DraftKings is Going Public – Is it a Smart Decision?

DraftKings is one of the country’s biggest daily fantasy sports and sports gambling operators. Over the past few years, this company has gone through several major changes. This week, news reports began claiming that DraftKings is going public.DraftKings Logo

It’s surprising news. DraftKings is hugely popular, yet it’s struggled to turn a profit over the years. Today, we’re going to talk about whether or not the decision to go public is a good one.

Let’s get into it!

History of DraftKings

In the 2000s, several sports fans began to realize that daily fantasy sports could be offered throughout the US. Unlike sports betting, which is considered a game of chance, daily fantasy sports is technically a game of skill. That made it legal in almost every state, despite it acting as a form of sports wagering.

In 2009, FanDuel launched. In 2012, DraftKings officially began operating, as well. That same year, DraftKings company received millions of dollars in outside funding.

Over the next few years, DraftKings began to expand around the country. In 2013, it paid more than $50 million in winnings to players. It also claimed to have 50,000 active users.

By 2015, the company was valued at $250 million. Unfortunately, DraftKings began facing legal trouble in several states. New York famously banned the DFS operator, claiming that it violated the state’s constitution.

After PASPA was struck down in 2018, DraftKings began breaking into the traditional sports betting industry. Today, this company is offering sports betting odds in several states.

This week, news came out that DraftKings is going public. It’s a major gamble for the company. Will it pay off?

Here’s Why DraftKings is Going Public

The US sports betting industry has never been stronger. This is all thanks to PASPA being removed. Now, every state in the country has the ability to set its own laws on sports betting. 21 states have already legalized this popular form of gambling.

The US now has the hottest new sports betting market in the world. As a result, a huge number of companies are working to offer sports gambling options in different states. DraftKings is one of these companies.

In order for a company to break into this industry, it needs considerable funding. This is a major reason why DraftKings is going public. The company plans to merge with two different companies. Afterward, the combined companies are expected to have a market value of $3.3 billion.

DraftKings claims it will have more than $500 in unrestricted cash.

Jason Robbins, co-founder and CEO of DraftKings, will lead the merged companies. He commented on his plans to the media this week.

“The goal is really to be the only company in the world that is focused primarily on the U.S. market,” Mr. Robins said. 

Going Public is a Major Gamble For DraftKings

Anytime a company goes public, it’s a gamble. DraftKings is taking a slightly different approach than most do. Instead of an IPO, DraftKings is going public through its merger with a special purpose acquisition company.

Jason Robbins also spoke with Yahoo Finance about this decision.

“We had three objectives we were trying to solve for. First was, we wanted to complete the purchase of SB Tech, which required some cash,” he said. “Second is that we wanted to raise additional capital to pursue state launches for all these new states that are legalizing online sports betting. And third, we wanted to get public. And this allowed us to do all three in the same transaction. We’re going public at a time when the sports betting industry in the U.S. is hopefully at the very early stages of taking off, so it gives public investors a real opportunity to ride that growth.” 

That certainly makes sense. The only problem is that DraftKings has struggled to earn a profit over the years. Tough regulations on a state level have made things very difficult for the company.

If more states choose to legalize this industry, the decision will certainly pay off. Robbins believes this will be the case. If, somehow the government changes its stance, then going public may ultimately prove to be the wrong decision.

DraftKings is going public in early 2020. We’ll need to wait and see just how smart this decision is in the long-run.

Stay tuned for more US gambling news over the next few weeks!