It has been widely reported that DraftKings, the daily sports fantasy company is looking to raise $200 million dollars in investor funds and to obtain a valuation of $1.5 billion in a bid to take the sports betting national market by storm.
Adam Krejcik, industry analyst at Eilers & Krejcik Gaming has said that based on DraftKings performance since the inception of the business in 2012, the company has displayed a strong track record of raising good revenue and has consistently backed that up with good market performance.
The incentive for this move has come as FanDuel, recently bought over by Paddy Bet Fair, also announced their intention of entering the sports betting market – something that they would not have been able to do without the investment and infrastructure of the Betfair online casino purchase. FanDuel Group as it is now known includes an NJ online casino and a horse betting site. It opened its first sportsbook at Meadowlands just this past Saturday and is also in negotiations to offer sports betting in West Virginia at a private casino, The Greenbrier.
DraftKings intention to expand beyond daily sports betting to offer every form of wagering nationally has been known for quite some time now, but currently, the only DraftKings casino & sportsbook exists in New Jersey at Resorts Casino AC. With 18 positions being offered by the DraftKings head-office in Hoboken NJ, meaningful expansion of their offerings appears to be a serious intention.
Whereas the raising of the capital seems to be ambitious, but achievable, the matter of reaching a valuation of $1.5 billion is another matter entirely. To quote Adam Krejcik again “From a valuation perspective we have a hard time coming up with how to justify a $1.5 billion valuation considering they have yet to turn a profit — and unlikely to do so in the near future — and the fact that their closest competitor FanDuel just sold for under $500 million. Moreover, this would imply investors would be paying 6-8X last-12-months revenue multiple, which we believe is lofty considering the DFS industry as a whole is only growing low-single digits and our base case forecast for the DFS market is essentially no growth over the next five years. DraftKings has been able to demonstrate year-over-year revenue growth, but it has largely come via market share gains.”
Krejcik went on to say that even crunching the numbers at 5% market-share for DraftKings of the projected sports betting income nationally, would still not yield them a valuation of $1.5 billion. However, that said, based on DraftKings past performance, Krejcik said he would not write off the possibility explaining that further valuable partnerships could make reaching this objective a little easier together with strong NJ sports betting.
Let’s watch this space and see what further strategies are employed in reaching their stated goals.