DraftKings, the sports gambling and entertainment company that has been one of Boston’s most successful consumer tech startups, has become a hot acquisition target as financial interest grows in the burgeoning US sports-betting industry.
This week, the company was the subject of a report that it is in takeover talks with the investment company Diamond Eagle Acquisition Corp. A deal could potentially help DraftKings go public or merge with another firm.
Two people with knowledge of the situation and who asked to remain anonymous confirmed the talks, which were first reported by Bloomberg, but stressed that a deal is not certain. DraftKings often receives interest from potential suitors, they said, and discussions could continue for weeks before a decision is reached.
Sports gambling industry observers say it makes sense that DraftKings is attracting acquisition interest. The company, which began as a provider of paid daily fantasy sports games, has become a leader in the fast-expanding market for sports wagering.
“I don’t think that this would come as a surprise to anyone,” said Sara Slane, founder of Slane Advisory, a consulting firm working in the field. “Obviously, the sports-betting industry right now is red hot, and DraftKings has done a great job positioning themselves early on.”
Slane said interested parties could include European sports books outfits looking to get in on the growth of the US market.
The US Supreme Court in 2018 opened the way for states beyond Nevada to legalize sports betting, and DraftKings has been one of the most active companies in the introduction of mobile and online sports-betting games.
It was the first online sports book in New Jersey when it rolled out there last year, and it is the front-runner in bidding to operate a program set to begin soon in New Hampshire. But the more the company grows, the more capital it needs.
“DraftKings is basically the only privately held company that is seriously contesting the US regulated sports betting market,” said Chris Grove, a partner at the research firm Eilers & Krejcik Gaming.
“And that may not be a tenable position, simply because there is such an insatiable need for money when you’re running a sports book.”
DraftKings has been privately funded since its founding in 2011 , raising close to $1 billion from investors in the sports, financial, and entertainment industries as it spent big on acquiring customers and fought legislative and regulatory battles to keep its products legal.
In 2016, it agreed to merge with New York rival FanDuel, but the merger fell through a year later after the Federal Trade Commission raised concerns the deal would stifle competition in the daily fantasy industry — in which participants compete based on the real-life performance of athletes they select.
Since then, both companies have moved into sports betting.
FanDuel last year was acquired by Paddy Power Betfair, an Irish firm seeking a stronger foothold in the United States.
In Massachusetts, lawmakers have been debating sports betting for over a year, and DraftKings has become an influential voice. The firm has support from a number of legislators who want to encourage the growth of a local technology operation.
DraftKings employs about 800 people in the Boston area, and chief executive Jason Robins often talks about his commitment to building the business locally. The company recently opened a massive new office in the Back Bay. In August, DraftKings launched a venture aimed at supporting sports tech entrepreneurs as well as pro athletes interested in investing and working in the industry.
An acquisition of DraftKings wouldn’t necessarily have a major effect on its presence in Boston.
Slane noted that the company’s infrastructure would be difficult to relocate.
“It’s hard to move talent . . . and so usually those home bases stay strong, and they continue to groom the team that they have,” she said.
And an acquisition could take many forms. Diamond Eagle is a publicly traded entity known as a special-purpose acquisition company. Sometimes called “blank check” firms, these companies raise money to finance future transactions and at first depend largely on the reputations of their managers.
The leaders of Diamond Eagle, veteran media industry executives Harry Sloan and Jeff Sagansky, have long been interested in the industry. They reportedly considered buying FanDuel last year, before the Paddy Power transaction.
In a statement, DraftKings said that it would not comment on the specifics of its business discussions. Diamond Eagle also declined to comment.
A deal could potentially be an unconventional way for DraftKings to go public, providing ready access to additional capital and a way for some early investors to cash out without an initial public offering of stock. Such a transaction could mean the company essentially remains in control of its own destiny.
A deal with Diamond Eagle could also take the form of a merger with another company that has complementary business, which could spell more uncertainty for DraftKings’ future as a standalone brand.
Grove said that DraftKings could make sense in combination with a land-based casino company, because the two businesses could work together to get online players into retail gambling facilities, and vice versa.
“The prime directive in all of this is going to be, ‘How can we get the most cash in under the most favorable terms in the shortest amount of time?’ ” Grove said.
“So whatever option leads to that outcome is going to be the option they prefer.”