DraftKings, one of the largest “blank check” deals currently trending on Wall St, has been soaring high since its initial IPO in April of 2020. The company is up over 230% since their public debut, with the latest news shooting them up another 17% intraday. Here are the top 3 things that you need to know to understand the stock:
1. “Blank Check” IPO – What Does It Mean?
A “Blank Check” IPO, also known as a special purpose acquisition company (SPAC), is much different than your grandpa’s old-school public offering. Normally, you see a successful private business get a valuation for the public market and pursue an IPO – simple as that.
In the case of a “blank check” deal, a public company is created with the sole purpose of acquiring a private company and bringing it public, money is raised to acquire a business, and then the private company is purchased. The catch? Most of the time, there’s little-to-no certainty about which business will be acquired.
In this case, DraftKings (the private company) was the likely acquisition target of Diamond Eagle Acquisition Corp. (the public company), the SPAC created and run by fund manager Bill Ackman. This kind of deal takes place in times of volatility and uncertainty as the fund manager can dictate the price, raise the money, and then acquire the private company without worrying about massive fluctuations in valuation as the market moves.
2. Michael Jordan on the Board of Advisors
Whether you’re simply suggesting a new coffee shop or raising millions of dollars, references are critical. Assembling a board of advisors is often one of the first steps any company will take to establish themselves and put credibility behind what they’re doing. When it comes to the world of sports, there are few names that mean as much as Michael Jordan. A ruthless, driven winner, Jordan is known for pushing as hard as he can to make sure that he – and his team – succeed.
In the case of public companies, there are many investors, institutions, and other companies that will only pay attention if there’s a name that they know and trust behind them already. As Michael Jordan’s name transcends sports alone, having him involved with the company as a board member, equity partner, and gateway into the NBA lends massive credibility to DraftKings.
3. The ESPN Deal
In case you somehow don’t know what ESPN is, it’s a Disney-owned behemoth in sports entertainment and holds sole broadcasting rights to most major sporting events including the NBA and NFL’s Monday Night Football, among others.
Just as partnering with Jordan made the board and company feel much more established, this agreement cements DraftKings’ place in sports betting and puts them with the rest of the big dogs in sports entertainment. DraftKings will be the sole provider of daily fantasy sports for ESPN and will be integrated into their existing digital presence.
Essentially, this is like designing a specific car part and then, instead of trying to build a full car around it, partnering with Lexus to become the sole provider of that part for their vehicles.