Breakingviews: Three-way sports bet fight may end in a stalemate

The burgeoning U.S. online gambling industry is no stranger to bustups. Fox and Flutter Entertainment’s lawyers are wrangling over the valuation of their sports-betting business FanDuel. Caesars Entertainment’s takeover of joint-venture partner William Hill ended up in court. A new three-way tussle involving DraftKings, Britain’s Entain and MGM Resorts International may be just as acrimonious.

Entain on Tuesday revealed that DraftKings had proposed a $22 billion takeover, with $5 billion in cash and the rest in shares. The deal hinges on BetMGM, the British company’s joint venture with the resorts-to-roulette group, which competes with DraftKings in America’s newly legalised online casino and sports-betting markets.

Combining all these assets under the control of DraftKings Chief Executive Jason Robins won’t work. American antitrust regulators would probably disapprove of the combination of BetMGM and DraftKings, respectively the second- and third-largest U.S. digital-gambling players, according to RBC analysts. Besides, MGM CEO Bill Hornbuckle wants to control his own destiny in the fast-growing business.

One option is for Robins to sell Entain’s half of the joint venture to Hornbuckle. That would reduce the debt DraftKings will take on as a result of the takeover. Before news of the possible deal, the fantasy-sports group was valued at 12.6 times its expected sales for 2022. Apply the same multiple to BetMGM’s forecast revenue for the same year, and the joint venture would be worth $12.6 billion. Selling 50% to MGM could therefore raise $6.3 billion, more than covering DraftKing’s proposed cash outlay.

Yet Hornbuckle has little reason to play along. Though the legal terms of the joint venture are confidential, it’s likely MGM could make life difficult for any new partner it does not support. That gives it leverage. BetMGM has the U.S. licence for Entain’s valuable technology. Hornbuckle can simply bide his time, avoiding a quick and dirty deal that could strengthen a key competitor.

On Thursday, Entain’s share price was trading roughly 20% below DraftKings’s mooted 28 pounds proposal, implying that investors have misgivings about the deal going ahead in its current form. The latest U.S. sports-betting tussle may end in stalemate.