DraftKings Primed for Dominant New York Perch, Say Analysts

New York Gov. Andrew Cuomo (D) and state policymakers reached a compromise Tuesday to bring mobile sports wagering to the state. Analysts are now speculating about probable winners under the state’s framework, with some familiar names popping up, including DraftKings (NASDAQ:DKNG).

As part of the accord, the New York State Gaming Commission will release a request-for-proposal (RFP) commencing no later than July 1. The purpose is to choose two platform operators to run mobile sports betting in the state. Heavy costs associated with the plan mean financially sturdy companies could have an advantage in the state.

Operators will be required to pay an upfront licensing fee of $25 million and an annual levy of $5 million to a land-based casino to house a server to power mobile wagering.

We believe, based on the RFP process and the high amount of taxes/fees, that well-capitalized players with a strong presence in NJ and large customer data-bases, such as DKNG and FanDuel, are well-positioned to be key operators when the state goes live some time in late ’21 or early ’22,” writes a team of Oppenheimer analysts led by Jed Kelly.

At the end of last year, DraftKings had $1.8 billion in cash on hand and the gaming company recently sold $1.15 billion in convertible debt. While some of those proceeds were spent on bolt-on acquisitions, the operator’s balance sheet is strong, indicating the firm can digest the high cost of entering New York’s mobile betting arena.

DraftKings Has Other New York Advantages

DraftKings’ tidy balance sheet isn’t the only arrow in its quiver when it comes to establishing a leading position in New York’s mobile wagering market.

Another benefit that may accrue to DraftKings is that policymakers have yet to specifically define “platform” as it pertains to operators. However, analysts believe when that happens, vertically integrated companies — of which DraftKings is one — will be in the catbird’s seat.

“Our sense is that the meaning of platform is somewhat open-ended at this point, and could include someone like DKNG, which owns SBTech, to be considered a platform provider, or Kambi,” said Credit Suisse analyst Benjamin Chaiken in a note.

Other Sportsbetting Winners

Bank of America and Craig-Hallum are among the other research firms issuing positive commentary on DraftKings’ positioning in New York.

As for other possible winners in the state, Oppenheimer highlighted FanDuel, Rush Street Interactive, and Bet365 because, like DraftKings, that trio has “first-skin agreements tied to upstate casinos.”

Some experts see Flutter Entertainment (OTC:PDYPY) in a good place in New York because it has multiple skins under one roof — one for FanDuel and one for FOX Bet. FanDuel and DraftKings are the two largest online sports betting operators in the US.