M&A Announcement

Aug 9, 2021

Good day, and thank you for standing by. Welcome to the DraftKings and Golden Nugget Online Gaming Announcement. At this time, all participant lines are in listen only mode. Please be advised that today's conference maybe recorded. I'd now like to hand the conference over to your host today, Mr. Jason Robbins, CEO, Chairman and Co Founder. Please go ahead. Good morning, everyone. Welcome to the call. Just wanted to, before we started, give a brief disclaimer. Statements we make during this call that are not statements of historical fact constitute forward looking statements that are subject to risks, uncertainties and other factors that could Our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings. Now I want to kick off the call and welcome everybody. I have on with me Jason Park, our CFO and Tillman J. Fertitta, CEO of Landry's Fertitta Entertainment, excuse me, and Golden Nugget Online. They will each be sharing some overview and detail on the transaction, which we're very pleased about and look forward to talking to you about today. So just to start off, I wanted to share a few points around the rationale for the transaction. DraftKings has done a tremendous job becoming an iconic sports brand And we've had tremendous cross sell from our sports brand and our sports products to iGaming. We've made some progress, But have not yet deeply penetrated the very large audience that is non sports fan I gamers. So we view this as an opportunity to take another iconic brand, this time in the casino space. It's done very well. Early market leadership in New Jersey, recent entry into other states, Golden Nugget online gaming. And we're very pleased to be adding the team, the brand And all their expertise and really we believe this will help us to attain much greater iGaming market share over the Long term, including being more efficient with marketing and having tremendous synergies both on the cost and revenue side. Golden Nugget Online Gaming also has very strong live dealer operational capabilities. This has become increasingly important to DraftKings and are very difficult for a company Like ours, it does not have a brick and mortar presence to develop solely on our own. So we're looking forward to leveraging those as well and helping enhance our iGaming portfolio and bringing some of those Thirdly, we also, in addition to the acquisition, have established a long term commercial agreement Golden Nugget Retail Casinos, Landry's and the Houston Rockets. This includes access to large customer databases, market access rights, sponsorships and many other things that we think will help drive the partnership and drive the combined company forward. Fourthly, we have really large synergies. We believe at maturity, we will have $300,000,000 plus in EBITDA synergies. This will be largely driven by revenue uplift, COGS improvement, by bringing the platform in house, which Jason Park for Golden Nugget will talk about a little bit later. Marketing efficiencies, which we believe will take the existing marketing spend, both companies are putting to work and get more value, either it can be Recognized in the form of marketing savings or increased market share and market access rights as well as that we will have at a reduced As well as corporate overhead scale and some human capital synergies. Lastly, on my point, this is an all stock deal. So I think there's 2 really exciting things about that. One is it preserves our very strong balance sheet, no debt, No capital coming off the balance sheet. Also, I think it shows the excitement that the Golden Nugget team and Tillman J. Fertitta have for the In fact, Tillman will be taking a Board seat and will be playing a very active role in helping me shape the company's strategy and drive us I now want to turn it over to Tillman to talk a little bit about what he sees as the benefits to the GNOG shareholders. Well, we're extremely excited as GNOG shareholders, but We're extremely excited to become part of DraftKings. I mean, let's be honest, they are the market leader. They are the leader out In this industry, they are the brand, they're the Coca Cola of this industry. And there's going to be a lot of consolidation In this space in the next few years and we want to be a part of the winner. And there was no doubt that this is where we wanted Be with their strong balance sheet, liquidity, their analytics expertise, they are building the best platform in the space to Control content and they just have the best management team. They are a tech company and they are the best We're a tech company in this space. Golden Nuggets and Fertitta Entertainment, we are the best operator as Wall Street says And gaming and restaurants and entertainment, all the different, the amusements, everything we do. And we've always loved being recognized And be a part of someone who is going to always be there as the leader. There was no doubt in the beginning when Jason and I started I wanted only stock. I want to ride this up with them and be a part of it and be there for Jason in any aspect that I can be. They have one of the best management teams out there, but in this space, they are the management team and Jason has put together an unbelievable group. They understand marketing like no one else in the space and they have built the best platform to truly control all this content. And we so much look forward to being a part of it and I look so much working with Jason and doing my little part to help them make this the number Thank you, Tillman. We're very excited to have you as part of our I wanted to move to Slide 3 and just cover a few of these Sports brands haven't necessarily broken through into the casino customer that isn't into sports. Our demographics are largely male as opposed to golden nuggets, We typically skew a bit younger. So not a whole lot of overlap in where the brands appeal And we really view this as an opportunity to enable increased market share over time by leveraging the great brand and all the things that Secondly, early in New Jersey, Golden Nugget Online Gaming established a live dealer product by using dealers at the Golden Nugget Casino, and we think there's an opportunity Bring that over to DraftKings and to replace and enhance some of the existing live dealer offerings that we have. For those who aren't familiar, Live Dealer is where instead of it just being a random number generator game, there's video of a dealer actually dealing blackjack hands, We have talked about in the past and many of you know, vertical integration is a critical part of our long term strategy and this helps us take a We have a brand license that includes skin access in states where Golden Nugget has We also, as I'll talk about a little bit later, have a similar setup that we've established with the Rockets for Texas. 4th, We can leverage databases. There's quite a few here. First, Golden Nugget, 24 ks Club, which is a casino database, but also The vast restaurant empire of Landry's has a big database called Landry's Select Club. Combined, there's about 5,500,000 members, all very active and engaged. So we look members, all very active and engaged. So we look forward to bringing our CRM capabilities to that database In addition, we, of course, bring our DFS database for new state launches, which we will cross promote to the Golden Nugget brand as well. Next, marketing integration, I think, will be a big part of what we do here too. So in addition to what I spoke about earlier, having Efficient marketing that we can leverage our capabilities to drive additional efficiencies with on the Golden Nugget side. We also are going to be able to bring some of the things that Golden Nugget brings to the table, namely integration of their rewards program And also digital and physical ad inventory, very excited about that. Next, we will be rebranding the retail sportsbooks As well as in new states launching new retail sportsbooks as DraftKings in the Golden Nugget casinos. We believe this will drive additional uplift And then lastly, this enables us to deepen our relationship with the Houston Rockets. We have access to all of the Ship assets that we are looking to get to, including media integration, signage, hospitality, All sorts of things at one of the most iconic franchises and largest fan bases in the NBA. Additionally, while it is certainly TBD, There is early chatter that if and when Texas legalizes sports betting, the Rockets would receive a license and this agreement provides Both the physical sportsbook at the arena as well as online market access in the event that Texas legalizes and provides access Next, flipping to Slide 4. I just want to cover a few more points around the benefits of having multiple brands. Well, certainly having brands that overlap in the demographics and And purposes is not a great strategy. These two brands actually have distinct audiences, distinct demographics they appeal to. And as I mentioned earlier, DraftKings has not been able to successfully penetrate the non sports fan casino audience as we have for the sports fan I think it's quite remarkable that we've been able to attain top 3 share in virtually every state that we're in, Despite having that and mostly despite not having that and mostly through cross sell, I think this helped put us over the top. There's a very large audience Of customers that are playing iGaming and future potential customers that will play iGaming that simply aren't into sports and will not be Going to look for sports bets and looking at sports brands as their preferred choice. Golden Nuggets had a brand that's been around for a long time, And it's maintained and actually grown its significance and its relevance with this important audience. So we think that there's a tremendous opportunity to broaden the demographics of who we reach and to deepen our market share on the iGaming side. Secondly, we believe that using some of the tools and technology as well as the human power that We've assembled on our marketing team, we can drive increased efficiencies in the places that Golden Nugget is currently spending to acquire customers. Same thing on the CRM side. We believe that our CRM team, including some of the in house technology that we've built, We'll help drive additional CRM benefits to the Golden Nugget side. So we think there's real upside on the marketing front there and giving the combined teams The ability to use their brand and our technology and know how we think will drive increased penetration and market share. DraftKings also has a broad market footprint. And we think that we can replicate the success The Golden Nugget Online Gaming has had in New Jersey and the early success they're seeing in Michigan and other states like West Virginia and Pennsylvania. West Virginia, I believe they're up and running in Pennsylvania, not yet. So there's some upside there as well. And we also think that other iGaming states will come online In the coming years, which will allow us further opportunity and several of which Golden Nugget already has market access agreements And then lastly, I talked about this earlier, but the combination of online and physical We believe that the omnichannel strategy can help enhance what we do. We also think that it gives us not just opportunities for customer acquisition, but additional hospitality options for our top players. So really excited to be able to leverage that as well. Moving along to Slide 5. We talked about this earlier. This comes along with commercial agreement with the colossal hospitality First of all, Golden Nugget has an incredible brand and is a renowned name in gaming, really one of the originals and has Next, they have an incredible best in class restaurant portfolio through Landry's. You'll recognize many of their names We think there's an exciting opportunity to market to those databases and in certain cases to market on-site at the restaurant. And of course, Tillman. Tillman is an icon. He's somebody that's been recognized as one of the greatest entrepreneurs of the generation that we're in. Really excited to be adding him to our Board, really excited to be bringing his strategic knowledge and his know how to our business. I very much look forward to working with him and learning from him. I'm now going to turn it over to Jason Park to talk about the synergies and the transaction overview before turning it back Thank you, Jason. And I want to reiterate how excited we are about this deal with Golden Nugget Online Gaming. Over the next two pages, I'm going to talk about synergies and provide an overview of the transaction. We've already talked about the power of having multiple Brands that serve a variety of customer segments in the online gaming industry. On top of that, we will be capturing a variety of synergies up and down the income statement. On revenue, we see a lot of attractive opportunities from cross selling across the brands and across the product offerings. In particular, getting more of our OSB players into iGaming, which will be enabled by the broader library of games, in particular Live Dealer. On COGS, we will certainly be able to capture meaningful Platform cost synergies by migrating GNOG from a variety of third party providers to DraftKings proprietary in house platform. Also on COGS, the commercial agreement creates the potential to reduce retail revenue share costs in states where applicable. There are certainly large synergies on marketing, some of which Jason described when discussing the dual brand approach. By deploying marketing dollars using DraftKings highly advanced Data driven marketing machine and by having more focused brand strategy, we will be able to be more efficient with our marketing spend. And finally, there will be opportunities for overhead reductions, specifically where we have duplicate expenses across the 2 organizations. In total, we believe these synergies represent at least $300,000,000 of EBITDA at maturity. On Page 7, we go through the transaction summary. DraftKings is acquiring Golden Nugget Online Gaming in an all stock transaction. Golden Nugget Online Gaming shareholders will receive 0.365 shares of DraftKings stock for each share they own in GNOC. This exchange ratio is based on an $18.83 offer price, which represents a 51% premium to GNOG's 60 day view app And implies a 7.6 times 2022 revenue multiple based on current consensus estimates. At close, existing DraftKings shareholders will own 93% of the combined company, while GNOG shareholders will own approximately 7%. We anticipate this transaction will close in Q1 2022. Again, we are very excited about this transaction and I'll turn it over to Tillman for thoughts on the benefits to the Pertita enterprise. You ready, Louis Tillman? Maybe he's on mute. I got it. So what's so exciting For us is we will be one of the largest shareholders of DraftKings and that's the greatest benefit of it all to be a part of DraftKings that we're going to be a part and be able to help and watch this GNOG, their shareholders be such A part of it and be able to see what DraftKings does in the years to come and hopefully Their stock will continue to grow up. The long term partnership with DraftKings just totally diversifies SEI's core demographic. Being able to have DraftKings drive their huge customer base into our casinos to use the DraftKings sportsbooks To be able to use the DraftKings database to help us be a part of our Select Club and use all of their customers To get benefits when they gamble to be able to come into our restaurant and use points. There's so many different avenues that we're working on to combine the 2 companies. And that's the most amazing thing is to use both databases for each other to increase traffic And all of their platforms at the same time our platforms at the same time, what this does for Our company going public again for Tiete Entertainment through the Fast acquisition group, it lets us really focus on what we do best. And that's operate casinos and operate hospitality and operate restaurants. Also Something that's really important that has been an issue for us being a major sports team owner As we go into markets, not being able to take bets on an iconic team like the Houston Rockets, who has The 2nd most Instagram followers, I believe of any sports team in America are 3rd. It's extremely difficult And anytime we go into a market, it would cause us an issue. So we get rid of that problem. And like I said, To take GNOG share and turn it into a DraftKings share, we're all winners here. DraftKings shareholders are winners and the GNOD shareholders are winners and that's all we can ever hope for. So we're extremely excited and to be a part of DraftKings. Thank you very much, Jason, and I'll hand it back to you. Thank you, Tillman. And this completes our call this morning. Thank you all for joining and allowing us Forward to doing great things with Tillman and Nickelodeon Nougat online gaming team. Thanks. This concludes today's conference call. Thank you for participating. You may now disconnect.