[ad_1]
Text size
DraftKings shares fell after the allegations emerged on Tuesday. Scott Eisen / Getty Images for DraftKings
Wall Street analysts weighed in on a short sellers report alleging that technology owned by online sports betting platform DraftKings is being used by gambling operations in several jurisdictions outside of the United States where gambling is not allowed. The consensus is that there is nothing new in corporate research of online sports betting companies operating in questionable markets.
DraftKings shares (ticker: DKNG) fell for a second day in a row, falling 0.4% to $ 48.33 Wednesday afternoon, although the decline is in line with a modest drop in the S&P 500.
The report, released Tuesday by Hindenburg Research, alleges that a subsidiary of DraftKings sold the technology products it manufactures, through a reseller, to gambling companies operating in markets where such activity is prohibited. The stock fell 4.2% to $ 48.51 on Tuesday.
Hindenburg says revenue from banned markets is roughly half of the projected revenue for DrafKings subsidiary SBTechs of $ 121.9 million for 2021. The consensus estimate for overall revenue for DraftKings this year is $ 1.16 billion. of dollars.
This report is written by someone who is running out of DraftKings shares with an incentive to lower the share price, the company said.
SBTech does not operate in any illegal market, a DraftKings spokesperson told the Wall Street Journal.
Morgan Stanley analyst Thomas Allen wrote in a note: Exposure to the unregulated market is a common theme for [international] online gaming / sports betting companies. When Allen launched the Stars Group (TSG) hedge in 2019, he compared it to competitors who had unregulated market exposure between 4% and 76%.
Allen also said that in April 2016, the New Jersey Division of Gaming Enforcement issued a policy letter that established a clear line between gray market exposure allowed for operators and illegal market exposure. SBTech, the analyst said, operates in gray markets. DraftKings is based in Boston, but New Jersey’s position appears to be setting a precedent for how other regulators might handle the problem.
Susquehanna Financial Group analyst Joseph Stauff also pointed out that illegal and gray market operations are common in the industry. In a note on Tuesday, Stauff said that all of the Europe / UK-based bookmakers operate in gray / black markets across the world, and it certainly doesn’t surprise us that SB-Tech has done so too (even the biggest bookmakers today have around 20% exposure in unregulated markets which include gray / black).
In a note to clients on Wednesday, Cowen analyst Stephen Glagola said Hindenburg’s allegations were also not new when it came to SBTech. For Glagola, they were similar to concerns about SBTech’s operations in unregulated markets examined by the Oregon Lottery in 2019. The investigation did not reveal any information that would prevent the lottery from entering into a contract with SBTech.
Either way, Glagola said, DraftKings should quit any business with third-party distributors with ties to jurisdictions where the legal status of online gambling is an open question. SBTech is a small part of DraftKings’ overall business: only 3.7% of the company’s $ 5.4 billion goal for annual net income is expected to come from SBTech’s operations, he said.
DraftKings shares are up 3.4% this year, while the S&P 500 index has gained 13.1%.
Write to Max A. Cherney at [email protected]
[ad_2]
picture credit