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The DraftKings-Entain takeover: Why The Deal Failed and What’s Next

DraftKings

If you follow any gambling or investing news then it’s likely that you will have heard about the DraftKings Entain takeover. In case you haven’t, in September DraftKings made a $20 billion takeover bid to buy Entain.

Who Are DraftKings?

DraftKings is an American sports betting and daily fantasy sports contest operator. They’re one of the biggest sports betting companies in the US, with annual revenue of over $1.24 billion in the last year – although in 2020 they posted a $1.2 billion loss after spending almost $500 million on marketing alone.

What About Entain?

Entain is almost the UK equivalent of DraftKings (You can find some of Entain’s prominent brands on this list from TopRatedCasinos.co.uk). Responsible for big-name brands like Ladbrokes, Coral, Gala Bingo, Betdaq and Foxy Bingo to name a few, Entain is one of the biggest gambling companies in the UK. Last year Entain reported an impressive £1.59 billion in revenue. Basically, if DraftKings ever wanted to expand into the UK market they would have to get through Entain first, and the easiest way to do that (and finally be in the black) was to buy Entain.

Why Did the Sale Fall Through?

Despite lengthy talks, the sale fell through as DraftKings eventually backed out. In an interview, CEO of DraftKings Jason Robins said “After several discussions with Entain leadership, DraftKings has decided not to make a firm offer for Entain at this time”. He then went on to say that “we are highly confident in our ability to maintain a leadership position and achieve our long term growth plans in the rapidly growing North American market”. However, when pushed further the DraftKings CEO declined to comment on the real reason why they didn’t move forward with the sale.

While the CEO declined to comment, Bloomberg speculated that DraftKings was unwilling to meet some of Entain’s demands. Entain’s board was apparently uncomfortable with DraftKings shares accounting for so much of the offer – it seems that the two companies simply couldn’t reach an agreement. DraftKings initially offered 2500 pence per share and later increased this to 2800 pence per share in cash and stock. This represented a 43% premium over the actual stock price. During the talks, shares of DraftKings rose by 7.8% to over $50, while Entain lost 6.3% on its share price, falling to 2002 pence. It seems that investors were uncomfortable with a company that had reported such huge losses being able to run one of the biggest gambling companies active in the UK.

What Happened?

Earlier in the year, MGM had also made a bid for Entain, offering roughly half of what DraftKings offered. However, MGM made a potential deal between DraftKings and Entain much more difficult. Entain already owns half of BetMGM which was a joint venture with MGM, who have become a key player in the US market over the past few years. As Entain’s exclusive partner in the US online sports betting and gambling market, any deal would’ve needed MGM’s consent in order to go ahead. It’s possible that with MGM also considering buying Entain, it would’ve been too much of a conflict of interest as MGM would’ve been able to block the sale to any competitor. While DraftKings won’t give a definitive reason for backing out of talks to buy the company, it’s understandable that this might be a big part of it.

What Do DraftKings Have to Say?

In DraftKings’ statement, the CEO talked about moving forward with their own brands and building on these in the North American market, so it might be that DraftKings simply didn’t feel that competing in the UK market was going to be possible for them unless they owned Entain, or maybe they genuinely felt that it was important to focus on making their own company profitable in their home market first.

Why Did It Fall Through?

There are many possible reasons for the failure of talks between Entain and DraftKings. DraftKings lack of profit would be a serious red flag for Entain when considering selling an incredibly profitable company and one of the UK’s major players in the gambling industry. Ladbrokes and Coral are both household names and if they went bankrupt it would severely affect the UK’s gambling industry as a whole. It’s also quite likely that the partnership with MGM in the US stopped the sale going through and might potentially hinder any future sales too – unless MGM decides to make another offer themselves.

What Does This Mean For The Future?

As ever, the future of the gambling industry is hard to predict – after all, who knows whether a takeover or merger of two companies will happen in the future. If there is a change in any large companies it is also hard to know the exact impact this will have on the industry as a whole. One thing we do know is that 2020 and 2021 have seen some record-breaking numbers in terms of users and revenue within the gambling industry and this is a momentum that the whole industry will be keen to keep up.

As the gambling industry continues to grow and companies continue to consider mergers, the main thing we may see is a change in rules or an expansion on the regulations that are already in place. We already know that the UK Gambling Commission is keen to adopt regulations in order to keep up with trends and how users are using gambling apps and websites. Whether or not we see a change in company structure will have zero effect on gambling regulations, they have been in place for a good number of years and there is no chance they will ever be removed. However, users are well aware that regulations are likely to continue to be changed and adapted – reputable online casinos will always keep up with these and as such, user experience will be tweaked as they happen. However, whether we will see bigger tweaks to gameplay thanks to company mergers and takeovers remains to be seen.

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