DraftKings seeks to raise $500m from debt markets
Bosses say the loan would be used for “general corporate purposes," yet the operator’s shares slid 5% following the statement
DraftKings announced yesterday, February 18, that it is looking to raise $500m through the launch of a syndication for a proposed senior secured term loan B credit facility.
A term loan B is a tranche of secured credit designed to be syndicated in the institutional lending market.
The Boston-based sports betting, casino, and DFS operator would only say that the “net proceeds” would be used for “general corporate purposes.”
Sports industry news outlet Sportico reported that ratings agency Fitch assigned DraftKings a “BB+” long-term issuer rating and classed the loan as “BBB.”
Fitch pointed to the operator’s “leading market position” and “conservative financial structure.”
However, news of the debt raise triggered a sell-off of DrafKings stock, as shares slumped 5% on the Nasdaq in New York.
The company is down almost 4% in pre-market trading, though its stock is still up 38% since the turn of the year. At $51.49, DraftKings’ market cap is more than $25bn.
In his letter addressed to shareholders last week as part of the firm’s Q4 2024 earnings release, DraftKings co-founder and CEO Jason Robins said tapping the debt markets was an option.
He wrote: “Now that we are generating positive free cash flow, we have more options available to us to maximize shareholder returns.
“This includes optimizing our capital structure by exploring opportunities in the debt markets, while maintaining a prudent approach to leverage.
“We will continue to prioritize returning capital to our shareholders, while considering all options available to us and targeting the highest risk-adjusted returns.”
DraftKings announced a 13% increase year on year in Q4 revenue, as management hailed efficient customer acquisition and expansion of the product offering as two reasons for the top-line gains.
The low end of revenue guidance for 2025 was lifted from $6.2bn to $6.3bn, while EBITDA is forecast to come in at $900m to $1bn.
In note published after the financial results, Macquarie Equity Research said the company had “transitioned to profitability” and is “well-positioned for double-digit revenue growth.”
The analyst firm also said: “We view DKNG as the best large-cap way to play the US online market given its first-mover advantage, strong brand recognition with younger
demographics, and superior tech.
“DKNG has just achieved its first year of positive adjusted EBITDA and FCF [free cash flow], and we expect further acceleration in 2025 driven by higher hold, lower promos, and operating leverage.”
The company has been deploying capital for an M&A spree of late, including the $750m acquisition of lottery courier Jackpocket, completed last May, as well as the $195m outlay to take control of micro betting supplier Simplebet.
Odds pricing specialists Sports IQ Analytics and Dijon Systems were also purchased last year, both for undisclosed sums.
During the Q4 earnings call, Robins was asked about deploying capital to fund overseas expansion, to which he replied that “international has always been of interest.”
“Our primary focus, of course, remains the US […] it is true a lot of the technology we are building could be used overseas, but it doesn’t mean that’s something we’re looking at in the immediate term. We’re going to be more deliberate and opportunistic,” he added.
DraftKings is currently live in 28 states and Washington DC with sports betting, as well as Ontario, Canada. Its igaming products are available in five US jurisdictions.