DraftKings on Monday announced plans to acquire Golden Nugget Online Gaming, the fast-growing offshoot of the Golden Nugget casino chain, for $1.6 billion.
It’s a steep price to pay for an online business that brought in just $27 million of revenue in the first quarter and expects to bring in $130 million to $145 million for the full year. DraftKings was already expecting 2021 revenue of $1.2 billion to $1.3 billion.
But the deal also brings a marketing arrangement with the other company of Golden Nugget’s billionaire chief executive Tilman Fertitta. His Fertitta Entertainment conglomerate includes the Houston Rockets basketball team, a portfolio of real-world Golden Nugget casinos across five states, and the Landry’s restaurant chain which includes Del Frisco’s, Morton’s, and Joe’s Crab Shack. Fertitta will join DraftKings’ board as part of the deal.
“I really enjoyed getting to know him through this process,” DraftKings chief executive Jason Robins said in an interview. “Most exciting about this deal is the opportunity to work with somebody who has clearly been one of the great entrepreneurs of the last several decades.”
Another key for Robins was the opportunity to attract more traditional gamblers, like those who frequent Golden Nugget’s casinos, to DraftKings’ online casino games such as blackjack and roulette. In the past, the company tried to convince its large base of sports-betting customers also to play the casino games, but with mixed success.
“We weren’t really capturing them,” Robins said. “Our brand is really more appealing to a sports-first audience . . . We felt like having a brand with a little bit of a different demographic and one that wasn’t sports-first would be a way to build out that audience for us.”
DraftKings’ stock price, which was already up 48 percent over the past year, rose 1.5 percent to close at $52.36 Monday after the deal was announced.
Golden Nugget’s shares shot up 50 percent to close at $18.50. The online gambling service’s stock price had struggled as COVID has cut into its related real-world businesses. The stock had been down almost 40 percent in 2021.
In a call with investors, Fertitta said he wanted to partner with DraftKings to connect his company with a leader in the industry.
“They’re the Coca-Cola of this space,” he said. “There’s going to be a lot of consolidation in this space in coming years and we wanted to be with a winner.”
Another key asset in the deal was gaining access to Golden Nugget’s customer databases from its casino and restaurant businesses, which include spending and gaming habits of 5.5 million people, Robins said.
Sports-betting windows at the Golden Nugget casinos will be rebranded with the DraftKings name as part of the deal.
DraftKings said the deal could lead to $300 million in additional cash flow per year. But it won’t come right away. The company said it could realize the $300 million when the US online gaming market has matured and more states have legalized the games.
“Those synergies are really a projection of the market at maturity,” Robins said. “It’s not a tomorrow thing.”
The merger, which is expected to close in the first quarter of 2022, represents a combination of two companies that went public via mergers as well. DraftKings became publicly traded by merging with a special purpose acquisition company in April 2020, while Golden Nugget Online Gaming merged with a SPAC last December.
Fertitta’s larger company that owns the casinos and restaurants is also in the midst of merging with a SPAC.