What's Next For The BetMGM Joint Sports Betting Venture?

A leading sports betting analyst sized up the news of Draftkings Inc DKNG attempting to acquire Entain ADR GMVHY.

What Happened: On Tuesday, DraftKings confirmed it was seeking to acquire Entain, a leading European sports betting company. The acquisition could have a huge impact on the future of DraftKings and Entain, and it also affects MGM Resorts International MGM.

DraftKings Impact: Entain confirmed receipt of a bid from DraftKings for around $22 billion. DraftKings has until Oct. 19 to confirm its intentions, Bank of America analyst Shaun C. Kelley said in a note.

Kelley sees a successful acquisition of Entain giving DraftKings and increased global scale, a better global technology stack and profitability.<

“A combination here would create a second global platform for digital gaming, like Flutter (owner of FanDuel),” Kelley said.

The analyst sees limited synergies between the U.S. and European markets and the loss of being a pure-play U.S. sports betting and iGaming stock as potential negatives to any deal.

Growth for DraftKings would go from 30% to the low double digit range as a combined company.

Kelley’s breakdown showed the combined DraftKings/Entain would have 58% of revenue from the European online market and 23% from the U.S. online sports betting and iGaming market.

The combined company would trade at a higher premium to Flutter Entertainment ADR PDYPY according to Kelley’s projections.

Related Link: Could DraftKings Beat MGM To Acquiring BetMGM Joint Venture? What Investors Should Know 

MGM Impact: BetMGM is a 50/50 joint venture owned by Entain and MGM Resorts that has a large presence in the U.S. online sports betting and iGaming segment.

MGM said on Tuesday it is the exclusive partner for Entain for the U.S. online sports betting and iGaming market and would have to consent to any deal from a competing business.

This announcement could add a wrinkle to the DraftKings acquisition plan or lead to further announcements about the BetMGM brand down the road.

“MGM could look to purchase the other 50% of the BetMGM JV as part of a 3-way transaction,” Kelley said.

MGM will have to consent to a deal and has said it believes “having control of the BetMGM joint venture is an important step.”

Kelley also sees a possibility of MGM trying to acquire Entain, as it tried earlier this year, and divesting pieces to DraftKings as MGM may need to buy out the joint venture and the technology that powers it.

“MGM could afford to afford to acquire ENT at a premium to the $22B bid DKNG has made,” Kelley said.

Kelley’s comments highlight that a bid for Entain could be far from over and DraftKings and MGM could battle against each other or engage in talks to split the company up into pieces.

Price Action: On Wednesday at publication, DKNG shares are up 0.17% to $52.86 and MGM shares are up 6.07% to $43.01.

Photo by Noah Silliman on Unsplash