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DraftKings has reached an agreement to acquire lottery reseller and sweepstake operator Jackpocket for $750m.

The transaction, which is subject to regulatory approvals, will see the American operator enter the US lottery market, which was estimated to be a $80.27bn industry in 2017.

However, the company highlighted the principal benefit of the deal will be to enhance its sportsbook and iGaming position through higher customer lifetime value.

DraftKings highlights Jackpocket cross-sell opportunities

This would be achieved through new cross-sell capabilities and an enhanced customer acquisition engine.

“We are very excited to enter the rapidly growing US digital lottery vertical with our acquisition of Jackpocket,” said DraftKings co-founder and CEO Jason Robins.

“This transaction will create significant value for DraftKings not only by giving our customers another differentiated product to enjoy but also by improving our overall marketing efficiency similar to how our daily fantasy sports database created an advantage for DraftKings in OSB and iGaming.”

Using a separate vertical to drive sports betting and iGaming cross-sell is in some ways a repeat of DraftKings original DFS-led strategy that saw it become the US market leader.

However, there are regulatory uncertainties that complicate this for lottery, as highlighted in a note by gaming consultants Regulus Partners.

“If, however, Jackpocket’s revenue is mostly derived from states which do not allow online lottery (most notably New York and Texas) then it faces the twin dangers of regulatory questions over the courier model or state adoption of online lottery, undermining the utility of the workaround,” it said.

“This worked for DraftKings in DFS, but lottery is a very different beast with nervous friends in much higher places.

“Further, the clear attempt to use a lottery workaround product to leverage sports betting and iGaming is also likely to turn up the regulatory and safer gambling heat on all parties.

“Whether DraftKings’ bravery in entering the US lottery space with a workaround product is to be admired or feared remains to be seen,” Regulus concluded.

DraftKings says deal will drive long-term value

Assuming no additional states legalise gaming, DraftKings said it expects the deal to drive $260-340m in incremental value, as well as $60-100m in Adjusted EBITDA by 2026.

This rises to $350-450m in value and $100-150m in EBITDA by 2028, according to the business’ internal estimates.

The deal has been approved by the boards of both companies, as well as Jackpocket shareholders. It is expected to close by H2 2024.

Under the terms of the deal, which was signed 11 February, Jackpocket shareholders will receive approximately $750m.

This will consist of $412.5m in cash and $337.5m in the DraftKings’ Class A common stock, representing around 2% of the firm’s overall share capital.

“Together with DraftKings, we will be able to bring tremendous value to our customer base as we advance our mission to create a more convenient, fun, and responsible way to take part in the lottery,” said Jackpocket CEO Peter Sullivan.

Rumours had been swirling around the potential $750m acquisition of Jackpocket for several days, as first reported by Earnings & More.

The business offers both lottery resell and sweepstakes in 18 states, as well as recently launched iGaming operations in New Jersey.

Jackpocket founding

Jackpocket was founded in 2013, and was conceived to help digitise lottery tickets to tap into the large US lottery market.

Since its founding the business has received $200m in funding from venture capitalists over its lifetime.

This includes the impact of a 2021 $120m Series D round which featured Kevin Hart and Mark Cuban among its investors.

The company has grown to process a large percentage of the overall lottery market in states where it is active.

“Probably this weekend on either Powerball or Mega Millions will do somewhere between 15 to 18-19% of every ticket sold in the state is going through our system,” said Sullivan at NEXT.io’s NYC’23 show.

“We’re currently live in 15 states with this system, and it’s grown from one Bodega if you go into our fulfilment centre today in New York, there’s about 70 IGT terminals that are constantly printing out tickets.

“So, it’s been a wacky way to get there. But the states are finally understanding that they get economies of scale in economics, when they work with a company like us.”

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