Caesars and DraftKings May Enjoy Fiscal Benefits After ESPN's Agreement with Penn
Penn Entertainment's new 10-year, $1.5 billion sports betting partnership with ESPN could lead to immediate cost savings for the two rivals. Announced last week, this partnership indicates that ESPN is in the process of severing its deals with Caesars Entertainment and DraftKings, both reached in September 2020. These terminations may lead to significant financial gains for Caesars and DraftKings.
Earlier contracts between the parties didn't disclose their terms, but ESPN is believed to be generating around $75 million in annual revenue from the deals. This implies that Penn's $150 million annual payments to ESPN for the use of the ESPN Bet brand will partially balance out the loss of those DraftKings and Caesars agreements.
In a related move, Disney, ESPN's parent company, recently sold its remaining stake in DraftKings for approximately $90 million. At one point, Disney owned 6% of DraftKings nonvoting equity, obtained during its $71.3 billion Fox acquisition in 2019.
Caesars Stands to Gain the Most
Rumors suggest that the Caesars/ESPN deal could be more lucrative than ESPN's pact with DraftKings.
Since Caesars is currently looking to cut costs and reduce its heavy debt load, reports speculated that the casino operator might want to terminate its agreement with ESPN. The company's large physical footprint may support the assumption that its arrangement with ESPN is more lucrative than the DraftKings deal. In September 2020, Daily Wager, a betting show, began broadcasting from within Caesars' LINQ Hotel on the Las Vegas Strip, a venue Caesars operates.
It remains unclear whether any action is needed regarding the Daily Wager show's presence at LINQ. VSiN, a DraftKings-owned entity, airs its shows from Circa Las Vegas, which has an online betting business that rivals DraftKings.
DraftKings Also Stands to Gain
While Caesars might benefit the most from the termination of its respective agreements, DraftKings is not to be overlooked.
After reporting its first profitable quarter, DraftKings could efficiently deploy conserved capital from the end of the ESPN arrangement. Investors would undoubtedly appreciate it, especially with insider trading activity picking up. According to recent SEC filings, four DraftKings insiders, including three co-founders, sold a combined $22 million worth of shares.
DraftKings has not stated how they plan to utilize those savings. However, implementing a share repurchase program could impress investors. This is an infrequent tactic adopted by emerging growth companies.
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Source: www.casino.org
