Disney is Now a 6% Owner of DraftKings after Public Listing

DraftKings, one of the most dominant players in the daily fantasy sports and regulated sports betting market in the USA went public a week ago after a reverse-merger deal with SBTech, an award-winning sports betting supplier. These two companies effectively went under the wing of Diamond Eagle Acquisition after DraftKings was listed on the Nasdaq.

While this merger acquisition didn’t change DraftKings operations, one of the most surprising bits of this newfangled deal is that Disney owns a sizeable share in the Nasdaq listed company. Based on documents recently filed with the SEC (Securities and Exchange Commission) office, the Walt Disney Company has 6% stock ownership of DraftKings.

Disney Had Initially Distanced Itself from the ‘Business of Gambling’

The fact that Disney owns such a significant piece of DraftKings is surprising because the company had for a long time detached itself from any gambling related affiliations. For example, back in 2015, ESPN, a company jointly owned by Hearst Communications and Disney, backed out of a golden opportunity to put in $250 million for the acquisition of 20% DraftKings stake at that time.

The only reason ESPN walked away from this deal is because Disney never wanted to touch any gambling-adjacent brand with a ten-foot-pole. Moreover, if we fast-forward to February 2019, Bob Iger, the then Chairman, and CEO of Disney reiterated the company’s position on gambling during earnings call by saying;

“I don’t see The Walt Disney Company, certainly in the near term, getting involved in the business of gambling, in effect, by facilitating gambling in any way.”

How Did Disney end up Becoming a DraftKings Investor?

The plot twist, however, came about a month after Disney’s earnings call, when the company acquired Fox Entertainment for a cool $73.1 billion on 20th March 2019. Now, to bring the DraftKings ownership into context, the same year that ESPN backed out of their plan to acquire DraftKings’s stock, 21st Century Fox invested $160 million into the same sports betting and fantasy sports company.

This, therefore, meant that after The Walt Disney Company acquired Fox Entertainment, they now indirectly became investors of DraftKings. The recent filings with the SEC put Disney’s ownership of DraftKings at 6%, and the DFS and sports betting giant went public with an initial market cap of $6 billion. So, if we look at the Nasdaq numbers last Friday when DraftKings closed at $20.12, the math pegs the value of Disney’s investment at more than $360 million.

What Does This Mean for The Walt Disney Company?

While Disney has a significant holding in DraftKings, it doesn’t necessarily mean that we should expect the company to play a bigger role in the sports betting industry. It’s however rather interesting that historically, the company has had a strong stance against sports betting, yet it now owns a sizeable chunk of the sports betting and DFS brand.

Looking back at the Schedule 13G filing with the SEC, Disney has a passive investor designation per the Securities and Exchange Act of 1934, Rule 13d-1(c). A passive designation means that Disney isn’t allowed to assume an active role in DraftKings’s board of operations. Additionally, this designation also prohibits Disney from investing in any company that directly competes with DraftKings.

Hence, based on the SEC filing, it’s crystal clear that The Walt Disney Company doesn’t have any plan to sink its toes any deeper in the sports betting world.