are likely to be further developments in the coming days. In Barcelona, meanwhile, it is expected that Entain CEO Jette Nygaard-Anderson will still be giving this morning’s keynote at the SBC Summit. Whether she takes questions from the floor is, though, a different matter.

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DraftKings bid for Entain

The top line

• Late last night, UK time, Entain released a further statement clarifying the terms of the offer received from DraftKings. It said that an initial offer of £25 a share was rejected and that a renewed offer was received on 19 September worth £28 a share or ~$22.4bn.

• This offer consisted of 630p in cash and the remainder in DraftKings shares and represented a 46.2% premium to the share price on 20 September.

• Entain said it will “carefully consider the proposal” and a further announcement will be made as and when appropriate.

• Informed sources suggest a number of scenarios, with the two most likely being either DraftKings buys Entain and then sells BetMGM stake, with a subsequent licensing of tech.

• Alternatively, the bid flushes out another bid from MGM with either/both a higher offer and a larger cash element. 

• Other scenarios - DraftKings partnering with MGM and DraftKings buying out MGM from the JV are seen as being less likely.

• MGM also released a statement noting it would have to give consent to any deal but that it would engage with DraftKings and Entain to “find a solution to the exclusivity arrangements which meets all parties’ objectives.”

• As per UK takeover rules, a firm offer would need to be lodged by 19 October.

Three-legged race: This is the second bid for Entain this year following MGM’s unsuccessful £8bn/$11bn offer in January. That ultimately failed on valuation grounds and on the face of it the circa 46% premium involved in this approach from DraftKings will at least satisfy that criteria. However, the near 20% rise in the Entain share price suggests UK investors were thinking a rival bid would emerge from MGM.

Money to cash: That calculus would change if it were effectively a joint bid. Analysts at Jefferies - who have been speculating for a while that MGM would go back in with a renewed Entain offer - point out MGM has $11.7bn on cash in the balance sheet following recent CityCenter and MGM Growth Properties deals. They suggest a lower range valuation of BetMGM to be ~$8bn; upper valuation range would be ~$14.2bn.

You snooze, you lose: Previously, MGM has made much of its interest in potentially owning more of BetMGM and just last week at a JP Morgan investor conference CEO Bill Hornbuckle said: 

“As much as we critique ourselves for giving up half of the business, we are number two in the country… Having seen the business and understood it more clearly… we love the business and yes, we would like more of it,” Hornbuckle added at the time. 

Buckle up: Hornbuckle also didn’t demur when it was suggested that buying Entain was a “perpetual opportunity” that was there to be taken at MGM’s leisure - a suggestion that now looks somewhat complacent. Similarly, speaking the week before CFO Jonathan Halkyard said the JV was “built to last”. “It is exclusive, it is long-term. It is truly 50/50.” Analysts at Truist suggested “it makes more sense for them to just buy Entain’s 50% share of BetMGM.” “MGM owning all of its online business would be a clear long-term positive, in our view, though price would obviously be an important factor,” Truist added. 

The problem, however, is where the ownership of the tech resides. Noted Jefferies: “This presents the notion of how BetMGM continues its momentum through either buying or developing any capabilities that are no longer provided.” 

Diluting juice: The value of DraftKings' prize would also be debatable. While it would gain a profitable international business - with the kicker of a very strong gaming operation - which could accelerate its move towards profitability, it would come at the expense of lower growth rates and a more complicated - and less exciting - story for investors who, as the analysts at Eilers & Krejcik have pointed out, have bought into an online “pure-play narrative” and a suitably high multiple on future earnings.

Welcome to Barcelona - SBC Summit

Jette-ing in: The news is awkward timing, all in all, for Entain CEO Jette Nygaard-Anderson to be giving the keynote speech and sitting on the opening panel at the SBC Summit in Barcelona. If she turns up we can expect little by way of further comment  though questions will be asked from the floor. More of this in tomorrow’s email as Wagers.com Earnings+More reports from Barcelona.

FanDuel invests in Minute Media

Meanwhile, in another part of town: Axios is reporting that Minute Media, the owner of sports and entertainment websites The Players' Tribune and The Big Lead, has raised “tens of millions of dollars” in a previously unannounced funding round including participation from FanDuel. "Investing further in Minute Media is another step forward in trying to take advantage of our position," 

Adding fuel: Adam Kaplan, General Manager & VP at FanDuel is quoted as saying, FanDuel partnered with Minute Media in 2018 to create a fantasy and sports-betting website called the Duel which Kaplan told Axios has generated $10m of revenue since 2020 on both the sportsbook and DFS. Kaplan said FanDuel is "definitely" looking to invest in more content deals. "It's possible we may look to make additional investments in companies and potential acquisitions in the future.”

Macquarie on horse wagering

Fix you: With fixed-odds horse racing betting up and running now in New Jersey, the analysts at Macquarie have turned their attention to the prospects for pari-mutuel horse wagering in the U.S. and suggest it is “under-appreciated” by investors. The team point out that handle has shifted online during the pandemic; online pari-mutuel was worth ~$6.6bn in 2020 or ~60% of the $10.9bn total. The move towards fixed-odds in New Jersey comes at “an interesting time.” Australian company BetMakers, which is working with Monmouth Park, has suggested fears of cannibalization are overblown, noting that in Australia the move to allow fixed odds in 2008 helped racing handle increased by 9.6% CAGR between 2008-2018. “While it might be early days, we believe NJ will be a market to watch as an indication of where the industry could be heading,” it added. However, BetMakers also warned: “We do not believe operators will give up certainty of profit for an uncertain style of betting in the US.”

Datalines

Pennsylvania: In OSB, revenue for Aug21 came in at $22m on lower hold (at 6.9% vs. 9% in July). Handle rose to $318m from $275m. FanDuel market share of handle rose to 42.6% (38.8% Jul21), DraftKings also up marginally to 25.3% (24.1% Jul), Penn/Barstool down to 8.3% *vs. 8.5% in Jul21) and BetMGM down to 8.9% vs 10.6% in Jul21. iCasino up 58.6% YoY to $88.7m, flat MoM.

Newslines

Jordan on board: In the wake of its $8bn float last week, Sportradar has announced that Michael Jordan, an early investor in the company, will serve as a special advisor to the board.

Gold medal: Golden Nugget Online Gaming has announced it has agreed an official data partnership with Genius Sports for its full suite of data.

Key word bingo: Scout Gaming has agreed terms with eFanGage for the delivery of a ‘social sportsbook’ product providing free-to-play games within physical sportds and entertainment locations. Players will be able to enter contests and attain rewards in the form of a branded virtual currency which can be exchanged for perks and discounts.

Calendar

• 22 Sep: SBC Summit Barcelona day one, Sportsbet investor presentation

• 23 Sep: Playtech H1, XLMedia H1, SBC Summit Barcelona day two

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com