DraftKings to buy Golden Nugget Online for $1.56 billion, as gaming's M&A streak continues

• DraftKings agreed to acquire Golden Nugget Online Gaming for $1.56 billion in stock.
• Golden Nugget Online shareholders will receive 0.356 DraftKings shares, which is a roughly 53% premium to Golden Nugget Online's stock on Friday.
• The deal brings 5 million customers into DraftKings' ecosystem, which will help boost to its lagging iGaming efforts.

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The wild spate of mergers and acquistions in the gambling industry continued Monday as DraftKings agreed to acquire Golden Nugget Online Gaming for $1.56 billion in stock.

Golden Nugget Online shareholders will receive 0.365 shares of DraftKings stock, which puts the offer at a 53% premium to Golden Nugget Online shares' closing price on Friday.

Golden Nugget Online shares surged nearly 48% on the news, while DraftKings stock remained relatively flat after the deal's announcement. DraftKings has a market cap of $20.68 billion.

Golden Nugget Online CEO Tilman Fertitta owns 47% of the business, which was formed by spinning off the sports gaming and iGaming operations of the Golden Nugget. The billionaire said he will continue to hold on to the stock of the new company for at least year after the deal closes. Fertitta will also join the DraftKings board.

The deal gives DraftKings access to Golden Nugget Online's 5 million customers, who are dependable online casino players. The gaming industry anticipates customers who bet in online casino games will be critical to its future revenue growth. Fertitta, and others, have said iGaming customers are worth seven times the value of a sports betting customer.

On DraftKings second-quarter earnings conference call, CEO Jason Robins said iGaming provides an opportunity to diversify the company's offering beyond sports seasons. However, it has struggled to win customers to its casino play platform.

"We definitely feel in the iGaming segment that we do better with people who are sports fans, that we can cross-sell and we've been working hard to try to extend our brand and extend our reach into the non-sports fan iGaming audience," Robins said.

DraftKings anticipates $300 million in cost savings from the deal, as it brings platform and technology in house, cuts fees to third-party providers, and lowers marketing costs. The company will be able to get promotional and marketing consideration with Fertitta's Houston Rockets, Landry's and Golden Nugget's bricks-and-mortar casinos.

"Leveraging Fertitta Entertainment's broad entertainment offerings and extensive customer database, coupled with DraftKings' mammoth network makes this an unbeatable partnership," Fertitta said, in a statement. "Together, we can offer value to our combined customer base that is unparalleled."

Selling was the only option for Golden Nugget Online, as it only has significant market share in New Jersey and "didn't have the balance sheet to compete," said a gaming industry analyst who asked to remain anonymous since they didn't have approval to speak on the record.

DraftKings has been looking to diversify its revenue beyond fantasy sports and sports wagering. It has struck deals with sports bars, launched a marketplace for nonfungible tokens and partnered with data provider Genius Sports. The Genius Sports partnership brings official NFL data to DraftKings, as well as various other sports and streaming opportunities.

Last week, Penn National Gaming announced plans to acquire Canadian sports media and betting powerhouse, The Score.

Even in bricks-and-mortar, consolidation is the name of the game. Vici Properties announced last week it's buying MGM Growth Properties, in a $17.2 billion deal that transforms land ownership of the Las Vegas Strip.

Economies of scale matter in this increasingly crowded space, said Lloyd Danzig of Sharp Alpha Advisors, a venture capital fund and advisory firm dedicated to the sports betting industry. "Companies with engaged user bases, multistate market access or proprietary technology will be ripe for acquisition over the next 24-36 months."

It's the consolidation trend that is likely to shape the future of sports betting and iGaming, Danzig said, as sports betting operators become "cornerstones of the broader sports, media and entertainment ecosystems."

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