In a development certain to alter the gaming landscape in several US states and possibly Ontario, DraftKings completed its long-awaited acquisition of Golden Nugget Online Gaming (GNOG) on Thursday.
By acquiring GNOG and integrating its online casino capabilities into DraftKings’ tech stack — including GNOG’s live dealer games — DraftKings instantly becomes a serious force in the online casino vertical, with synergies of $300 million expected once the deal matures.
But the acquisition also provides DraftKings with an opportunity few others have: to expand into five of the six US states where online casino gaming is legal. (Sorry, Delaware).
“This will be an alliance unlike any other in the digital sports, entertainment, and online gaming industry,” said Tilman Fertitta, CEO of GNOG and now a board member at DraftKings.
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Possible Changes Under “Multi-Brand” Strategy
DraftKings announced some changes to come and hinted at others. In a statement Thursday, the Boston-based company said it plans to “rebrand certain current and future retail sportsbook locations at Fertitta Entertainment-owned Golden Nugget properties into DraftKings sportsbooks.
The acquisition does not include brick-and-mortar Golden Nugget casinos, of which there are five — two in Nevada, and one each in Louisiana, Mississippi, and New Jersey. The properties were retained by Landry’s, a subsidiary of Fertitta Entertainment.
In the online realm, Houston-based GNOG operates online casinos in three states — Michigan, New Jersey, and West Virginia. It also runs online sportsbooks in those three states, plus Arizona.
DraftKings twice mentioned deploying a “multi-brand” strategy moving forward and said it also plans to access GNOG’s “built-in iGaming-first customer.” Such an approach “will enhance cross-selling opportunities,” the company said.
“Once integrated, customers of both brands will utilize DraftKings’ technology and have access to expanded product offerings and features, including in-house live dealer and proprietary games, as well as an overall improvement in the customer experience.”
That strongly suggests that DraftKings plans to use the Golden Nugget brand for online casino gaming instead of the DraftKings Casino product it currently deploys. Both brands are live in Michigan, New Jersey, and West Virginia.
The changes may not end there. DraftKings is live in Pennsylvania and could introduce the Golden Nugget brand there. It is also one of only two operators in Connecticut authorized to offer online casino gaming, which gives DraftKings an opportunity that only its rival FanDuel shares. DraftKings is also expected to launch soon in Ontario.
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DraftKings’ Stock Down, But Expected to Rebound
DraftKings announced its intention to acquire GNOG in an all-stock deal valued at approximately $1.56 billion in August 2021. The agreement called for GNOG shareholders to receive 0.365 shares in the new company resulting from the acquisition for every share of GNOG they own.
GNOG shareholders ultimately got much less. At the time, the deal was announced, shares of DraftKings were trading at about $52 per share on the NASDAQ exchange. The stock closed at under $16 on Wednesday. With 29 million GNOG shares up for conversion, that works to about $456.2 million — 70% below what was originally forecast.
By comparison, DraftKings’ stock is down 75% from a peak of $63.67 on September 9, 2021.
But shareholders in the new company could have reason to rejoice. In a note to clients Monday, Morgan Stanley analyst Michelle Weaver identified DraftKings as one of 45 stocks deemed “overweight,” meaning the stock is expected to perform better in the future.
“We forecast legal US sports betting and iGaming to increase from less than $1.5 billion in 2019 to $21 billion in 2025 as more states legalize and spend per capita rises,” Weaver wrote.
Fertitta appeared on the CNBC show Power Lunch last week to discuss the deal and other topics.
“Of course, the value isn’t $1.5 billion anymore,” Fertitta said. “But it’s not just DraftKings. If you look at every other online gaming company out there, [the decline is] universal.
“It is what it is, but I look at this as a long-term hold. I will be one of the largest shareholders of DraftKings. It’s a tech company. It is technology. It’s going to be just like Amazon, Tesla, or one of these other tech stocks — you’re going to look up and it’s going to be back to $50 to $100 again in the next few years.”
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