The stock (NYSE: DKNG) initially rose more than 8% after the market opened, before settling around a 4% pop.
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Though details of the current DraftKings negotiations are sparse, the deal will likely come in “well under” the $3 billion that ESPN was reportedly seeking last year to license its brand to sportsbooks, gaming analysts at Oppenheimer wrote in a research note Friday morning.
“We speak to a variety of companies on a regular basis and don’t comment on the specifics of those conversations,” DraftKings said in a statement. A representative for ESPN declined to comment.
Since legal sports betting began to spread in the U.S., Disney’s desired involvement has been one of the industry’s most enduring questions. The company (NYSE: DIS) owns 4% of DraftKings, acquired when it bought 21st Century Fox, but so far has been cautious. Disney executives have increasingly spoken about opportunities for the company in sports betting, but nothing concrete has unfolded.
Outside of a significant shift for Disney—which would also dramatically change the perception of this week’s news—an exclusive relationship with DraftKings would likely mean more DraftKings odds in ESPN stories, in its app, and through its TV properties. Those are fairly standard opportunities, heightened because of the size of ESPN’s audience.
DraftKings currently shares a lot of those rights with Caesars (Nasdaq: CZR), which also has a presence on the ESPN website and on studio shows like the Daily Wager. The existing DraftKings partnership includes incentives made for each new user registered via an ESPN property.
A deeper tie-up could include a set-up where DraftKings customers don’t need to leave the ESPN app or website to place bets, a possibility often discussed as the ultimate end goal for partnerships between sportsbooks and sports media companies. That could create some new questions for state regulators, some of which distribute licenses on a “one license, one brand” basis, Chris Grove, co-founding partner of Acies Investments, said Friday on Twitter.
It’s unclear when those existing joint ESPN deals expire, but much has changed since those deals were struck a few years ago. At the time, all the major sportsbooks were rushing to outspend each other on customer acquisition, including pricey media partnerships that got their branding—and odds—in front of as many sports fans as possible. Now, many (including Caesars) are scaling back their spending, as market realities force a more measure approach to cost of revenue. FanDuel, so far the market leader in U.S. online sports betting, also recently announced its pursuit of its own sports network.
That likely puts DraftKings in a “favorable negotiating position,” the Oppenheimer analysts said, noting that it was the “only operator with the budget scale to meet [Disney’s] partnership standards.”
The Oppenheimer analysts also said the deal would provide a solid floor for DraftKings stock, and that they believe an announcement could be made around the start of the NBA season later this month.
The DraftKings/ESPN talks were first reported by Bloomberg and the Action Network.
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