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DraftKings to take a gamble on Wall Street despite not being profitable

Kenneth Underwood
Senior Producer

DraftKings is taking a gamble on Wall Street. 

The online gaming company plans to go public early next year, but it won’t be a traditional IPO. Instead DraftKings will take a similar path as Virgin Galactic (SPCE) earlier this year, by combining with a special purpose acquisition company or SPAC. DraftKings will merge with gaming technology company, SBTech, along with the already public Diamond Eagle Acquisition Corp. (DEACU). 

So, why go this route? DraftKings CEO Jason Robins sad it is part of a bigger strategy.“We had three objectives we were trying to solve for. First was, we wanted to complete the purchase of SB Tech, which required some cash. Second is that we wanted to raise additional capital to pursue state launches for all these new states that are legalizing online sports betting. And third, we wanted to get public. And this allowed us to do all three in the same transaction,” he told Yahoo Finance’s On The Move. “So we looked at other options as well, but everything else would, you know, usually multiple transactions and lengthier timeline. This is a way to kind of get it all done at the same time and have a real efficient way of solving for all of our objectives.”

A DraftKings logo is displayed on a board inside of the DFS Players Conference in New York November 13, 2015. REUTERS/Lucas Jackson

Robins went on to reveal that despite its public plans, DraftKings is not a profitable company yet, something that has hurt recent IPOs like Uber (UBER) and Peloton (PTON) this year. 

Why go public now?

Robins said, “We're going public at a time when the sports betting industry in the U.S. is hopefully at the very early stages of taking off, so it gives public investors a real opportunity to ride that growth. And I think a lot of companies typically would wait till later and would finance themselves privately that way.”

Online sports betting has faced an uphill battle in recent years, and despite a Supreme Court decision in its favor, it is still dealing with tough regulations on a state level. 

Despite the long road ahead, more and more states are getting on board, something Robins says could lead to big business, 

“I think if it were legalized throughout the U.S., estimates are in the tens of billions of dollars. So, you know, I think it could be quite a large industry, and we think that, you know, the online component will be the majority of it.”

So will more regulators play ball? “Never easy to predict what governments will do, and obviously, you know, politics and, you know, who is actually making the decisions, changes. But right now, clearly it seems like the momentum is in favor of the states continuing,” said Robins. 

Kenneth Underwood is a senior producer for Yahoo Finance.

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