DraftKings Going Public As Legalization Fuels Growth

at Bloomberg dot com. Very cool deal today in the betting space, DraftKings is going public in a three way deal with gaming technology provider sp Tech and an acquisition fund founded by former Hollywood executive Jeff Saganski that values a new firm about three point three billion dollars. We're very fortunate to today to have Jason Robberts. He is the CEO of draft Kings. He's in a Bloomberg and Director Brooker studio. Jason, thanks so much for joining us.

I know it's a busy day. Describe this deal. You're not doing an I p O, you're not being acquired, tell us kind of how this really works. Well, thank you for having me, and happy holidays to everybody. Um So, this is a three way merger of DraftKings sp Tech, which is one of the world's leading technology g risk management and trading operators. Um. They provide services sports books all over the world. Uh. And then a spack company,

special purpose acquisition company called Diamond Eagle. The way it works is Diamond Eagle as raised previously four hundred million dollars in cash. And UM. The way they did that as they went around various shareholders and they told them the types of businesses they would be interested in doing a deal with, and number one on their list was

a sports betting business. So UM, you know really, Uh, the shareholders hopefully are are excited about this and um, once the deal closes, the company will be renamed DraftKings. It will be publicly traded. And the cash that's there, as well as the pipe that we raised, which is a little over three million dollar pipe is a private investment. Yeah, so the pipe is exactly it's a it's a private

investment that go it rolls into the public stock. Um. We had great groups participate, UM like Cap Research, Wellington, Franklin, Templeton. So that'll all roll into the eventual close of the stock ex season closed of the deal, at which point Draft Kings will become a publicly traded stock. Okay, So tell me about the sports betting business today. It's rapidly changing. We're getting states like New Jersey. So I'm seeing all these folks from New York driving through the Lincoln Tunnel

placing their bets, I guess, and then driving back. Tell us about what's going on in the sports betting business right now? Uh? Well, right now, there's tremendous momentum around legalization and regulation in the states. Uh. So, just in the last year, several new states have passed legislation, Several new states have launched products draft Kings ourselves, uh launched our online sports book UM last year in New Jersey.

But just in the last few months we've launched West Virginia, Indiana, Pennsylvania, UM, New Hampshire will be hopefully coming soon. So a lot of great momentum behind states, you know, quickly adopting this. Now that this Preme Court, Uh, you know, about a year and a half ago lifted the federal band. So why isn't there But there isn't a federal legalization of sports betting? Right? Why isn't there one? There's actually a very interesting legal history. I'm not a lawyer, but I

find it fascinating. So there's this law called passa Professional Amateur Sports Protection Act, and it never said sports betting is illegal. That's why you could always go to Vegas and other parts of Nevada and bet on sports. It just said no new states can legalize no new states can add sports betting to uh make it legal. So, um, you know, that stood in place for about twenty five or so years, and um, you know New Jersey tried to legalize sports betting. That law was used to to

stop them. Uh, they took it all the way up and eventually one in the Supreme Court with you know, again, I'm not a lawyer, but my understanding was that, you know, the ruling was that the federal government could choose to make anything legal or illegal that they want to, but they couldn't tell the states what to make their own laws. So, um, it was kind of a unique law. I don't think there's anything else out there like it. So not that I you know, from Supreme Court's perspective, I don't think

they were very interested in sports betting. I think it was much more of a states versus federal rights question. Tell us about the business now, as more and more states legalized sports betting, like when you like when New Jersey did it. How big of a business has it become? It seems like it would be big. I hear stories that's revitalized, you know, some of the casinos down in Atlantic City and so on, just driving traffic like on

a Sunday morning to watch football. Absolutely, I mean, I think it's been, you know, by all accounts, a huge success in New Jersey and you know, other states I think are seeing promising early results as well. Everything is kind of up. It's not just sports betting, um, as you mentioned the whole industry. The brick and mortar casinos are up, the lottery is up, everything is up. So I think it's brought a lot of great attention to

the state and hopefully we'll see more states follow. Talk to us about the competitive landscape, UM, cousender Draft Kings. You had a competitive fan Duel, I think that was recently acquired. Talked us about the competitive landscape. Who do

you guys compete against. Well, FanDuel is definitely our chief competitor. UM, there's several others, mostly UH including FanDuel was bought by an Irish company, so most most of them come from Europe, a few from Australia, but really, you know, it's an interesting industry because, uh, due to obviously not having legal options in much of the US, there weren't really any big companies homegrown here. We're kind of the the only

contender for that. Um And you know, obviously we started with fantasy sports, so it's sort of a back uh you know, a little bit of a sideways way to get to hear. But most of the traditional companies in this space, we're built in Europe. A lot of them are in the UK. UM. So you know, I think a lot of our competition, at least in the near term, will be from Europe. And then you know, certainly the brick and mortar casinos are going to compete, but um, I think they view it a lot more as a

driver of traffic for the at least the retail side. Uh. And then there's a handful that are very focused online as well. Are you surprised that the professional sports leagues like the NFL have kind of dropped their longstanding you know, just really trying to keep betting away and gambling away. Uh. You know, I'm surprised how quickly and how um you know, it's been all of them, but I'm not surprised this

is where things landed. It's you know, every every everyone sort of follows the times, and I think, you know, as years have gone on, sports betting has been something that's been demystified a lot. I think being able to do it online and on mobile actually significantly increases, uh the NFL and other sports league's ability to monitor and protect against integrity issues. I think, you know, having it

be trackable on mobile makes a huge difference for that. Uh. And you know, I think they understand that this is what the fan of future wants and it's going to be an important engagement tool for them. And uh, you know, at the end, they're about engaging their fans and that's what makes them great. Yep. It's interesting to what you know.

I know, as you've noticed as well, but you know, the Mickey Mouse company that also owns ESPN, now every time they give you us a schedule, it's always the line the over under, and that's something that I just didn't think we'd see, uh, you know, certainly from some of the big mainstream sports like ESPN, but everybody's embracing it's a it's really interesting. Jason Robbins, Uh, CEO of DraftKings, thanks so much for stopping by and now you have

a busy data Congratulations on your transaction. Very interesting to see the growth of the sports betting UH in this country. And again there's stories or legion of you know, the folks in the neighboring states to New Jersey driving in placing their bets UH and then heading out. Very interesting. So I have to see how this plays out. Big news at Boeing today management change at the top, the existing CEO out, a new CEO coming from the board of directors takes charge. Here. This stock is up about

two on the news. George Ferguson, senior Aerospace, Defense and Airlines analyst with Bloomberg Intelligence, joins us on the phone from b I headquarters in Princeton, New Jersey. So, George, the market seems to like this change. Was it expected or is this kind of a shock? I think this is a bit of a shock, at least the timetable was it. Think we all thought Dennis was under pressure, and but I think a lot of people thought them he would get the Max returned to service before he went.

So I think we're a little bit surprised to see it happened here right at the end of the year, although this is the classic time to make big moves like this. So George the new CEO, David Calhoun, who had served as chairman since October, where we place Muhlenberg as CEO and president on January. Um, what do we

know about this new CEO, David Calhoun? Well, I think interestingly, he has been very much on the sidelines and quiet until a few you know, like a month ago, a month and a half ago, when he came forward and started giving interviews, so you could kind of see him at that point warming up in the wings. He comes out a ge comes at a catapill or, he comes out of the investment world. So I think he's got

a lot of strong experience. The interviews I've seen with him, he's a he's a pretty good communicator, and I think a lot of what he needs to do here though, is put a fresh face on this and approach the constituencies, you know, with with sort of clarity, um and cooperation. So I think, you know, even just getting a new face here Alps as well. But he looks very well, you know, very well prepared for this. So George, let's try to put his to do list together for January

first day. What do you think the first phone call he makes, for the first visit he makes. I think he's going to the f a A. Okay, possible. I think it's set gates to do is just get the MAX back in the air. Get the MAX back in the air, Get the MAX back in the air. So I mean, give us a sense of where we are in the process. Um, you know, my understanding is there is a software fix that has been delivered I think

to some extent, maybe tested to some extent. So where are we in the process and what what do you thing is kind of holding things up? I think the I think the ball is um in the f a a's court. But I mean that's probably not the right way to say, given Boeing wants to be involved all along the process. But I think the MAX software is fixed. We hear reports in the field of pilots testing it in simulators and they seem they say it behaves as

they would expect. So I think where we are now is we have to the f a A has to approve the changes to that MAX software, to that MCAST software. Anti stall software as well as approve whatever training regime needs to be put in place for this new for this change to the software. And I think that's what we heard from the FA administrator a couple of weeks ago where he said, Hey, it's going to take us to at least mid February UM to finish up our

review of the airplane. And I think this is about engaging the f a A A making sure they have everything they need to get that review done, as you know, as as simply as possible. Let's him um, which I know is not a good safe assumption always, but let's assume they do get f a A approval sometime in the first quarter. My senses, planes are scattered all over the country. They're in storage all over the country. I've

seen them park and employee parking lots. What's the time frame do you think from approval to really getting this thing in commercial? Uh? You know rotation with the airlines yea, so definitely the scarier thing that the more challenging thing is that the longer the max is delayed in, the longer airplanes sit, the harder it is to get them back into the into the fleets and flying the longer takes, and so you know, we already saw United push everything

out to June. Right. The challenge of the airlines too is they have to put a schedule out and then start to sell tickets for the schedule. They don't want to significantly count in an airplane before they know it's

going to be ready to fly. So the way we really see it right now is it looks like, um, there'll be at least some flow starting to move to US airlines by by the very beginning of summer flying season right needs to flow to the airline, and the airline needs to get the pilots trained and into the cockpit too, so that it doesn't the airplane doesn't go

back into service on day one. We think there's going to be some flow back to the US airlines by summer, but we don't think it's going to be all the airplanes that they originally thought they were going to get delivered. So we think that if you're a flyer this summer, you may end up paying more than you'd We always pay more than we hope for, but more than you

would have had the MAX been back into fleets. And it looks to us like it's starting to slip for getting much of anything back to the European carriers account in the MAX by summer flying seasons. So Europe may have even better fair uh fairs than we expected for this summer, which would which would be a positive for airlines in both the US and in Europe. Yeah, when you say better, you're doing it from the perspective of the airlines, not the consumer. All right, George Ferguson, thanks

very much. We appreciate your comments here. George is a senior Airspace, Defense and Airlines ANNALYSOM Bloomberg intellientis joining us on the phone. Uh. He always has great color on the aerospace companies and the airlines that whole supply chain. George covers and gives us a good sense here in Boeing here. Um, probably a change that you know a lot of investors are just judging by the pop in

the stock here saying had to be made. You had to get a new face of the company here, particularly as you are dealing with the f A A, which is George Ferguson suggested, it's kind of the critical lynchpin to getting the MAX up in the air. You've got to get the f A A on board. You've got to work closely with the FA and perhaps this new CEO can get that done well. As we've been talking about this morning, nineteen has been a heck of a

year for financial markets. Returns really stellar, particularly when you consider the depths. We were back almost a year ago today Christmas Eve last year, when the market was down about of course, the question is now it's what have you done for me lately? So what are we gonna do next year? David Garrety, chief market strategist from Laidlaw and Company, also a partner bat Block. You join us here in a Bloomberg Interactive broker studio. David, So again,

twenty nineteen. I think snuck up on some people in terms of the performance, even here in the last you know, several weeks, several months. Uh, the upside is really I think snuck up on some people. How do you think that we should be positioned for next year in terms of maybe our expectations for returns. While in the markets

markets people like to focus on the economics. I think is a year of politics, given the U S general election, given obviously the impeachment and trial which is going to be in the offering, Uh, and our expectation is that, you know, the politics and the uncertainties associated with that, coupled with the fact of a you know, perhaps six tenths of a percentage point hit to US GDP growth from the shutdown on the seven thirty seven max, probably give us the first half of the year, which is

probably flat to possibly down, And we think that more of the returns for the year are going to be constant rated in the back half of the year, most likely in the form of a relief rally around the US presidential election November. So in this respect, coming out of two thousand nineteen, our advice to investors is to

certainly be very very selective. We do think that we're still in an environment here where the long end of the treasury curve is going to come in probably from about the one point nine to level on the tenure maybe to about one and a quarter one and a half.

But we don't think necessarily that the Feds in the position yet to cut rates, although I think that that's still going to be something to possibly support the market going into the election to the extent that things slow even if the data and you know, at least and I we argue about this all the time. She rejects to use her word, uh my contention that maybe the data is coming economic data is coming in better than expected, the consumer continues to be strong. We see stabilization in

manufacturing and business investment. The trade deal gets cleaned up, there might be an argument to be made that this FED could actually hike in any to that or is it just because it's an election year you're just not going to see that. Well, I mean, I think that's a strange set of dynamics here in terms of how the current administration is doing trade policy, and the focus for trade policy with the current administration wasn't just China.

I mean, there's been more of a drum beating with respect to the European Union the EU, and if we look at monetary policy and the EU, they really are sort of the locusts globally with regards to negative interest rates. And you've seen the Swedish Central Bank the ricks bank pull back within the recent two weeks, moving off of a five year experiment with negative interest rates. You know, obviously we may see this start to replicate itself more

broadly across the EU. And much as the EU and our view lad the FED to cut rates in the second half of two thousand nineteen, to the extent that the EU under Christian Legard of the e c B under Christian Leguard decides to raise rates, I think the FED is left in a situation where they have to follow yet and that was that is not discounted. Would

you agree? I mean, I don't think it's discounted. But I also think at the same time that the ECB is going to have a difficult time based on the economics of what's going on within the EU around breggsit uh in in having an environment where they could consider actually tightening monetary policy. And maybe it only might be because the US administration says that negative interest rates are a way of basically propping up an unfair trade advantage.

But you know, there hasn't been a trade situation where the current administration has not seen an unfair advanta. Exactly do you anticipate a Phase one deal getting signed actually on a piece of paper at some point uh in a near to intermediate term the off rumored but seldom seen UH And our view is possibly not until sometime in But that doesn't mean that certain persons who are running for re election. Won't be running around throwing out tweets and rumors about it, but the substance I think

is going to be uh somewhat short. So alright, we're thinking about you know, people a lot have their twenty twenty outlooks and sectors and so on and so forth. It seems to me as if we look back onto have periods where we were the market sing to be, you know, kind of rotating out of the cyclicals, maybe into the more defensive utilities consumer staples. But then it seems like maybe we've kind of rotated back to a

little bit more growth, a little bit more risk. What are the sectors that you think people should be focusing on for well, I think, on the one hand, I mean, one of the major themes in terms of this market um from the bottoms back in March of two thousand nine had been tech, tech and more tech, and if you wanted to build wealth, you basically bought large cap

us tech um. The question is, as we look at the election process, as we look at how things have evolved, not just on the federal level but also on the state level, and also oversees greater rise in terms of regulation, which is going to impose more in the way of costs UH and possibly have slower revenue growth for these names.

So you know, while this clearly has been the major wealth generator over the past, deck aid, the question is can we rely upon tech to continue to provide the same type of returns going into and I would argue

it may be time to pull back. Um. Granted, there have been concerns looking at a sector basis as to what's going to happen around healthcare policy, but we may actually end up as we get greater clarity around the political situation to see UM the underlying secular dynamics in terms of demographic profile changes, aging UH driving greater demand in the healthcare sector, and then as a result, healthcare may not be a bad place to consider as things

become clearer. Right, So, I guess obviously the issue with healthcare has historically been really over the last several years, but certainly going into this election cycle is just kind of the headline risk. The policy risk that you know, the Elizabeth Warren that you know, the Metacare for All type of thing. Is that something that the valuations they're they're paying you for that risk you're taking anything I think in some respects we've already had some of those

risks discounted in the market. But I would say simply if we look at twenty it's a year when technolo ology, where the tech sector goes into the regulatory woodshed and

possibly the healthcare sector comes out. It's interesting looking at the ny s C Fang Index up about this year alone, up about forty seven percent on a trailing twelve month basis, And you're right, I think the big issue for a lot of investors is the story is great, the tech story written large is great, but that regulatory risk hasn't really been with the u S tex Stox ever arguably, but maybe it's starting to raise its head. Going to see more federal regulation of some of the tech sector.

That is the big, I think issue for tech investors. And I think the pressure is is that, as Bloomberg is highlighted in some of its stories, as the federal authorities are moving because they don't necessary they want to get ahead of what's going on a state level, particularly in California. They don't want state regulation to suddenly open up a situation where you have a balkanized regulatory environment.

They want to assert Federal Authority real quick energy Well in terms of about a high risk I returned potential. The favorite exogenous shock scenario for any procession has always been a spike in oil prices. And given the dynamics unfolding in the Mid East, we've already had trouble in the straighter horn moves earlier this year with Iran and the Persian Gulf states in Saudi Arabia. UM. I think going into an election sometimes there's nothing better for people

to do than to declare a war. But I don't necessarily want to want to call you know, those in the office now as war mongers. But things don't look good, yep, exactly all right? Energy always it's not for the fan of heart, certainly. David Garrety, chief market Strategies for laid Long Company and partner at bt block im us his thoughts on the market after what's been a fantastic year for most asset classes in both equity fixed income, several

of the commodities also posting strong gains. A question is how are you position for Another edition of the Star Wars series is out. Star Wars The Rise of Skywalker dropped. I guess last week took in a hundred seventy five billion dollars and it's opening weekend. That's a big number, but it's lower than what they had done previously. So the question is what's going on with the Star Wars saga and for the Walt Disney Company to do that. We went out and found a couple of local fanboys

that we all know. Eric Baltunas, Senior et F analyst for Bloomberg Intelligence. He joins us here in our Bloomberg Interactive Broker studio and Ira Jersey, Chief US Interest rate Strategist for Bloomberg Intelligence. He's actually our man on the scene at a local theater getting ready to go in and see the show. So I let's start with you.

What are your expectations for the Rise of Skywalker. Yeah, so, just from some people that I've talked to you coming out of the theater here in Gardner, North Carolina, at Legal Theater, Um, they were they were saying that that, you know, kids like it, so so people who didn't grow up in the seventies and eighties on Star Wars teams to have really enjoyed this show. The parents seem to be a little bit more sanguine about his thing

is okay. So um, So I think I'm gonna go in with an open mind and hopefully I'll think it's better than than the last film, which Eric and I I know, neither of us particularly enjoyed. All right, so Eric, let let's let's go to that. This is a long running series. I don't even know how many episodes were up to yet. There was one to three, then there was four, three, two. I don't know how they did it all, but give us a sense of kind of as a fanboy, how is Star Wars resoning with you? Right?

So when I went to see Force Awakens, I liked it. I liked the new characters Po and Finn and Ray. I thought it was great the ending where she goes to give the lightsaber to Luke Skywalker and you see Mark Hamill there and he's very serious and it ends and I was jazz for the next one. And then to think he just throws it over his shoulder like he doesn't care. And Luke Skywalker has turned into some like cranky reck loose um. You know, even Mark Hamill said,

that's not my Luke Skywalker. So the biggest problem with the last Jedi is they ripped the heart out of the whole franchise, which is Luke Skywalker and stomped on it right in front of you and then expected you to like it. I mean, that's the biggest problem. Plus there were all kind of plot holes. They really um the Ray uh Po and Finn storylines. I thought they

did worse in the Last Jedi. So I thought J. J. Abrams Abrams was handed a pretty crappy hand from the Last Jedi, and I'm I'm guessing he probably did the best he could with it, and so I also am looking forward to seeing it. But again, I I'm just a little down on the whole franchise after Last Jedi ripped the heart out so interesting, So Ira, hopefully your heart wasn't ripped out by the last uh episode. Give us your sense of again, among the fanboys, the passions

run really high here. What is your sense of you know what Disney has done with this franchise? Well, I think among the frond of the O G Star Wars folks like Eric and I, I think there is a lot of disappointment. I think the you know, episode eight, the last that I was disappointing me. I was as disappointed as anyone um, but I think I think that the thing that Disney is trying to go for, it seems to me, is more of the superhero type of vibe.

And and you know that doesn't necessarily work with Star Wars. And if you know, this particular movie I think resonates with maybe younger kids who you know, didn't look up to Luke Skywalker as the epitome of the good guy in their movies. And and you know, he always expected him to stay the day. Um. So I think that that that might not hurt Disney all that much if they can get all the merchandizing and um and and

a lot of video games. So it it was just in the theater actually getting my seat, talking to someone and and the boy said that he liked the new video games. So maybe it's not the merchandise like the you know, dolls and stuff like that that that you're gonna see this time, but it's going to be things like the video games and those other offshoots and and maybe some of the Disney Plus characters, because the Mandalorian, for example, even among the O G Star Wars people that I've talked,

you really enjoy that particular show. Um and uh and so so perhaps it's it's the franchise as a whole isn't gonna be uh, isn't gonna be drawn down. But even if you know, the end of the Skywalker series is a little bit of a dud. So Eric, give us a sense of do you think Disney can successfully from your perspective, you know, kind of make that balance between the hardcore old school Star Wars fan and maybe the newer fan. Yeah, it probably can be done. I

like Ira. I just think the Skywalker, that whole line of movies is just been a little roughed up. The merchandise just I can see it in Walmart. It's on clearance. Nobody wants to buy it. My eight year old, um, he doesn't really want it. But back when I showed him the original three, he was into it. He wanted a lightsaber, just like every other kid. Um. So I

don't know how to get that magic back. I'm sure with a lot of money, they're still gonna make money because they're gonna get a lot of good actors and a lot of special effects. Um. But I would just try something new. I would go to some new area, some new Star Wars, UM Paradigm and UM you know, try to make it work. But the Luke Skywalker UH series,

I think was just um brutalized by Rhan Johnson. Yeah, I agree with that, and I think, you know, one of the other big issues that I think that movie had um was was obviously story and plot, like Eric said, but it also came off of one of the best movies in the franchise in my opinion, and Broke One. Broke One was a super solid movie. It had no loose ends. It you know, introduced the character of Doris Vader in a brand new way that you really always

wanted to see. And then you had the and then you had episode eight, the Last Jedi, and it just, you know, compared to Rogue One, it just didn't compare.

And I think that that was also a big disappointment because everyone went in, like I went in with these massive expectations given how great Rogue One was, and then you know, you see this this really you know, bomb of a movie and a lot of our opinion, and then you know, and then Solo, which was a good movie, followed and it didn't do well, uh in in the theaters, and I think primarily because not because you know, Star Wars fans would go see a new Star Wars movie

once a month, no problem if they were good movies. And and so Solo I think had a lot of the backlash from the from episode eight, um, you know, And and that's where I think Disney has to kind of, you know, rejuvenate itself. And and I think, you know, hopefully this movie, I'm I'm gonna see it in three hours, I'll know, uh, you know, is this movie kind of worked it and the ending that the Star Wars franchise deserves. All right, Well, maybe we'll chat with you when you're

done seeing it. Eric. Just one more point, which is after the Last Jedi, a lot of fans reacted and Disney kind of came out and said, you guys are just not woke enough. You don't understand where we're going with this. And I didn't like that they insulted the fans for not liking it. But like Ira said, Rogue One has a female lead. We all loved it. That was a great movie. It just has to be a good movie, and you have to care about the characters and and the storylines have to make sense. That's all.

It's not that rocket science, all right, are we had the fanboys, Ira Jersey enjoy the show. I hope you have a good time. We'll look forward to hearing your review afterwards. Iris the chief US interest rate strategist for Bloomberg Intelligence, Eric Balchun, a senior et F analyst and Star Wars fanboy, joining us here in our Bloomberg Interactive Broker studio. A couple of numbers here for you, UM

hundred seventy five million dollars in box office. That's ahead of Disney's hundred sixty million dollar projection, but it's below what the consensus was for about a hundred eighty three million, and I guess for a lot of people looking at the series and looking at the franchise from Disney's perspective, it was one of the lower openings of the recent So the question is is there a little bit of Star Wars fatigue sitting in We'll have to see. Thanks

for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa A. Bram woit's one before the podcast. You can always catch us worldwide on Bloomberg Radio