According to various media reports, sports betting company DraftKings, Inc. (NASDAQ: DKNG) is close announcing a partnership with sports broadcasting giant ESPN, a unit of The Walt Disney Company (NYSE: DIS). DraftKings would rename its sportsbook to include the ESPN name.
The link-up would have significant synergies for both parties as it would allow ESPN to benefit from massive growth in legalized sports betting, particularly among young customers, while DraftKings would be linked with the leading broadcaster of many sports that are heavily bet on, including college football and college basketball. Disney already owns a 6% stake in DraftKings as part of its acquisition of Fox’s entertainment assets.
Many fans watch sporting events on the ESPN app, and it seems likely that a significant number of viewers will be interested in pressing a button on the app that would allow a wager to be placed. DraftKings’ in-game wagering could theoretically be significantly boosted.
Disney has a long history as a company which promotes wholesome characters and themes in its entertainment offerings, including TV shows, movies, and especially theme parks, and has to date largely eschewed forays into gambling ventures. Apparently, the size of the sports gambling market has prompted management to broaden its perspective.
A DraftKings-ESPN partnership would be consistent with Disney CEO Bob Chapek’s recent statement that the company might be interested in providing its customers, “the ability to have a frictionless sports betting potential with not having to have four screens in front of you.”
An issue in all this is the massive reported fee — around US$3 billion over a multi-year period — that Disney reportedly wants in exchange for allowing a sports book to rebrand itself with the powerful ESPN name. Such an outlay would be quite substantial for DraftKings as its enterprise value is about US$7.4 billion. Obviously, paying out these fees over a number of years would make the outlay less painful, as would the likely substantial boost in revenue and margin that DraftKings would realize from the partnership.
In August, DraftKings reported improved 2Q 2022 earnings results. Revenue reached US$466 million, up 57% from 2Q 2021. In addition, its adjusted 2Q 2022 EBITDA loss was US$118 million, much smaller than the $290 million shortfall in 1Q 2022. DraftKings’ cash balance at midyear 2022 was US$1.5 billion.
| (in thousands of U.S. dollars, except for shares outstanding) | Full Year 2022E | Twelve Months Ended 6-30-22 | 2Q 2022 | 1Q 2022 | 4Q 2021 |
| Average Monthly Unique Payers (MUPs) | 1,500,000 | 2,000,000 | 1,971,000 | ||
| Average Revenue Per MUP, in US dollars | $103 | $67 | $77 | ||
| Revenue (A) | $2,130,000 | $1,569,534 | $466,185 | $417,205 | $473,325 |
| Sales and Marketing Expense | $1,101,083 | $197,529 | $321,452 | $278,444 | |
| as a % of Revenue | 70% | 42% | 77% | 59% | |
| Adjusted EBITDA (A) | ($800,000) | ($849,267) | ($118,134) | ($289,509) | ($127,966) |
| Adjusted EBITDA Margin | -38% | -54% | -25% | -69% | -27% |
| Operating Income | ($1,739,778) | ($308,922) | ($515,584) | ($368,756) | |
| Operating Cash Flow | ($772,436) | ($172,585) | ($356,718) | ($172,247) | |
| Cash – Period End | $1,514,371 | $1,772,892 | $2,152,892 | ||
| Debt (primarily Convertible) – Period End | $1,333,668 | $1,316,474 | $1,318,607 | ||
| Fully Diluted Shares Outstanding (Millions) | 466.0 | 435.3 | 429.4 |
DraftKings Inc. last traded at US$16.57 on the NASDAQ.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
