DraftKings opens new $500 million credit facility led by Morgan Stanley

Sports betting giant DraftKings has opened a new $500 million credit facility, expected to give the company easy access to more and cheaper liquidity should it require the money in the next few years.

The new $500 million revolving credit facility, taken out this week with a syndicate led by Morgan Stanley, replaces a $125 million facility that the gaming company entered into with Banc of California and Citizens Bank in December 2022, which has now been terminated.

The shift gives the company more credit and more flexibility at a lower price, reports Sportico, at least based on current rate levels, and saves it money compared to its prior deal as long as it doesn’t leave the credit unused. 

It is yet unclear if the company has any specific plans for the money, whether via acquisitions, product initiatives, or other operational priorities, although it should be noted that the move comes amid a steady stream of M&A for the company.

In February, DraftKings announced it was buying online lottery app Jackpocket for $750 million in cash and stock. Later in May, the company acquired oddsmaker Sports IQ Analytics, while in August it announced an agreement to purchase betting provider Simplebet. Last month it bought Mustard Systems' golf pricing business, with financial specifics for those latter three deals not released.

However, the company's cash reserves have shrunk. DraftKings ended the third quarter of 2024 with cash and cash equivalents of $877.8 million, according to its SEC filings, down from $1.1 billion at the same point last year and down from $2.4 billion at the same point in 2021. 

Draftkings CFO Alan Ellingson

"We’re keeping our eyes on the markets, we expect to act responsibly," CFO Alan Ellingson said Friday in a call with analysts when asked about the buybacks. "But you should expect us to be more active with repurchases in future quarters as we scale into our free cash flow and as we have more liquidity."

While the terms of the new credit facility are currently more favorable to DraftKings than its prior line, the savings are trimmed by a higher fee DraftKings pays the bank for the unused portion of the credit line, notes Sportico. The bank charges the fee because it has its own costs related to extending even unused credit to a corporation. 

DraftKings' fee adjusts under another complicated formula, but as DraftKings' financials and interest rates stand today, the net result is that borrowing no money, or just a minority of the credit line, would cost it more than the old terms, but borrowing a lot of money would cost it less.

The new credit facility matures on November 7th, 2029, at which point DraftKings must repay all borrowings, accrued and unpaid interest.