DraftKings’ bid to acquire British gaming company Entain for $20 billion in a stock and cash offer could generate a second attempt by MGM Resorts International to acquire its joint-venture partner, gaming analysts said today.
The news broke on CNBC that DraftKings made the $20 billion offer for Entain, which has a 50-50 partnership with MGM under the BetMGM sports betting and igaming brand.
MGM, which sees BetMGM expansion as a key part of its near- and long-term strategy, quickly put out a statement raising the stakes for DraftKings’ offer and hinting about its need for control over BetMGM.
In January, Entain rejected an $11 billion offer from MGM. The two have been joint-venture partners since 2018.
“MGM is Entain’s exclusive partner in the U.S. online sports betting and igaming market through our 50/50 joint venture BetMGM,” the statement said. “As a consequence, any transaction whereby Entain or its affiliates would own a competing business in the U.S. would require MGM’s consent.”
Barry Jonas, an analyst for Truist Securities, cited how MGM would like to own more of BetMGM than it’s 50-50 partnership. BetMGM is currently the No. 1 igaming operator and a top-three sports betting operator in the U.S.
“While it’s early days and much has to happen, we could see this as a positive for MGM if they walk away owning 100% of BetMGM and would have more questions about DraftKings’ strategy,” Jonas said. “While MGM could still offer a competing bid for all of Entain, we think it makes more sense for them to just buy Entain’s 50% share of BetMGM. MGM owning all of its online business would be a clear long-term positive, in our view, though price would obviously be an important factor.”
Jonas said late Tuesday that Entain noted there’s no certainty that any offer will be made, nor the terms as to what the offer will include. Entain said any announcement will be made when appropriate and that shareholders are not currently urged to take action, Jonas added.
DraftKings has until Oct. 19 to either announce that it does or does not intend to make an offer for Entain, Jonas said. Assuming DraftKings winds up with Entain’s non-US businesses, they would benefit from acquiring material revenue at a significant valuation discount to its multiple (especially factoring any proceeds for BetMGM), he said.
“it would accelerate a move to profitability, helping fund growth with international cash flow,” Jonas said. “Still, it’s unclear to us how the market would value a more complex DraftKings/Entain new company with the majority of revenue coming from Entain and its relatively lower-growth international markets. We believe much of DraftKings premium valuation today is based on its U.S. pure-play/higher-growth status. Assuming a deal materializes, we await more information on DraftKings’ strategy.”
Jonas noted Entain’s stock jumped to +22% before closing around up +18%. DraftKings closed down 7.5% and MGM closed down 2%.
The statement went on to say 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.
“MGM believes that having control of the BetMGM joint venture is an important step toward achieving its strategic objectives,” the statement said. “MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements that meets all parties’ objectives.”
Jefferies’ analyst David Katz, in a report with a headline entitled “BetKings Grand,” said while neither DraftKings nor Entain has commented on the report, such a proposal would be in line with their expectations of continuing consolidation within digital wagering.
“We have indicated that MGM could make another bid for Entain, especially as the company has meaningfully improved its capital structure,” Katz said. “We believe Entain is an attractive takeout target, given its strong track record and growth profile, as well as its proprietary tech stack.”
Benefiting from the MGM brand and loyalty database and Entain’s technology, BetMGM has been a leader in Michigan, with 23% of online sports betting handle and 41% of igaming market share in August, Katz said.
The strategic implications raise key questions, Katz noted.
“Given the joint venture between Entain and MGM, the acquisition of Entain by DraftKings or another party raises the matter of how the joint venture is aligned going forward: DraftKings and MGM partners in BetMGM? We consider the prospects for larger-scale mergers and acquisitions realistic, given the aggressive push for market share in the nascent North American market,” Katz said.
If the transaction were to occur, Katz asked, what might be the response of other players, such as FanDuel, Caesars Entertainment, Penn National, and Hard Rock?
“We are already seeing Penn broadening its purview through the acquisition of Score Media and Gaming,” Katz said. “Is the focus continuing on gaining more market share or technological capabilities? One could argue both in acquiring Entain, but whether others are positioned with leading technology and content to win and maintain leading share over time remains an open debate.”
Brendan Bussmann, director of government affairs for consulting firm Global Market Advisors, said DraftKings saw an opportunity, but that doesn’t mean it’s a done deal.
“I would be hard pressed to see something like this going through for a couple of reasons,” Bussmann said. “Number one, you have two giants (MGM and DraftKings) who don’t necessarily see eye-to-eye on how they address sports betting. And number two, you probably have some regulatory hurdles because of market share. You would have to have regulatory approval within states where they operate and SEC approval at some point.”
Bussmann added he doesn’t want to say the hurdles can’t be overcome, but there need to be a lot of conversations. It’s telling, he said, that MGM quickly came out with a statement.
DraftKings, meanwhile, believes it has a path to do this, Bussmann said. Whatever happens, it increases the stakes in the mergers-and-acquisition realm of sports betting and igaming in the U.S. He said he didn’t see this coming today.
“DraftKings is trying to figure out not only how they can be one of but the dominant player in sports betting,” Bussmann said. “I think you have seen that, not only in the promotions they offer, but see how they address their legislative and regulatory scope. They like their role as the 800-pound gorilla.”
At gaming conferences this month, MGM executives stressed the importance of BetMGM in its strategy going forward. They even spoke of the importance of it on an international scale and including that in its large-scale investment.
Management noted, however, that even if MGM controlled 100% of the business (versus its current 50% joint venture with Entain), neither the operating performance nor the level of investment in the business would be any different.
