DraftKings shares jump on ESPN brand partnership reports
Oppenheimer analysts believe a possible partnership announcement could be made before or around the start of the NBA season
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DraftKings jumped 8% Friday before giving up gains. Reports that the fantasy sports contest and sports betting company is nearing an exclusive brand partnership with Disney-owned ESPN pushed shares higher.
A DraftKings spokesperson told FOX Business that it has a "great, long-standing relationship with ESPN" but that it speaks to a variety of companies on a regular basis and does not comment on the specifics of those conversations.
Representatives for ESPN did not immediately return FOX Business' request for comment.
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The Wall Street Journal reported in August 2021 that the House of Mouse was searching for a sports betting partner for ESPN, seeking at least $3 billion over several years.
The sports broadcast network currently has marketing deals with DraftKings and Caesars Entertainment Inc. where links to the sportsbooks are integrated into the ESPN website.
In addition, Disney has a 4% stake in DraftKings following its acquisition of Fox Corporation's entertainment assets in 2019. Fox Corporation is the parent company of FOX Business.
DraftKings
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| DKNG | DRAFTKINGS INC. | 40.68 | -0.96 | -2.31% |
| DIS | THE WALT DISNEY CO. | 112.61 | +0.18 | +0.16% |
| CZR | CAESARS ENTERTAINMENT INC. | 38.20 | +0.22 | +0.58% |
| FOXA | FOX CORP. | 31.39 | +0.62 | +2.01% |
Oppenheimer analysts Jed Kelly and Jason Helfstein said in a note to clients that DraftKings is in a favorable negotiating position as "the only operator with the budget scale to meet DIS partnership standards," citing FanDuel's investments in its own over-the-top (OTT) channel and Caesars and BetMGM scaling back advertising.
FanDuel is a unit of Flutter Entertainment. BetMGM is a partnership between MGM Resorts International and Entain Holdings.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| PDYPY | n.a. | n.a. | n.a. | n.a. |
| MGM | MGM RESORTS INTERNATIONAL | 42.42 | +0.37 | +0.88% |
| GMVHY | ENTAIN PLC | 10.42 | +0.17 | +1.66% |
The firm believes that any potential agreement between the two parties would be "well under the $3 billion" cited by the Journal.
"We see a closer operating partnership, combined with DIS 4% DKNG ownership, providing a solid floor (potential acquirer) for the stock," Kelly and Helfstein added. "We believe an announcement could be made before or around the start of the NBA season (Oct. 18th)."
In this photo illustration, the American daily fantasy sports contest and sports betting company DraftKings logo is displayed on a smartphone screen. | Getty Images
The reports come after activist investor and Third Point Management CEO Dan Loeb sent a proposal to Disney in August regarding several initiatives designed to cut costs and generate positive free cash flow, including a possible spinoff of ESPN.
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However, Loeb later backed off after Disney CEO Bob Chapek told the Financial Times he believes ESPN's potential is "within the Disney company" and that the company had a plan to "restore ESPN to its growth trajectory."
Daniel S. Loeb, founder of Third Point LLC, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nev., May 9, 2012. (Reuters/Steve Marcus / Reuters Photos)
ESPN chair Jimmy Pitaro recently told Bloomberg — the first to report the potential DraftKings partnership — that the network wants to "eliminate friction" for bettors. Pitaro said fans not only want more sports betting, but also a way to seamlessly wager from their online digital experiences.
As of the time of publication, DraftKings shares are down approximately 40% year to date.
Americans have legally wagered more than $50.4 billion on sports in the first seven months of 2022, generating more than $809 million in federal, state and local taxes, the American Gaming Association said. Sports betting is currently legal in 36 states and Washington, D.C., with 32 jurisdictions already offering operational markets.