DraftKings Makes iGaming Splash, Buys Golden Nugget Online Gaming for $1.56B

Posted on: August 9, 2021, 09:21h. 

Last updated on: August 9, 2021, 12:49h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ:DKNG) is showing its commitment to the booming internet casino industry. The company announced today that it’s acquiring Tilman Fertitta’s Golden Nugget Online Gaming (NASDAQ:GNOG) for $1.56 billion in equity.

DraftKings GNOG
Houston Rockets owner Tilman Fertitta is selling Golden Nugget Online Gaming to DraftKings for $1.56 billion. It’s one of the biggest iGaming deals yet. (Image: Bloomberg)

News of the transaction, which comes about eight months after Golden Nugget Online went public following a merger with a special purpose acquisition company (SPAC), has Fertitta’s online outfit trading higher by more than 47 percent in midday trading. GNOG investors will receive 0.365 shares of DraftKings for each share they own. Under the terms of the accord, Fertitta agrees to hold the shares of DraftKings he’s receiving for at least a year. He owns 46 percent of the online gaming firm.

This deal creates meaningful synergies, such as increased combined company revenues driven by additional cross-sell opportunities, loyalty integrations, and tech-driven product expansion, as well as technology optimization and greater marketing efficiencies,” said DraftKings CEO Jason Robins in a statement.

The deal is expected to close in the first quarter of 2022 and sets the stage for DraftKings to become the exclusive daily fantasy sports, sports betting, and iGaming partner of the Houston Rockets — the NBA franchise Fertitta owns. The Boston-based company will also open a sportsbook at the Toyota Center — the Rockets’ home court — when Texas approves sports wagering.

DraftKings Buy Highlights iGaming Allure

While sports betting frequently commands more headlines and is legal in more states, online casinos – Golden Nugget Online’s core competency – are generating considerable growth buzz in their own right.

Some analysts believe the combined North American internet casino and online sports wagering market could be worth $42 billion by 2030. Earlier this year, Goldman Sachs said online sports betting and internet casinos could jump to $39 billion and $14 billion, respectively, by 2033. The bank forecasts a 40 percent compound annual growth rate (CAGR) for iGaming, well ahead of the 27 percent CAGR it estimates for sports betting.

Analysts and operators are enthusiastic about the outlook for internet casinos because there’s a long runway for state-level legalization (it’s currently permitted in just a handful of states). It’s also a higher margin business than sports betting, and bettors are often stickier and spend more money than they do on sports wagering.

With the GNOG deal, DraftKings reduces its market access costs and bolsters its position in New Jersey, where Fertitta’s company is one of the dominant iGaming operators.

DraftKings Continues Being Acquisitive

DraftKings has been a stand-alone public company since April 2020. In that brief period, the company is showing a penchant for acquisitions, gobbling up media and technology companies while being the center of other buyout rumors prior to today’s Golden Nugget Online News.

The buyer forecasts $300 million of savings by acquiring GNONG, noting, “There will be multiple channels for cost savings by, among other things, eliminating platform costs as a result of migrating Golden Nugget’s current technology to DraftKings’ in-house proprietary platform, recognizing enhanced returns on advertising spend through marketing efficiencies and reducing G&A costs, such as duplicative corporate overhead.”

The acquisition, one of the largest to date in the iGaming space, doesn’t threaten the strength of DraftKings’ balance sheet, because it’s paying equity for the target, leaving it with cash it could use for other deals down the road.

DraftKings raised its 2021 revenue guidance when it reported second-quarter results last Friday. The Golden Nugget Online purchase will add to the operator’s 2022 sales.