DraftKings (NASDAQ: DKNG) is set to maintain its leading position in the US online gaming industry. The company announced Monday that it plans to acquire Golden Nugget Online Gaming (NASDAQ: GNOG) in a deal worth $1.56 billion in equity to GNOG's stockholders. All Golden Nugget Online Gaming investors will receive 0.365 of DraftKing’s shares for each GNOG share they own.
The agreement led to an immediate jump in the GNOG stock price of close to 50%. Golden Nugget Online Gaming only went live about eight months ago, merging with a special purpose acquisition company (SPAC). The deal has resulted in a spectacular windfall for CEO Tilman Fertitta, who maintains ownership of the company's land-based business (although Fertitta has agreed to hold onto his new DK shares for one year before selling them).
In the filing with the SEC, Jason Robins, CEO of DraftKings, stated that the deal between DraftKings and Golden Nugget created “meaningful synergies” embodied in various cross-sell opportunities, tech-driven product expansion, loyalty integrations, and more.
Both sides expect to close the deal early in 2022. Also, it is expected that DraftKings will become the official sponsor for Houston Rockets, the NBA franchise completely owned by Fertitta. In addition, it is anticipated that DK will open a retail sportsbook at Toyota Center, the home of Houston Rockets. The only potential obstacle to that side deal, is that Texas still hasn’t legalized sports wagering, but that may change in the near future, as many influential figures and organizations support sports betting in the Lone Star State.
It’s no secret that DFS giant DraftKings CEO Jason Roberts is engaging in a strategy of aggressive expansion. But the deal with Golden Nugget looks the most decisive one yet, for several reasons.
Firstly, DraftKings needs to diversify its operations away from the sportsbook vertical, as the online casino market slowly opens up across the US. Although sports betting is already legalized in 15 states, the online casino vertical is present in just 5 - but that is expected to rapidly increase in 2022. Casino is clearly the next big growth story in the US.
Casino is typically a lower risk, higher margin business when compared to sports betting. Casino players also tend to spend more on this type of entertainment than they do on sports wagers.
Moreover, some industry commentators believe that the online casino market itself could be worth as much as $42 billion by 2030. According to analysts, the estimated compound annual growth rate for online casinos in the US is 40%, which is way ahead of the growth rate for online sports betting, is estimated at 27%.
Together, these form the main reasons why DraftKings decided to acquire Golden Nugget's online business.
However, GNOG is not the only company that DraftKings has recently acquired. It has also snapped up an array of media and technology companies in recent months, improving its overall position in the industry. But the acquisition of Golden Nugget is perhaps the most strategic recent move by DraftKings, given its existing consumer base in several key states. One can only assume that the company will continue to acquire other industry players as part of its long-term growth plan, especially as this week's deal is purely equity-based, allowing DK to hoard cash for future deals.
Once the deal is finalized in 2022, it will be interesting to see whether Golden Nugget will keep its brand, promotional offers, or any other aspect of its operation.
Monday's move is likely to accelerate the already frothy M&A activity in the US iGaming market, as DraftKings rivals such as Caesars, Bet365, and Flutter (owner of Fan Duel) are forced to respond. For the time being, market share growth will continue to be the most valued metric for the bosses of America's iGaming firms.