DraftKings: A (Much Needed) SPAC Success Story
By: King'S Angel
Tags: Kings Angel, Success Story, DraftKings, Spac, Jeff Sagansky

DraftKings was taken public in April 2020 in a de-SPAC transaction with Diamond Eagle Acquisition, backed by Jeff Sagansky, which created a market cap of over $3 billion.[1] The fantasy sports company has since achieved undeniable success in its industry, and now has a market cap of $20.68 billion.[2] A key factor to this success has been smart acquisitions that have served to enhance their stature in their industry. For example, they have recently announced a $1.56 billion deal to acquire prominent gaming company, Golden Nugget Online, with the deal expected to close in early 2022.[3] In addition to enhancing their presence in the ever-growing industry of online sports betting, the deal will see DraftKings gain access to Golden Nugget’s 5 million customers,[4] as well as yielding $300 million in savings from overlapping costs and creating ‘cross-selling opportunities’.[5] This smart move follows a trend of value-creation that has seen DraftKings’ share price increase by over 200% since going public.[6] So why has DraftKings succeeded in creating value where many have failed post-SPAC? The answer can arguably be found when looking at the company DraftKings was pre-SPAC, as much as the giant it has become post-SPAC. Before going public, DraftKings was an established name in a rapidly growing industry,[7] with a track record of good management and a clear vision; they retained their management structure post-SPAC, ensuring continuity of strategy.[8] This made them a prime candidate to reap the benefits of a SPAC; not only could they benefit from the relatively quickly-raised capital, but this in turn allowed them to carry out a strategy of value creation that has mutually benefitted shareholders and investors. This bears stark contrast to the companies commonly associated with SPAC failures — faltering or pre-revenue companies, lacking in strategic vision, that have looked to SPACs for a quick exit and subsequently tanked in value.

So, what does this mean in the context of the previously mentioned SPAC scepticism? Are SPACs suitable for all companies? No. Do the success stories invalidate the regulatory concerns raised by high-profile failures such as MultiPlan? Of course not. However, what stories such as DraftKings’ do show is the value that can be created when the quality of a deal, and not its mere existence, is prioritised. They show that when circumstances align such that it can be mutually beneficial for all stakeholders involved, SPACs can indeed be an optimal vehicle to take solid, high-potential companies public and give them a platform from which to enact value-creating strategies, which they may have otherwise forgone or delayed due to the expensive (and perhaps inefficient) process of an IPO. The solution isn’t to ‘crack down’ and paint all SPACs with the same brush, but rather to foster a regulatory environment in which the ‘good SPACs’ may prevail, where the companies utilising the SPAC route are those more likely to create value, and where it is harder for incompetent sponsors to push through bad deals at the expense of the investors.