DraftKings ESPN Deal May Pay Serious Dividends to Investors

Right now, investing in gaming is hot. Turning up the heat is the recent multi-year Caesars, DraftKings ESPN deal. The deal will feature DraftKings content on the ESPN network’s TV and digital platforms. As a result, shares of Caesars and DraftKings jumped as much as 10.5% and 17.5% respectively.

This year, the online gaming industry boomed, riding high on an unexpected side effect of the pandemic; with the closure of retail casinos and sportsbooks, gamblers moved online. As a result, spending on not only online casinos and sportsbooks exploded, but video game sales too. As a result, shares of DraftKings are up nearly 300% this year.

The Strategic Launch of the DraftKings ESPN Deal

According to the deal, DraftKings will be a co-exclusive partner for outgoing gambling links from ESPN, and the exclusive provider of daily fantasy sports.

Mark L. Walker, ESPN’s vice president of business development and innovation, called the DraftKings ESPN deal “the next big milestone for ESPN to diversify our exposure and strengthen our commitment to the sports betting space.”

The strategic timing of the DraftKings ESPN deal coincides with the return of the National Football League. Not only that, the pandemic shutdowns forced the delay of the National Basketball Association and the National Hockey League playoffs until September. For the first time ever, the NFL, NBA and NHL seasons are all playing at the same time. That gives sports bettors plenty of sporting events to wager on.

Last year, ESPN struck a deal with Caesars Entertainment to build a new ESPN studio inside its LINQ Hotel and Casino in Las Vegas. The studio, which went live recently, acts as ESPN’s headquarters for sports betting content.

Once considered taboo in US sports, gambling is slowly becoming mainstream after the Supreme Court lifted the ban on sports betting in 2018. That ruling cleared the way for any state to legalize sports betting. Right now, 18 states, plus Washington DC have legalized sports gambling, and 13 more states have legislation either passed or pending.

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DraftKings, a Fair Price for a Growth Stock

Currently, DraftKings stock is trading at a fair price. Q2 2020 revenue for the company was $75 million, and DraftKings reported a loss of 55 cents per share. Utilizing DraftKing’s 2020 revenue estimates, the company trades at a price to sales ratio of 36.

Profitability is a concern, and it’s difficult to estimate a fair price for the stock since DraftKings is a few quarters away from profitability.

But what is impressive about DraftKings is the company’s conservative financial management during the postponement of major league sports. According to DraftKing’s Q2 2020 earnings transcript, the company has zero debt and $1.2 billion in cash.

While most new IPOs are weighed down with debt and have almost no cash, DraftKings defied that stereotype.

Gambling ETFs to Keep in Mind

ESPN has broadcast rights to all of the major U.S. sports leagues, making this a very beneficial deal for all parties. Public demand for sports betting has exploded even further since the delay of major sporting events until September. With this in mind, we’ve highlighted a few exchange-traded funds (ETFs) that could capitalize on the Caesars, DraftKings ESPN deal.

VanEck Vectors Gaming ETF

MV Index Solutions (MVIS) is the index business of VanEck, a US-based investment management firm and provider of the VanEck Vectors ETFs.

The MVIS Global Gaming Index tracks the overall performance of companies involved in gambling, including casinos, casino hotels, sports betting, lotteries, online gaming, gaming technology, and gaming equipment. The fund placed 4.75% weight in DraftKings and 2.68% weight in Caesars Entertainment into the fund.

Roundhill Sports Betting & iGaming ETF

The Roundhill Sports Betting & iGaming Index tracks the overall performance of a portfolio packed with tiered-weight, globally-listed equity securities of sports betting companies. According to Roundhill, DraftKings has 5.20% weight in the fund.

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