DraftKings Adds $500M Credit Line That Incentivizes Borrowing

DraftKings has opened a new $500 million credit facility, a move that will give the company easy access to more—and cheaper—liquidity should it need 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 (Nasdaq: DKNG) entered into with Banc of California and Citizens Bank in December 2022. That old agreement has been terminated.

The shift gives the company more credit and more flexibility at a lower price, 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. Under the former agreement, DraftKings had to pay an interest rate of the Prime Rate—a rate banks charge creditworthy customers—plus 1%, equal to 8.75% as of this writing. Under the new facility, the company gets to choose the cheapest of two rates to determine the interest it must pay. They’re both complicated formulas, but the net result is cheaper borrowing for the business, provided it needs to use a notable portion of its $500 million. Based on DraftKings financials and the terms of the new credit agreement, the company can be borrowing money at 7.07% today.

It’s unclear if the company has any specific plans for the money, whether via acquisitions, product initiatives or other operational priorities. A DraftKings spokesman declined to comment. An SEC filing says just that the money “may be used for working capital and general corporate purposes of the company and its subsidiaries.”

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. In May it acquired oddsmaker Sports IQ Analytics, in August it announced an agreement to purchase betting provider Simplebet, and last month it bought Mustard Systems’ golf pricing business. Financial specifics for those latter three deals were not released.

The company’s cash reserves have also shrunk. DraftKings ended the third quarter of 2024 with cash and cash equivalents of $877.8 million, according to its SEC filings. That’s down from $1.1 billion at the same point last year, and down from $2.4 billion at the same point in 2021. Some of that cash will likely be used for the company’s first buyback—in July the DraftKings board authorized the company to repurchase up to $1 billion in its Class A shares.

“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. 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.

As an example, if DraftKings borrowed $50 million under the old line, it would cost the company about $4.4 million in interest annually and about $188,000 in unused credit line fees. Under the new credit line, borrowing $50 million would cost about $3.5 million in annual interest and about $1.7 million in unused credit line fees.

A $400 million draw would cost the company less under the new terms, however about $28.3 million in interest and $375,000 in unused line fees. Under the old terms, a $400 million draw would cost about $35 million in interest and $250,000 in unused credit fees, assuming the old line had the same $500 million limit.

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

DraftKings released third quarter earnings earlier this week. In a letter to shareholders, CEO Jason Robins said the company was revising its full-year revenue projections downward by about $250 million because of unfavorable NFL outcomes. The stock is up about 3% in Friday trading as of this writing. The stock is up about 16% so far this year.