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  • yisman

    https://finance.yahoo.com/news/sports-betting-giant-draftkings-public-163851373.html

    DraftKings plans to go public and merge with two other firms, the Boston-based company announced Monday.

    DraftKings said it will complete its merger with gambling tech firm SBTech and special purpose acquisition company Diamond Eagle Acquisition sometime in the first half of 2020.

    DraftKings said the combined company will be valued at $3.3 billion, and it will have $500 million on hand once the deal is complete. It did not give details about its planned initial public offering.

  • infantryboys

    Maybe now they can afford to lower the rake.

  • kidzero

    Sure, I can just imagine the IPO projections showing a rake less than what DK is currently earning….

  • TheDataDetective

    • Blogger of the Month

    I wonder if this is why DK Sportsbook has had so many amazing free $ promos over the past 6 months or so. I.e. trying to increase the user base and usage volumes leading up to the merger & IPO. As soon as this news broke, their promos have been worse. Hope I’m wrong

  • MotownGreek

    @TheDataDetective said...

    As soon as this news broke, their promos have been worse

    The news just broke yesterday? Do you expect awesome promotions everyday?

  • TheDataDetective

    • Blogger of the Month

    @MotownGreek said...

    The news just broke yesterday? Do you expect awesome promotions everyday?

    Ok, maybe my timeline was off a bit if talking about when this became public knowledge, but I’m sure industry insiders knew about it earlier. The promos have been noticeably worse for the past week. I sure hope it’s a coincidence

  • thedude404

    • 2015 FanDuel NBA Playboy Mansion Finalist

    If anything, rake will increase, not decrease. Now they’ll have shareholders to answer to.

  • wolfjb1

    It’ll be interesting to see how they change over the next year or so.

    Going public usually means great things for founders, early stage investors, shareholders, (and sometimes employees, if they have options), etc.

    But when there’s pressure to meet stock price expectations, after a period of growth due to the influx of money, you usually see cost-cutting, layoffs, etc. Who knows, though, maybe I’m wrong and they flood more money into the product and improve it. They’ll probably roll out something when next NFL season starts

  • thedude404

    • 2015 FanDuel NBA Playboy Mansion Finalist

    I think the deal includes them getting $400 million in cash, so I imagine they will probably be spending that on rolling out their sports book product as more states legalize sports betting. I saw an interview with one of the founders, and it really seems like it’s all up in the air as to which states will legalize sports betting. I’m sure they want California and Florida to legalize ASAP, as obviously those are the two biggest markets. The future is sports betting, not DFS. But I’m sure DK will take advantage of their position in both markets to cross sell to their customers. I have to admit, I’m loving how DK and FD are absolutely leaving Vegas casino companies in the dust when it comes to opening new sports book markets.

  • mtdurham

    Typically, a company goes public when they have run out of private investors who are tired of answering the bell for unprofitable companies who have to continue raising new rounds of capital.

    I will be interested to see how large their losses are and if they buried any in their debt offerings over the years.

    I wont touch the IPO, as that’s a near guaranteed way to lose 50% of your investment normally.

    This must mean they are experiencing significant headwinds on the “legalize sports betting” front.

    Or in all likelihood they needed to raise HUGE sums of public money so they can grease the palms of the politicians who were blocking their foray into legal sports betting.

    Theres an election coming up and these guys are sitting on a goldmine. Zero chance the politicians are gonna sit by idly and let private investors be the sole benefactors.

    I’ll be a buyer once it hits 50% of its IPO price and I’ll back up the truck when it hits 68% losses.

  • superstars92

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    @mtdurham said...

    Typically, a company goes public when they have run out of private investors who are tired of answering the bell for unprofitable companies who have to continue raising new rounds of capital.

    Well seeing almost all the largest companies in the US are public…

  • superstars92

    • 116

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    It’s actually super rare for a company not to be public. Usually it happens when your original investors have a ton of money already (Koch brothers with Koch Industries) or you don’t want to be subject to public scrutiny (Chick-Fil-A because if they were public, all the shareholders would force it to open on Sundays). Otherwise, it’s almost beneficial to be public so you can offload your initial shares for the early employees/founders.

  • mtdurham

    @superstars92 said...

    It’s actually super rare for a company not to be public. Usually it happens when your original investors have a ton of money already (Koch brothers with Koch Industries) or you don’t want to be subject to public scrutiny (Chick-Fil-A because if they were public, all the shareholders would force it to open on Sundays). Otherwise, it’s almost beneficial to be public so you can offload your initial shares for the early employees/founders.

    I worked in VC and I know a good bit about the valuation of companies/startups.

    Companies typically go public for one of three reasons.

    A) they run out of private investors to fund their “cash burn”
    B) they need to raise massive amounts of cash quickly to expand operations and/or win an arms race.
    C) they are concerned about their inability to continue growing revenues and sustain valuations and want to cash out before the music stops

    No one goes public if they are on the verge of making a crapton of money because it would be foolish.

    This industry has two huge expenses.

    #1 – Tech. Which they already have In place
    #2 – Customer acquisition cost

    DK is sitting on a rolodex of probably 35 million degenerate gamblers names, addresses, emails, phone numbers, browsing history, etc. That’s an absolute diamond mine.

    They are about to become the #1 dominating market share player in a brand new legalized industry with restricted barrier to entry. Which is arguably the most important of Porters Five Forces. They are about to become the DeBeers of Degeneracy.

    If we conservatively estimated each customer was worth $200/annual revenue and my 35 million customer estimate was correct you’d be talking about $7 billion in annual revenues. Let’s give them an operating profit margin of 30% and that’s $2.1 billion a year in profit with high double digit growth rates with no end in sight.

    Throw a 40-80x multiplier on that and you are talking about a company that will absolutely RAKE in eventual share appreciation. Which will be so deeply incestual with political lobbyists that it resembles a no risk public-private investment than of an independent private company.

    But first they have to sheer the sheep. A story like the one I’ve told will be peddled in every village in the country. Millions of dollars are ripe to be pillaged from hardworking Americans by singing a song of instant riches.

    The founders and initial private investors will offload a portion of their stock at Fantasy valuations. Then after the 6 month lock up period concludes theyll dump as many shares on the unsuspecting public as humanly possible.

    The stock will drift downwards over the course of 12-24 months or so until the media proclaims it a dying quail and everyone jumps overboard. The stock will trade at a mere 30-50% of its IPO valuation.

    At which point not with a whimper but a bang the robert Kraft’s of the world will emerge from their masseuses strip mall lounge with a smile from ear to ear as they load up on options and exotic bets on the stock’s rebound.

    The floodgates will open as legalization comes to those who played the game. Who greased the slimy palms of the chosen ones who lead this great nation of Crony Capitalists.

    The stock off its lows will be a near certain 10 bagger. And probably a 20-25x.

    I wont miss the opportunity to get rich. But i won’t go broke first either. Us commoners will never nail the inflection point precisely. Which is why I will dip my toes In lightly at first. And then continue to buy.

    I wont fret as the stock plummets. It’s a game called “Shake the Monkey out the tree”. Ill Be a tough monkey. Just grab a branch and hang on and Continue to accumulate shares while lowering my average cost per share. And for god sakes I’ll make sure i do it first in a ROTH IRA, then subsequent pretax accounts so I wont have to pay a ton of taxes on my eventual millions.

    Ill take the money i would gamble each week and accumulate shares of ownership instead.

    Ill Avoid di-worse-ification. In for a penny, in for a pound. Balls Deep.

    This should not be construed as investment advice. Nor should you take my premonitions as the gospel.

    I’ve made my bed and I will lie in it. Early investors shall make their bed and die in it. I will emerge the winner.

    We write our prayers on a little bomb.

    Kiss it on the face and then send it to God.

  • superstars92

    • 116

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    @mtdurham said...

    A) they run out of private investors to fund their “cash burn”
    B) they need to raise massive amounts of cash quickly to expand operations and/or win an arms race.
    C) they are concerned about their inability to continue growing revenues and sustain valuations and want to cash out before the music stops

    Raising capital is one reason companies go public, but D) Liquidity for early investors/founders/employees is a legit reason a lot of companies go public. You aren’t a real millionaire/billionaire in paper money.

  • mtdurham

    @superstars92 said...

    Raising capital is one reason companies go public, but D) Liquidity for early investors/founders/employees is a legit reason a lot of companies go public. You aren’t a real millionaire/billionaire in paper money.

    There are a plethora of ways to generate liquidity without going public.

    Financial innovation has torn that wall completely down.

    That is one of the great lies they tell to transfer a steaming dog turd onto the unsuspecting public.

    IPOs in general are legalized theft.

    If they could make the company PROFITABLE before going public, trust me, they would.

    Theres a heck of a lot more money to be made in the land of make believe than there is in reality.

    Why would a group of private investors grease the palms of politicians if they cant GUARANTEE an outcome? Why take the risk for a group of people who can simply “change their mind” and shake you down continuously for more and more handouts?

    Rich people aren’t dumb. They are gonna pay the politicians off with dumb money, nouveau riche, and sheep.

    Then if it all goes bad they are off the hook.

    Heck, if they are really sharp theyll just have DraftKings pave the way to legalization with public money while they start their own offshoot companies that are coincidentally comprised of board members and founders who are nieces and nephews of the politicians taking the handouts.

    Your desire to believe in Angel’s in the hearts of men.

    Pull your head out of your hippie haze and give a listen.

    I shouldn’t have to say it all again.

    The universe is hostile, so impersonal.
    Devour to survive. So it is.

    And so it’s always been.

    Watch me grow rich while the whole world dies.

    Much better you than I.

  • superstars92

    • 116

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    @mtdurham said...

    There are a plethora of ways to generate liquidity without going public.

    Oh I’m aware of that. I’m just saying that’s a legit reason a lot of companies go public though. A lot of early employees would be mad if a company never went public (see Palantir)

  • mtdurham

    Well I’ll be. I just clicked the link and realized this was a reverse merger. Put away the jump to conclusions mat.

    That means they already got the greenlight for legalized sports betting and they are ultimately going to be running this whole shady operation through a shell company.

    Which obviously is lined with friends, family, and political insiders who carved out a piece of the pie.

    They’ve already raised the capital which means legalization is a done deal and the easy money has already been made.

    It makes a lot of sense. My overall point is still valid that when they finally IPO it will still be an absolute steaming pile. But an IPO could be years away now as a reverse merger means they wont need to raise public capital.

    My guess is you’ll see ridiculously high “juice” and MASSIVE crackdowns on bookies and black market forms of gambling entertainment to try to steer business towards their legal shakedown.

    This is gonna end up being a dark day for gamblers and wont open up any opportunity for normal investors either. Yuck. Back to the drawing board.

    I do think we will see bigger prize pools and more lottery style payouts in DFS now that the sites are no longer reliant on the high volume players to generate revenue.

    Being a professional or even semi professional DFS player is likely a thing of the past. The easy money has dried up and ROI’s are being whittled down to the point where it wont be worth the time or huge outlays required going forward.

  • ChaosM83

    • 720

      RG Overall Ranking

    @mtdurham said...

    I’ll be a buyer once it hits 50% of its IPO price and I’ll back up the truck when it hits 68% losses.

    My understanding is there will not be an IPO. But instead one of the companies they are merging with will be changing its symbol.

  • mtdurham

    @ChaosM83 said...

    My understanding is there will not be an IPO. But instead one of the companies they are merging with will be changing its symbol.

    That is correct, I corrected myself in the post above.

    No IPO at least for now. There may be one down the road but with $500m in capital and a virtual printing press at their disposal there is no need for one Now. Or possibly ever.

  • 2Slik

    I’m not a stock guru. Is DEAC essentially an investment in Draftkings or are they only holding the company purchased to be offloaded independently in an owned managed and ran new company ticker.

    Nice way to slide in some Tool lyrics there MT.

  • mike42

    @thedude404 said...

    If anything, rake will increase, not decrease. Now they’ll have shareholders to answer to.

    100%. They need to give accurate numbers for the past which tend to get hiked up leading into an IPO so the IPO garners interest. Then, they need to find growth in an industry that has been on a downtrend as a whole as most people realize the odds are nearly impossible to win other than for a select few and the companies that run it. Sportsbooks are getting legalized in more places every year, including my home state, Illinois, starting in a few days. This to should make it difficult to increase revenue at a pace that satisfies shareholders. In a nutshell, the only way DK can hit it’s numbers is probably by increasing rake.

    Oh, by the way, I didn’t even mention new competition such as Yahoo or Draft stealing revenue from a shrinking pie. I also didn’t mention that we have been in an economic growth cycle for 11 years now, which is the longest growth cycle in history, and absolutely means a major downtrend is close by. I think they are going public because they need money not because business is great. You would have to be a sucker to buy their IPO and I’d guess it fails in dramatic fashion. They raise less because the price goes down before the IPO is even set for trading and than it goes down from the open.

    I’ve traded stocks/options for the last decade and I’ve seen a lot of IPO’s and this one smells funny and will end up hurting DK users and helping FD and the others. DK will need to make money while others can focus on increasing business (lowering rake/increasing promotions).

    EDIT: I just read the reverse merger stuff. That changes some of my post but not the parts where I say playing on DK will not be more user-friendly.

  • mtdurham

    I’m busy this morning so I’ll look more later but all in all the DraftKings financials dont look too bad at first glance.

    Lost ~$75m in both 2017 and 2018 but avg revenue per customer did have nice growth and looks like revenues probably grew huge in 2019 (gotta wait till they release q4 which is football their dominant revenue engine)

  • TheDataDetective

    • Blogger of the Month

    @TheDataDetective said...

    I wonder if this is why DK Sportsbook has had so many amazing free $ promos over the past 6 months or so. I.e. trying to increase the user base and usage volumes leading up to the merger & IPO. As soon as this news broke, their promos have been worse. Hope I’m wrong

    It’s still early, but I’m glad to see that DK Sportsbook has continued to offer some solid promos over the last couple weeks. Not quite as good as the risk-free DK Blackjack promos during primetime NFL games, but better than it looked at first. Keep it up, DK!

  • gridironguru99

    • 367

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    @mtdurham said...

    I’m busy this morning so I’ll look more later but all in all the DraftKings financials dont look too bad at first glance.

    Lost ~$75m in both 2017 and 2018 but avg revenue per customer did have nice growth and looks like revenues probably grew huge in 2019 (gotta wait till they release q4 which is football their dominant revenue engine)

    Not bad but going means that you now are inviting investors to look into all the fun skeletons in DKs closet and the colluding and lack of DK rule enforcement might put a damper on the public company approach. I get that these execs likely want a liquidity event and an exit but they’re all inviting all sorts of scrutiny.

  • EadesScience

    This questioned has probably been answered, but I either overlooked it or could not find it. Has DK and its investing partner announced a Board of Directors and has the FTC approved the deal?

    Ricky

  • katho54

    They need to stop being so top heavy in there payouts,and spread the winnings out more…there are more casual players like me,who will never win the big one,than there are professionals…Getting into the top 1% is a win for guys like me,but,it doesnt payout what I think it deserves….its very discouraging

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