What’s Behind DraftKings’ $22 Billion Offer for Entain

Looking to further entrench its leading position in the online sports betting (OSB) universe, DraftKings (DKNG) has reportedly made an offer to acquire competitor Entain for around $22 billion.

The company is a major player in the European gambling market, and in the U.S., owns 50% of BetMGM (MGM Resorts owns the other 50%). Looking at the proposed deal, Needham’s Bernie McTernan thinks there are two important questions around the prospective merger which need answering: why make the bid and why now?

As for the former, McTernan believes “market share consolidation would be most compelling, followed by faster penetration outside the US and access to Entain’s tech stack.”

As BetMGM ranks among the top three in US market share (along with DKNG and FanDuel), the prospect of DKNG owning 50% of BetMGM is intriguing but even more alluring is that the Entain bid could be the “first step to combining DKNG and BetMGM.” With access to over 35 million M Life Rewards members, the data troves at BetMGM will have a far bigger impact than those of the recently acquired online gambling firm Golden Nugget Online Gaming (expected to close in 1Q22) and its 5.5 million customer database.

Additionally, as Entain claims significant market share in other countries (No. 1in Italy, 2 in the U.K. and Germany and third in Australia), gaining a foothold in these regions would be far cheaper and easier than having to do so as a late and solo entrant into these markets.

As for the latter question of why now, the timing coincides with two events. One is the beginning of the NFL season. “A bullish take would be early results are strong indicating potential upward pressure on asset values,” the analyst noted. The other event is the completion of the transition from Kambi’s outsourced tech stack to SBTech. The bears could point out here, says McTernan, that DKNG is making its move because it “needs access to a better tech stack.”

Where does McTernan stand? Squarely in the bull camp. The analyst rates DKNG stock a Buy and has a $73 price target for the shares. Investors stand to pocket ~40% gain, should all go according to plan over the next 12 months. (To watch McTernan’s track record, click here)

Most on the Street agree with the Needham analyst’s thesis; based on 12 Buys vs. 4 Holds, this stock has a Strong Buy consensus rating. The average price target is only slightly below McTernan’s; at $72.43, the figure suggests upside of ~38% in the year ahead. (See DraftKings stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.