Despite the M&A talks between DraftKings and Entain ending without a deal, the three-way M&A story between both groups and MGM once again showed how important owning a strong tech stack is to the industry’s leading firms.
All the talk of tech ownership in the U.S. sports betting industry has centred on the DraftKings-Entain M&A story, and even though both groups said on Tuesday that the talks had ended without a deal being agreed, there is no question that DraftKings wanted to acquire the UK group so that it could control a strong tech stack and bring under its umbrella one of the leading U.S. and global sportsbook brands.
So while the discussions didn’t lead to a deal, the permutations and issues at stake within the DraftKings-Entain-MGM tug of war remain as pertinent as ever – and they come down to owning and having control of the tech stack.
For the analysts at Wells Fargo, what would have made most sense would have been for MGM to acquire the 50% stake Entain holds in the BetMGM joint venture on ”fairly attractive terms” and then license the tech from DraftKings “for several years with multiple extensions” as it “evaluates whether to build/buy its own tech stack”.
This would have meant DraftKings owning Entain, but not BetMGM, which MGM would control. It was a possibility, but would have meant MGM having to cede final control over key technology and continuing to pay out for licensing fees and a share of revenues, while also giving a key rival visibility over its U.S. business, which surely would have been a non-starter for MGM.
Alternatively, MGM could have acquired the whole of Entain. The deal would have included the 50% of BetMGM it doesn’t own and Entain’s tech stack, which MGM would then license back to DraftKings. Or, as with Caesars Entertainment eventually selling off William Hill’s non-U.S. business to 888 in September, MGM could have done a similar deal with DraftKings after acquiring Entain.
That scenario was plausible, but DraftKings’ bid for Entain was part of a play to acquire more U.S. market share, and in particular in the highly profitable online casino space where BetMGM is so strong, as well as gaining a major international footprint thanks to Entain’s strong brands in the UK, Spain or Germany. Or maybe DraftKings would have been happy with just Entain’s (still substantial) non-U.S. business and the cash flow it generates, although that seems unlikely as it would not address its losses in the U.S.
The permutations are near endless; what they all demonstrate is that both DraftKings and MGM desperately want to own 100% of their tech stacks. Indeed that was the reason behind DraftKings wanting to migrate away from Kambi and acquiring SBTech at the start of 2020.
However, despite the Kambi-to-SBTech migration having been largely completed, DraftKings still had to license Genius Sports’ bet builder product in time for the start of the NFL season, which has led many industry watchers to wonder what the group has been doing all this time with the SBTech assets at its disposal.
In a further twist, Entain’s biggest ‘historic’ brands, such as UK bookmakers Ladbrokes and Coral, have always worked on the OpenBet platform, while more recent ones like bwin are powered internally. And — that’s right you’ve guessed it — BetMGM is built on the bwin platform.
Adding another layer to this complicated picture, OpenBet, which notably powers FanDuel in the U.S., was recently acquired by Endeavor Holdings in a $1.2bn deal.
Speaking during a recent ‘tech stack’ expert call hosted by Wells Fargo, ex-Bet.Works COO Quinton Singleton said sportsbooks with major ambitions always had to find a balance between vertical integration and third party licensing. While the first option gave the likes of DraftKings the ability to “manage their own destiny by driving innovation, developing proprietary products, and customizing functionality”, it also requires significant financial investment and can be “a timely/complex process”.
For brands “looking for a quicker entry into a market, often tier 2/3 operators”, third party licensing was the most logical option even if it meant less control over “product/customization and potentially, a higher long-term cost structure”.
Spotlight Sports Group (SSG) is a media and affiliate group and data provider to betting operators and has developed a ‘betting technology ecosystem’ infographic that will be released shortly.
While recent M&A news shows the goings on between companies that are well-versed in how the industry works, Harry von Behr, Managing Director (Sport) at SSG, says: “Executives who have been working in the space for some time take it in their stride, but it can be confusing and even frustrating for anyone wanting to launch a sportsbook; or even if they just want to alter their data or pricing feeds. Our ecosystem infographic creates discussion and provides an information resource for the sector, but we also recognise that it’s not the final word and are aware that it doesn’t represent the industry in its entirety.”
U.S. ownership focus
What cannot be argued is that having a strong tech stack has always been important for online sportsbooks. However, the advent of the betting industry stateside, especially for the biggest brands such as BetMGM and DraftKings, has brought the issue of ownership and having all key bookmaking functions operating in-house into the sharpest focus.
In fact, thinking back to a BetMGM investor presentation in April, senior management were very bullish on the group’s prospects; and, as recent figures have shown, with good reason. However, the only defensive comments from CEO Adam Greenblatt were around the nature of the Entain-MGM joint venture and how much control it had over its tech stack, risk management and trading capabilities.
In comments that can now be viewed as highly prescient in light of recent events, he said: “We have trading and risk management teams in Jersey City and Las Vegas. Entain is viewed as being in-house, we have exclusive use of that stack, are the only ones to use it and don’t have to buy in or plug in any other technology or components to operate it.”