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DraftKings CEO Jason Robins on Friday discussed the company’s decision to walk away from a potential $22bn takeover of Entain, as DraftKings reported quarterly losses of more than a half-billion dollars amid a marketing blitz for the new NFL season.
After expressing interest in acquiring the London-listed online gambling giant, the company decided to pass last month after discussions with Entain’s board of directors.
Speaking during the company’s quarterly earnings call, Robins said DraftKings was continuously looking at M&A opportunities but “this situation was unique”.
“There are other international assets that I think are of interest as well, but Entain's a great company,” Robins said. “So in this case, we just decided it wasn't the right thing for us at this time to pursue them, and I think we'll continue to kind of look at things out there.”
The Entain deal would have come with a major hurdle to clear in the form of negotiating a resolution for BetMGM, Entain’s joint venture with MGM Resorts International.
Although MGM CEO Bill Hornbuckle said last week that the company was prepared to reach an agreement that left MGM with a suitable proportion of Entain's technology, Robins acknowledged that deal complexity was not an insignificant factor in why DraftKings ultimately walked away.
“I think deal complexity was probably a smaller part of it, although not entirely unmeaningful factor,” he said. “It was really more about our confidence in our current trajectory in the U.S., our desire to focus on the U.S. and, ultimately, the value that we felt like we would be shedding by pursuing that asset.”
“We kind of look at different things as they come about as long as they fit our long-term strategy, so this is one that we thought potentially could have been a good route for global expansion,” Robins added.
“As far as why we walked away, I think there are a variety of factors, and certainly, value is one of them, but there are a variety of factors that led us to feel like it just wasn't the right thing for us to do at this time.”
Robins was speaking after DraftKings reported a quarterly net loss of $545m after spending more than $300m in marketing expenses for the third quarter that includes the start of the NFL season. Net loss at an adjusted EBITDA level was $313.6m versus $197.1m for the third quarter last year.
Third-quarter revenue increased 60.2 percent to $212.8m, with the company on target to achieve full-year revenue of $1.24bn to $1.28bn and publishing initial guidance for revenue of $1.7bn to $1.9bn in 2022.
Elsewhere, Robins expressed optimism that operating in the high-tax New York online sports-betting market can be a long-term profit generator for the company, an idea that has split top gaming executives in recent weeks.
The New York State Gaming Commission is set to announce the winners of a licensing process on Monday (November 8) and is expected to select at least nine operators, including DraftKings, with a tax rate of 51 percent.
“I think we feel, just like we do in other states, that we can achieve the same long-term profit margins in New York,” Robins said on Friday. “There’s a lot of levers we can pull such as cutting back on rate of promotion and spending less on external marketing.”
“Those are things I would expect everyone in the industry would do because I don’t think anyone is going to want to run at a long-term unprofitable rate in any state,” he continued.
“Certainly, early on, we’ll approach it just like we do other states where we’ll invest into it and look for that two- to three-year path to profitability, but I think, over the long term, we feel we can achieve something in a similar range to what we’re achieving in other states from a long-term margin perspective.”
