DraftKings Stock Is Dropping Wednesday: What's Going On?

DraftKings Inc DKNG shares are trading lower Wednesday on the heels of an online sports betting deal between PENN Entertainment Inc PENN and ESPN.

What Happened: Penn entered into an exclusive agreement with Walt Disney Co's DIS ESPN. The deal gives Penn exclusive rights to the ESPN Bet trademark for online sports betting in the U.S. for an initial 10-year term. The agreement may be extended for an additional 10 years upon mutual agreement.

Penn also sold 100% of the Barstool Sports common stock back to Dave Portnoy in exchange for certain non-compete and other restrictive covenants. The Barstool Sportsbook is set to be rebranded to ESPN Bet in the fall.

Penn will pay ESPN $1.5 billion for the initial 10-year term and grant ESPN approximately $500 million in warrants to purchase 31.8 million shares of Penn common stock in exchange for media, marketing services, brand and other rights provided by ESPN.

Penn estimated that the deal would add $500 million to $1 billion of annual long-term adjusted EBITDA potential. 

DraftKings and Penn compete in the online sports betting space. DraftKings shares sold off immediately following the announcement, but analysts don't appear to be too worried. 

Wednesday morning, JPMorgan analyst Joseph Greff upgraded DraftKings from Underweight to Neutral and announced a $26 price target. Citigroup analyst Jason Bazinet maintained a Buy rating and raised the price target from $30 to $41.

See Also: Jim Cramer Says Disney Stock A Bargain After PENN Deal: 'Bet Against Disney And Send Me An Invitation To Your Funeral'

DKNG Price Action: DraftKings shares were down 6.02% at $29.80 at the time of writing, according to Benzinga Pro.

Photo: courtesy of DraftKings.