SBTech profits fall in 2019 ahead of DraftKings merger

SBTech revenue grew year-on-year in 2019, but increased headcount and exits from dot.com markets led to much lower profit, a prospectus for the supplier's merger with DraftKings revealed.

The sportsbook technology provider brought in revenue of $108.4m (€97.5m/$86.7m), up 2.9% year-on-year.

Diamond Eagle said the supplier experienced growth in Europe and Asia, supported by launches in a number of US states, though much of this was offset by the business pulling out of unspecified dot.com markets. During the year, SBTech made deals with a series of lottery operators, including Oregon Lottery, Veikkaus and Svenska Spel.

Diamond Eagle Acquistion Corp, the holding company formed for the DraftKings-SBTech merger, said that if revenue from these dot.com markets was removed from its 2018 figures, SBtech revenue would have been up 39.2% for 2019.

Costs, however, increased more rapidly, by 36.4% to $101.9m.

Revenue-related outgoings were the largest expense, at $60.6m, up 20.2%, due mostly to developing its IT infrastructure and expanding its team to facilitate product delivery and bet processing.

A further $7.6m came in sales and marketing costs, an 81.9% increase, while general and administrative costs came to $13.2m, up 54.2%. The supplier spent a further $20.4m, up 79.0%, on research and development. 

This resulted in an operating profit of $6.5m, down 76.6% year-on-year. After a $190,000 income expense, SBTech’s pre-tax income came to $6.4m.

SBTech paid $796,000 in tax for a net profit of $5.6m, down 82.9% year-on-year.

As part of the prospectus, Diamond Eagle Acquisition Corp. also revealed that it is arranging the details of the meeting to close DraftKings and SBTech’s upcoming merger, but that the date has not been set. Yesterday (12 March) DraftKings chief executive Jason Robins said he expected the deal to close early in the second quarter of the year.

The prospectus also provides further information about the finances of DraftKings, which announced revenue of $323.4m and an EBITDA loss of $99m yesterday. The operator’s overall loss came to $142.7m.

Despite this loss, DraftKings said it had a plan to grow the combined business’s earnings before interest, depreciation, tax and amortisation to $1.2bn in the long term.

After accounting for a $2.3m loss from Diamond Eagle Acquisition Corp itself, the combined entity made a loss of $139.9m. The business ended the period with $76.5m in cash.