DraftKings Bid $20 Billion For Ladbrokes & Coral Owner Entain

draftkings entainLadbrokes and Coral owner Entain is subject to yet another buy out offer, this time from US gambling giant DraftKings.  The reported $20 billion offer comes on the back of a bid by rival US firm MGM in January 2021.  That bid of around $11 billion was rejected on the basis that it undervalued Entain, although this offer from DraftKings, almost double MGM’s bid just 9 months ago, will certainly be taken very seriously.

The offer is mostly stock plus cash and when it was announced sent Entain shares to an all time high.  DraftKings are offering £25 a share although it is believed Entain are looking for closer to £28 per share.  Shares in DK fell on the announcement, perhaps investors fearing they may be paying too much.

The bid continues the trend of big US firms looking to take over UK and European based gambling businesses since online gambling has become legal in many states in the country.  Online gambling in the US was mostly banned in 2006 when congress passed the Internet Gambling Enforcement Act that prevented business accepting payments in relation to gambling.  In 2018 New Jersey fought against this the Supreme Court and won, allowing any state that wished to to legalise online betting.  Since then nearly half of states have brought in rules to legalise gambling online.

The lack of online gambling in the US in its formative years has meant that the big US gambling firms, who historically have been focused on land-based operations, have little expertise in delivering online gambling.  In particular in delivering the online platforms and products.  This has allowed UK and European companies like Entain to gain a high US market share, Entain are currently the second biggest online in the US with a 22% market share.

Traditionally US companies compete through financial muscle and the general business attitude is if someone else has something you want then buy them out. The result of this has been a series of US acquisitions of European gambling businesses over the last two years.  Only last year Caesars bought out William Hill, who almost immediately cast off the non-US assets selling them to 888, as they were ultimately interested in gaining the knowledge and proprietary software of William Hill to allow them to attack the US market.  Not wanting to be left behind MGM tried to acquire Entain at the same time but with the overall value supressed by the coronavirus pandemic Entain did not feel that the valuation factored in future growth potential.

Who Are Entain?

GVC Holdings logoEntain are effectively a sports and gambling investment company.  Formerly known ag GVC they were established in Luxemburg in 2004 as GVC Holdings.  They partnered with William Hill in 2012 to buy Sportingbet, with WH getting the Australian and Spanish markets and GVC getting the rest.  They used the revenues from this and other ventures to ultimately fund the purchase of Bwin.Party in 2016 for $1.1 billion, this included brands like bwin, PartyPoker and PartyCasino.

They are most well known, however, for buying out Ladbrokes Coral (which includes Gala) for £4 billion in 2018, just one year after the two well known high street bookies had merged.  At the time that seemed like a staggering amount of money to pay for a betting company but yet just 3 years later we are seeing DraftKings value Entain at nearly 4x that amount.

Seeing the future in the US GVC entered into a $200 million deal with MGM in 2018 for access to the newly opened US market.  The company clearly seeing the future in what is likely to quickly become the biggest gambling market in the world.  This quick thinking and early access for a company that already had the products, software and know-how allowed them to gain over one fifth of the US market share in less than 3 years.  No wonder MGM went in with an offer in early 2021 and they now probably wish they had offered more money.

In 2020 GVC announced it was changing its name to Entain.  In the same year it had revenues in excess of £3 billion and has seen consistent growth now for many years having diversified sufficiently to protect against difficulties in specific markets. Even during the pandemic when Coral and Ladbrokes shops were closed the company enjoyed growth overall.

Who Are DraftKings?

draftkingsWhile online sports betting in the US was banned from 2006-2018 there was one ‘loophole’ that DraftKings exploited better than any other.  The company, set up in 2012, run fantasy sports contests for all five major US sports as well as leagues such as the Premier League and Champions League.

Players enter into real money contests, e.g. specific line ups for matches or groups of games, and can win prizes if they come in certain positions.  Most states viewed fantasy sports as a game of skill rather than gambling, which is what allowed it to continue while other forms of online gambling were not allowed.  This allowed DraftKings to attract millions of customers with only one major rival, FanDuel, who they tried to merge with in 2016 but this was blocked by the Federal Trade Commission.

It is no surprise then that it was DraftKings who were the first brand to launch an online sportsbook in New Jersey in August 2018, and they have since launched in half a dozen more states with more in the pipeline.

Despite the fact they were first to launch the fantasy sports company clearly lack experience in the newly liberalised market and for this reason they acquired SB Tech in 2021, their first venture outside the US.  SB Tech are a company that provide betting platforms and third-party features for betting sites, mostly in Europe.  10Bet are an example of a betting site that is built and powered by SB Tech.

While SB Tech gave DraftKings access to better software, platforms and solutions they still did not have the direct market experience and this is why they have now bid for Entain.  The Coral, Gala and Ladbrokes owner has 100’s of years of experience between their various brands that covers sports betting, casino, bingo, poker, lotteries, betting exchanges and pretty much every gambling product you could imagine.

There is an irony to the fact that a 9 year old US company is buying Entain that includes two of the oldest betting companies in the world.  Ladbrokes in particular dates back to the 1800’s and is the oldest bookmaker still active in the UK.

What About MGM?

betmgmThe £8.1 billion bid from MGM back in January seemed to irk Entain on the basis that it significantly undervalued them.  Despite that Entain and MGM are still linked in a 50/50 venture with BetMGM in the US.  This may cause difficulties for any takeover by DraftKings.

MGM have been quick to come out and say that in light of the BetMGM arrangement it would mean that any if Entain were sold to a competing US business then it would require the consent of MGM.

While MGM have said that they will engage with both companies to find a solution ultimately they are not going to be keen on DraftKings muscling in on their new baby.  Given how fast MGM have been to respond to the bid speculation it seems they could, if they want to, put up some serious road blocks to the takeover.  They may even now come in with an improved bid to match DraftKings.

Is The $20 Billion Offer Fair?

suitcase full of cashOnly the board and share holders can decide if the offer from DraftKings is fair but it does value Entain at a higher level than ever before.  The fact is, though, Entain are already one of the biggest betting companies in Europe and the world and with a very healthy 22% market share in the US the potential for future growth is huge.

On balance even at $20 billion DraftKings will be acquiring a company that they know will continue to grow and justify that price.  They also know, on the back of the MGM bid, that if they don’t go big initially with the bid they will be told to go home.  There will definitely be a fear for DraftKings that if they are not successful then another US gambling company will come in with plenty of vultures circling to bid for Entain and other UK / European gambling businesses in the future.

The US is a burgeoning market and DraftKings are in a strong position having launched early and had market dominance in the fantasy-sports world while gambling online has been illegal.  At the same time they know that they are unlikely to keep up with the big boys unless they can acquire the assets and experience of a company like Entain.  The fantasy sports market is also starting to shrink due to the fact that US citizens can now bet online and this is often more attractive than fantasy sports for many.

Will DraftKings Sell Off The Non-US Assets?

caesars palace sign with william hill logoThere are no bones about it DraftKings want Entain to maximise their potential in the US.  In many ways Entain are already quite saturated in UK and European markets and while revenues are healthy room to grow is more limited.  European markets are also becoming more and more regulated, with new rules due in the UK, for example, that is likely to curb revenues from online casino games.

Entain also have to deal with 1000’s of shops still owned by Ladbrokes and Coral in a world where online revenues are growing and retail revenues are declining.  The corona virus pandemic also brought into sharp focus how vulnerable betting shops can be.

When Caesars bought William Hill in 2020 they made it clear they were only interested in the US side of things.  They acquired Hill’s for £2.9 billion but immediately put the non-US assets up for sale, that included William Hill and Mr Green websites and William Hill shops.  888 recently bought those assets for £2.2 billion, meaning Caesars ultimately got the market experience and proprietary platforms they wanted for a net £700 million, bargain right?

DraftKings may see it another way and use the potential buy out of Entain to expand more globally or they might do what Caesars did and simply discard the bits they don’t need or want.  What this means for the famous high street names of Coral, Gala and Ladbrokes in the future is currently unknown.

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