DraftKings Shares Fell Nearly 11% After ‘Activist Short-Seller’ Report

Research group alleges that SBTech, which DraftKings merged with, operates in black markets
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Updated with comment from DraftKings:

“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings.  We do not comment on speculation or allegations made by former SBTech employees.”

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DraftKings’ shares plummeted nearly 11% in pre-market trading on Tuesday after a scathing report from an “activist short-seller” research firm.

Hindenburg Research, which states on its Twitter page that its business is “popping bubbles as we see them,” alleged that SBTech, with which DraftKings merged in 2020, is engaged in black market online gambling activity.

“Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering, and organized crime,” Hindenburg Research claimed in its note. “We estimate that roughly 50% of SBTech’s revenue continues to come from markets where gambling is banned, based on an analysis of DraftKings’ SEC filings, conversations with former employees, and supporting documents.”

DraftKings’ share price fell to around $45 from more than $50 at close on Monday. By around 10 a.m. EST on Tuesday, DraftKings had rebounded to about $47.50.

The news comes as DraftKings vies for entry into the lucrative New York State online gambling market.

As a $DKNG stock holder, I’m really worried about the stock tanking with this news,” wrote media host Holden Kushner on Twitter. “Leadership has to publicly clear this up.” 

Some people on Twitter were speculating that the research is biased and thus it could be an opportunity to buy DraftKings shares at a discount. The daily fantasy sports operator has become one of the top players in the relatively nascent U.S. online casino and online sports betting market.

Short selling has become increasingly controversial in the so-called Reddit “meme stock” era.

Despite DraftKings’ position in the booming U.S. market, Hindenburg Research alleged that “[i]nsiders have dumped over $1.4 billion in stock since the company went public a little over a year ago, with SBTech’s founder leading the pack, having personally sold ~$568 million in shares.”

Hold off on buying DraftKings for now?

DraftKings was trading at more than $70 a share around the time of March Madness, one of the heaviest sports betting times of the year. Since then, DraftKings nearly went below $40 a share, before rebounding in recent weeks. It’s been an up and down year for tech stocks overall.

The Hindenburg Research report is having a massive impact on the share price, and investors might want to wait until the dust settles before considering buying the dip. The NFL season is upcoming, potentially fueling another strong period of growth for the stock.

Shares of DraftKings’ rivals such as Penn National Gaming and MGM were flat early Tuesday on the DraftKings news.

Reactions to news continue to pour in

DraftKings isn’t SBTech:

Redditers take aim at Hindenburg:

Investment group says selloff overblown:

Photo by Lori Butcher / Shutterstock.com

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