DraftKings (DKNG 0.59%) has until Oct. 19 to decide whether it will formalize its offer for Entain (ENT -1.17%), the British bookmaker the sportsbook is trying to acquire for $22.4 billion.
The opportunity for DraftKings to expand into international markets using Entain's market-leading technology may be worth it, even though the purchase price exceeds the sportsbook's own market valuation. Yet even if it is successful in its pursuit, it may be that rival MGM Resorts International (MGM -1.24%) comes out the big winner from the deal.
Image source: MGM Resorts.
A high-stakes game
MGM tried to buy Entain in January for $11.1 billion, but the offer was immediately rejected by the British bookmaker for being too low. DraftKings subsequently bid $20.5 billion, but was also rebuffed for the same reason.
Although DraftKings then floated a sweetened cash and stock bid with an extra $2 billion or so, it has about a week to formally make the offer, but casino operator MGM really holds the cards.
MGM and Entain jointly own the online gaming and sports betting venture BetMGM, a wildly successful and fast-growing platform that has its sights set on surpassing DraftKings as the No. 2 sportsbook in the U.S. (it's already the top online casino app on the market).
But under the agreement of the joint venture, if Entain or any of its affiliates would own a competing business in the U.S., MGM would first need to give its consent. The resort operator said that it might agree to a sale if it was given full control over BetMGM. "MGM's priority is to ensure that BetMGM continues to capture the growing U.S. online opportunity and realizing MGM's vision of becoming a premier global gaming entertainment company," the company said in a press release. "MGM believes that having control of the BetMGM joint venture is an important step toward achieving its strategic objectives."
While MGM has the ability to block BetMGM from operating in the U.S., the resort operator says it's willing to work with Entain and DraftKings to come to a mutually agreeable solution.
In the driver's seat
MGM has long wanted full access to BetMGM, which was one of the reasons behind its own bid for Entain. Buying out Entain's half of the joint venture would give it the same result without having to pay anywhere near the amount it would have been required to had it bought the entire company.
With BetMGM on track to generate $1 billion in revenue in 2022, it would undoubtedly be a more cost-effective solution.
Entain would also receive cash, which is rumored to be another of the reasons it rejected MGM's all-stock buyout offer. It's even possible DraftKings wouldn't object.
DraftKings is the second-biggest sportsbook in the U.S. behind Flutter Entertainment's FanDuel, but it has been looking to expand internationally. Chairman and CEO Jason Robins told analysts tapping into foreign markets is something it wants to do. "That's something that we're looking at doing either inorganically or organically or a combination of the two," he said, and the Entain acquisition certainly falls into that space.
But it could be Entain's expertise in other sports, which Robins says is the real key to its sports betting growth, that DraftKings is looking at.
A winning bet
Entain has a massive portfolio of well-known global platforms, including the U.K.'s Ladbrokes; bwin, an institution in European sports, especially in Germany, Belgium, France, Italy, and Spain; partypoker; plus platforms in Australia, South America, and the Republic of Georgia.
Owning half of the BetMGM platform, while a fast-growing force in the U.S. and arguably a growing threat to its own position in the U.S. sportsbook market, might not be as essential to its future as the technology Entain brings to the table and its entrance into foreign markets.
Other possibilities include an initial public offering for BetMGM as taking online gaming platforms public has become a popular idea. Flutter is preparing to spin off a part of FanDuel later this year, Wynn Resorts is spinning off its Wynn Interactive platform, and DraftKings went public debut through a reverse merger with a special acquisition company (SPAC), as did Golden Nugget Online.
It seems regardless of which way the negotiations run, MGM Resorts is driving the discussion and will come out on top in the end.
