How DraftKings Might Look to Spend its $2 Billion in Cash on Hand

Several high ranking DraftKings executives sold shares of the company when it hit peak levels in June. Fourteen million of these shares came from the company and 19 million shares came from selling shareholders including CEO Jason Robins. At the time, DraftKings was over $40 a share before dropping considerably upon news of the sell-off.

Fast forward to October, and DraftKings is again one of the hottest stocks on the NASDAQ gaining buyers all over the world. They hit an all-time high on Friday, Oct. 2 at $62 per share and a market cap well over $20 billion.

History repeated itself once again on Monday when DraftKings announced it would be offering 32 million Class A common shares. Sixteen million of these shares would be coming from the DraftKings company itself while the other 16 million would be coming from selling stockholders.

The selling stockholders consist of New England Patriots owner Robert Kraft, who is selling about half of his position, and SBTech co-founder Shalom McKenzie who is selling 8.5 million shares. With this major sell-off, DraftKings will now raise anywhere between $800 million and $1 billion in cash on hand. That kind of cash on hand, on top of the third-quarter earnings report means DraftKings could very well be eyeing an acquisition.

Who Could DraftKings Look To Acquire?

DraftKings has kicked the tires on Bleacher Report in the past with little success. They certainly have the cash at this point to buy Bleacher Report who is owned by Turner Sports. Turner Sports is however owned by AT&T who Front Office Sports explains has been looking to decrease their debt.

It is worth noting that Turner purchased the Bleacher Report in 2012 for $175 million. DraftKings could easily offer AT&T a fair price for Bleacher Report.

In August, Playtech investor Jason Ader said in an interview with Bloomberg that Playtech should be looking towards a DraftKings takeover. “They should be making a stock-for-stock deal with Playtech. If I were on their board, that’s what I’d be saying,” he said.

Playtech is a European gaming company that makes software for online casinos. Playtech has a market cap of $1.09 billion making the purchase relatively easy for DraftKings to pull off, especially with new money coming in. I would not expect this to happen anytime soon however as DraftKings did not show much interest after those comments.

DraftKings has seen the benefits that Penn National Inc. has reaped since the purchase of Barstool Sports for $176 million earlier this year. They could attempt a similar move flush with nearly $2 billion at their disposal.

Sports media outlets including, SBNation, Bleacher Report, and others could see DraftKings come calling.

The power that DraftKings has created is truly remarkable at over $60 a share. A media company backing its platform would drive shareholders wild, possibly helping it become the largest gambling company in the country.

Third-Quarter Earnings Report Shows Record Revenue

DraftKings is expected to report anywhere between $131 and $133 million in revenue for Q3. This is in line with expectations that were set by FactSet. Of note, DraftKings did mention that NFL wagering had an estimated negative impact of $15 million in the quarter.

This could be related to a high number of favorite and over bets being taken and executed successfully by bettors. DraftKings did say that NFL bettors in particular have been more successful thus far in the season than compared to previous seasons.

As sports betting grows across the country, companies like DraftKings will turn up the heat in marketing. With a deposit bonus that gives new users over $1,000 in free bets. Furthermore, DraftKings is expected to spend $200 million in the third quarter for marketing and sales. This is significantly higher than the $134 million that Morgan Stanley initially estimated.

DraftKings has skyrocketed from its IPO in April to the second-largest gaming company in the world. Only Las Vegas Sands (NSQD: LVS) has a higher market cap ($35 billion).

At the end of quarter 2, DraftKings had $1.2 billion in cash on hand with no debt. This comes with reports of interest in the Turner Sports owned, Bleacher Report. Turner Sports denies interest in such a takeover. However, AT&T owns Turner Sports, DraftKings could be knocking on their door sooner rather than later.

An email sent to DraftKings seeking additional information about their plans was not immediately returned.

About the Author

Erich Richter

A New York based freelance writer and gambling expert specializing in the sports industry. Written on numerous platforms with SEO certifications and a diehard Mets, Giants and Knicks fan (it’s been tough). Interests include keeping up to date on the newest features and technologies from sportsbooks since beta testing several of the legal gaming companies upon their inception.