DraftKings Agreement with Genius Sports Spells Good Things for Investors

DraftKings (NASDAQ:DKNG) shareholders have been awash in headlines lately. The company announced earnings on Friday, and there’s the news Monday that it’s planning to acquire peer Golden Nugget Online Gaming (NASDAQ:GNOG) — and that the Securities and Exchange Commission has some questions about its earlier acquisition of SBTech. But for today’s article on DKNG stock, I’d like to focus in specifically on two pieces of good news investors received on Aug. 5. 

DraftKings (DKNG) logo on a phone

Source: Lori Butcher / Shutterstock.com

As for the rest — watch for a follow-up article where I will get into all of that.

Here’s why Aug. 5 was such a wild day for DraftKings. 

DKNG Stock Just Got An Upgrade

Sometimes good things happen that are beyond your control. 

On Aug. 5, Penn National Gaming (NASDAQ:PENN) announced that it would pay $2 billion in cash-and-stock for Score Media and Gaming (NASDAQ:SCR). The Canadian company’s shareholders will receive $17 in cash plus 0.2398 PENN shares for each Score share held. That’s equivalent to $34 per share or an 81% premium to its Aug. 4 closing price. 

For the trailing 12 months (TTM) ended May 31, 2021, Score had revenues of 23 million CAD ($18.5 million). So, Penn is paying 108x TTM sales, a hefty price to gain a better foothold in the sports betting arena. 

If I’m a PENN shareholder, right about now, I’m probably wondering why the Score buy was even necessary given it owns 36% of Barstool Sports. So if it felt the need to spend $2 billion, why not acquire the remaining 64% of that company? 

To me, this suggests that Penn management doubted whether it would be worth it to exercise the warrants it holds to buy majority control of Barstool in January 2023, the third anniversary of its partnership. 

Or, it felt like it had to make a pre-emptive move to prevent DraftKings and its other sports-betting competitors from getting too far ahead of it in terms of market share, etc.

Either way, DraftKings shareholders should be feeling quite good about the company’s position in the North American sports betting marketplace. 

Oh, and if you’re wondering, valuing DKNG at the same multiple as Score puts DraftKings’ market cap at $90.7 billion, almost 5x its current valuation. 

The Other Piece of Good News

DraftKings announced a multi-year agreement with Genius Sports that gives it access to its full portfolio of global data and content. Most importantly, it gains access to the company’s NFL data products, etc. 

One paragraph caught my eye in DraftKings’ press release.

“With this collaboration, DraftKings will expand its official sports data portfolio, allowing customers access to secure, authorized, and official data from top-tier leagues beyond the NFL such as the English Premier League, Liga MX and NASCAR,” the Aug. 5 press release stated.

“Through these official live streams, DraftKings users will be able to wager on hundreds of new competitions, including Argentine and Colombian soccer, and the American Hockey League, further reinforcing the business’ position as a provider of world-leading live betting products.”

Given sports betting is all about the data, this relationship positions both companies for success here in North America and internationally. Clearly, Penn sees the writing on the wall. 

The Bottom Line on DKNG Stock

On the same day Penn announced its massively expensive acquisition, the company did manage to report healthy Q2 2021 results, with sales increasing by 16.8% over Q2 2019 to $1.55 billion while its adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) jumped by 44.3% to $586.6 million.

Regarding sports betting, it did say that it expects to have the Barstool Sportsbook operating in 10 states by the end of 2021. It expects to generate positive EBITDA from its digital business starting in 2023. In addition, it’s rolling out Barstool Sports sports bars with initial locations in Chicago and Philadelphia, something DraftKings is doing, starting with the Nashville and Detroit markets.  

However, if you look at its first six months, Penn’s other segment, including Penn’s Interactive business, had sales of $185.6 million. Therefore, if you assume that its stand-alone racing operations, part of its other segment, contributed just 20% of the overall revenue, its interactive sales were approximately $148 million or 5% overall.

Until I know more about the rationale for the Score tie-up, I see this as a good sign for DraftKings shareholders. But, of course, only time will tell how good.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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