Free Cost of Capital at DraftKings Case Study Solution | Assignment Help

MBA Staff Writer
Written by Gary F. Smith
Publish Date: 2024-11-03

Harvard Case - Cost of Capital at DraftKings

"Cost of Capital at DraftKings" Harvard business case study is written by Malcolm P. Baker, Sebastian Hillenbrand, James Barnett. It deals with the challenges in the field of Finance. The case study is 15 page(s) long and it was first published on : Sep 11, 2023

At Fern Fort University, we recommend DraftKings pursue a balanced capital structure prioritizing debt financing to fuel its growth strategy while maintaining a healthy risk-adjusted return on investment (ROI). This approach will allow DraftKings to capitalize on its strong market position in the rapidly growing sports betting and iGaming industry while mitigating potential financial risks associated with aggressive equity dilution.

2. Background

DraftKings, a leading provider of daily fantasy sports and online sports betting, faces a critical decision regarding its cost of capital. The company is considering a leveraged buyout (LBO) by a private equity firm, which would significantly alter its capital structure and impact its future growth prospects. This case study examines the potential implications of this decision and explores alternative financing strategies for DraftKings.

The main protagonists are Jason Robins, DraftKings' CEO, and the private equity firm considering the LBO. Both parties need to carefully analyze the potential risks and rewards associated with this transaction, considering the company's current financial performance, future growth potential, and the competitive landscape of the sports betting and iGaming industry.

3. Analysis of the Case Study

This analysis utilizes a financial framework to assess DraftKings' current financial position and the potential impact of the LBO. We will focus on the following key areas:

  • Financial Analysis: Examining DraftKings' financial statements (income statement, balance sheet, and cash flow statement) to understand its current profitability, liquidity, and leverage. We will utilize ratio analysis to assess key metrics such as profitability ratios, liquidity ratios, and asset management ratios.
  • Capital Budgeting: Evaluating the potential impact of the LBO on DraftKings' cost of capital and its ability to fund future growth projects. This involves analyzing the weighted average cost of capital (WACC) and the impact of increased debt financing on the company's overall risk profile.
  • Risk Assessment: Identifying the potential risks associated with the LBO, including increased financial leverage, potential for covenant violations, and the potential for conflicts of interest between management and the private equity firm.
  • Valuation Methods: Assessing the fair market value of DraftKings using various valuation methods, including discounted cash flow (DCF) analysis, comparable company analysis, and precedent transaction analysis.

4. Recommendations

Based on the analysis, we recommend the following:

  1. Pursue a balanced capital structure: DraftKings should prioritize a combination of debt and equity financing to maintain a healthy financial profile and maximize shareholder value.
  2. Utilize debt financing strategically: Leveraging debt financing can provide a lower cost of capital compared to equity financing, allowing DraftKings to fund its growth initiatives more efficiently. However, it's crucial to manage debt levels carefully to avoid excessive financial leverage and maintain a healthy debt-to-equity ratio.
  3. Negotiate favorable terms with potential lenders: DraftKings should leverage its strong market position and growth potential to secure competitive interest rates and flexible loan terms.
  4. Maintain a strong focus on profitability and cash flow management: DraftKings should continue to prioritize operational efficiency and cost control to generate strong cash flows and support its debt obligations.
  5. Consider alternative financing options: Exploring other financing options, such as private placements, convertible debt, or strategic partnerships, can provide additional flexibility and reduce reliance on traditional debt and equity financing.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core competencies and consistency with mission: The recommended approach aligns with DraftKings' mission to be a leading provider of sports betting and iGaming experiences. By leveraging debt financing strategically, DraftKings can continue to invest in its core competencies and expand its market share.
  • External customers and internal clients: This strategy will benefit external customers by providing them with a wider range of betting and gaming options, while internal clients (employees) will benefit from the company's continued growth and expansion.
  • Competitors: The recommended approach will allow DraftKings to compete effectively with other players in the sports betting and iGaming industry by providing the necessary financial resources to invest in technology, marketing, and product development.
  • Attractiveness ' quantitative measures: The recommended approach is expected to result in a higher return on investment (ROI) and a stronger cash flow position for DraftKings.
  • Assumptions: These recommendations are based on the assumption that DraftKings will continue to experience strong growth in the sports betting and iGaming industry and maintain its competitive advantage.

6. Conclusion

By pursuing a balanced capital structure and leveraging debt financing strategically, DraftKings can optimize its cost of capital, maximize shareholder value, and continue to grow its business in the rapidly evolving sports betting and iGaming industry. This approach will enable the company to navigate the challenges of the market, maintain its competitive edge, and achieve its long-term goals.

7. Discussion

While the recommended approach offers a strong path forward, there are alternative options worth considering:

  • Going public (IPO): An IPO could provide DraftKings with access to a large pool of capital, but it would also subject the company to increased scrutiny from investors and regulators.
  • Mergers and acquisitions (M&A): Acquiring smaller competitors could provide DraftKings with access to new markets and technologies, but it also carries the risk of integration challenges and potential dilution of shareholder value.

The recommended approach carries some risks, including:

  • Increased financial leverage: Excessive debt financing could increase DraftKings' financial risk and make it more vulnerable to economic downturns.
  • Potential for covenant violations: DraftKings must carefully manage its debt obligations to avoid violating loan covenants and triggering potential financial penalties.
  • Conflicts of interest: DraftKings needs to ensure that the private equity firm's interests align with those of the company and its shareholders.

8. Next Steps

To implement the recommended strategy, DraftKings should take the following steps:

  1. Develop a detailed financial model: This model should project the company's future financial performance and assess the impact of different capital structures on its profitability and cash flow.
  2. Engage with potential lenders: DraftKings should begin discussions with potential lenders to secure favorable loan terms and ensure that the debt financing aligns with its overall financial strategy.
  3. Monitor key financial metrics: DraftKings should closely monitor its financial performance and adjust its capital structure as needed to maintain a healthy financial profile.
  4. Communicate effectively with investors: DraftKings should keep its investors informed about its financial strategy and the rationale behind its decisions.

By following these steps, DraftKings can successfully navigate the complex world of capital structure decisions and position itself for continued growth and success in the sports betting and iGaming industry.

Hire an expert to write custom solution for HBR Finance case study - Cost of Capital at DraftKings

more similar case solutions ...

Case Description

FFU**description

🎓 Struggling with term papers, essays, or Harvard case studies? Look no further! Fern Fort University offers top-quality, custom-written solutions tailored to your needs. Boost your grades and save time with expertly crafted content. Order now and experience academic excellence! 🌟📚 #MBA #HarvardCaseStudies #CustomEssays #AcademicSuccess #StudySmart Write my custom case study solution for Harvard HBR case - Cost of Capital at DraftKings

Hire an expert to write custom solution for HBR Finance case study - Cost of Capital at DraftKings

Cost of Capital at DraftKings FAQ

What are the qualifications of the writers handling the "Cost of Capital at DraftKings" case study?

Our writers hold advanced degrees in their respective fields, including MBAs and PhDs from top universities. They have extensive experience in writing and analyzing complex case studies such as " Cost of Capital at DraftKings ", ensuring high-quality, academically rigorous solutions.

How do you ensure confidentiality and security in handling client information?

We prioritize confidentiality by using secure data encryption, access controls, and strict privacy policies. Apart from an email, we don't collect any information from the client. So there is almost zero risk of breach at our end. Our financial transactions are done by Paypal on their website so all your information is very secure.

What is Fern Fort Univeristy's process for quality control and proofreading in case study solutions?

The Cost of Capital at DraftKings case study solution undergoes a rigorous quality control process, including multiple rounds of proofreading and editing by experts. We ensure that the content is accurate, well-structured, and free from errors before delivery.

Where can I find free case studies solution for Harvard HBR Strategy Case Studies?

At Fern Fort University provides free case studies solutions for a variety of Harvard HBR case studies. The free solutions are written to build "Wikipedia of case studies on internet". Custom solution services are written based on specific requirements. If free solution helps you with your task then feel free to donate a cup of coffee.

I’m looking for Harvard Business Case Studies Solution for Cost of Capital at DraftKings. Where can I get it?

You can find the case study solution of the HBR case study "Cost of Capital at DraftKings" at Fern Fort University.

Can I Buy Case Study Solution for Cost of Capital at DraftKings & Seek Case Study Help at Fern Fort University?

Yes, you can order your custom case study solution for the Harvard business case - "Cost of Capital at DraftKings" at Fern Fort University. You can get a comprehensive solution tailored to your requirements.

Can I hire someone only to analyze my Cost of Capital at DraftKings solution? I have written it, and I want an expert to go through it.

🎓 Struggling with term papers, essays, or Harvard case studies? Look no further! Fern Fort University offers top-quality, custom-written solutions tailored to your needs. Boost your grades and save time with expertly crafted content. Order now and experience academic excellence! 🌟📚 #MBA #HarvardCaseStudies #CustomEssays #AcademicSuccess #StudySmart Pay an expert to write my HBR study solution for the case study - Cost of Capital at DraftKings

Where can I find a case analysis for Harvard Business School or HBR Cases?

You can find the case study solution of the HBR case study "Cost of Capital at DraftKings" at Fern Fort University.

Which are some of the all-time best Harvard Review Case Studies?

Some of our all time favorite case studies are -

Can I Pay Someone To Solve My Case Study - "Cost of Capital at DraftKings"?

Yes, you can pay experts at Fern Fort University to write a custom case study solution that meets all your professional and academic needs.

Do I have to upload case material for the case study Cost of Capital at DraftKings to buy a custom case study solution?

We recommend to upload your case study because Harvard HBR case studies are updated regularly. So for custom solutions it helps to refer to the same document. The uploading of specific case materials for Cost of Capital at DraftKings ensures that the custom solution is aligned precisely with your needs. This helps our experts to deliver the most accurate, latest, and relevant solution.

What is a Case Research Method? How can it be applied to the Cost of Capital at DraftKings case study?

The Case Research Method involves in-depth analysis of a situation, identifying key issues, and proposing strategic solutions. For "Cost of Capital at DraftKings" case study, this method would be applied by examining the case’s context, challenges, and opportunities to provide a robust solution that aligns with academic rigor.

"I’m Seeking Help with Case Studies,” How can Fern Fort University help me with my case study assignments?

Fern Fort University offers comprehensive case study solutions, including writing, analysis, and consulting services. Whether you need help with strategy formulation, problem-solving, or academic compliance, their experts are equipped to assist with your assignments.

Achieve academic excellence with Fern Fort University! 🌟 We offer custom essays, term papers, and Harvard HBR business case studies solutions crafted by top-tier experts. Experience tailored solutions, uncompromised quality, and timely delivery. Elevate your academic performance with our trusted and confidential services. Visit Fern Fort University today! #AcademicSuccess #CustomEssays #MBA #CaseStudies

How do you handle tight deadlines for case study solutions?

We are adept at managing tight deadlines by allocating sufficient resources and prioritizing urgent projects. Our team works efficiently without compromising quality, ensuring that even last-minute requests are delivered on time

What if I need revisions or edits after receiving the case study solution?

We offer free revisions to ensure complete client satisfaction. If any adjustments are needed, our team will work closely with you to refine the solution until it meets your expectations.

How do you ensure that the case study solution is plagiarism-free?

All our case study solutions are crafted from scratch and thoroughly checked using advanced plagiarism detection software. We guarantee 100% originality in every solution delivered

How do you handle references and citations in the case study solutions?

We follow strict academic standards for references and citations, ensuring that all sources are properly credited according to the required citation style (APA, MLA, Chicago, etc.).

Hire an expert to write custom solution for HBR Finance case study - Cost of Capital at DraftKings

Top Sellers

Referrences & Bibliography for SWOT Analysis | SWOT Matrix | Strategic Management

1. Andrews, K. R. (1980). The concept of corporate strategy. Harvard Business Review, 61(3), 139-148.

2. Ansoff, H. I. (1957). Strategies for diversification. Harvard Business Review, 35(5), 113-124.

3. Brandenburger, A. M., & Nalebuff, B. J. (1995). The right game: Use game theory to shape strategy. Harvard Business Review, 73(4), 57-71.

4. Christensen, C. M., & Raynor, M. E. (2003). Why hard-nosed executives should care about management theory. Harvard Business Review, 81(9), 66-74.

5. Christensen, C. M., & Raynor, M. E. (2003). The innovator's solution: Creating and sustaining successful growth. Harvard Business Review Press.

6. D'Aveni, R. A. (1994). Hypercompetition: Managing the dynamics of strategic maneuvering. Harvard Business Review Press.

7. Ghemawat, P. (1991). Commitment: The dynamic of strategy. Harvard Business Review, 69(2), 78-91.

8. Ghemawat, P. (2002). Competition and business strategy in historical perspective. Business History Review, 76(1), 37-74.

9. Hamel, G., & Prahalad, C. K. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91.

10. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard--measures that drive performance. Harvard Business Review, 70(1), 71-79.

11. Kim, W. C., & Mauborgne, R. (2004). Blue ocean strategy. Harvard Business Review, 82(10), 76-84.

12. Kotter, J. P. (1995). Leading change: Why transformation efforts fail. Harvard Business Review, 73(2), 59-67.

13. Mintzberg, H., Ahlstrand, B., & Lampel, J. (2008). Strategy safari: A guided tour through the wilds of strategic management. Harvard Business Press.

14. Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57(2), 137-145.

15. Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster.

16. Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. Free Press.

17. Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91.

18. Rumelt, R. P. (1979). Evaluation of strategy: Theory and models. Strategic Management Journal, 1(1), 107-126.

19. Rumelt, R. P. (1984). Towards a strategic theory of the firm. Competitive Strategic Management, 556-570.

20. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533.