DraftKings Stock Drops after Hindenburg Research Report

DraftKings stock (DKNG) took a bit of a hit recently after some disappointing news. Their stock dropped five percent on Tuesday after a report came out that targeted them about illegal gambling activities.

Hindenburg Research, an activist company, claimed that DraftKings are involved in short selling and systematically hiding their black market operations. This company has some significant information that could hurt DraftKings’ business with these claims.

Hindenburg Research Report

The bombshell report had a priority focus on platform provider SBTech, which is a company DraftKings acquired before going public. Hindenburg claimed that SBTech has a long-standing record of operations among black markets.

The report further claims that SBTech has roughly 50 percent of its revenue continually coming from those markets. Most of them, they said, even came from banned areas that did not gamble legally.

They also had allegations SBTech spun off part of their business to what is known as BTI/CoreTech to specifically handle their black market operations. This business was controlled by former SBTech staff, and they even paid for the use of SBTech’s technology.

One of the biggest issues here is that it appears market insiders of the company cashed out before this information went public. The violations continued to pile up while insiders cashed out.

For example, DKNG and SBTech insiders were noted for cashing out nearly $1.5 billion in stock since the beginning of this SPAC investigation. Not surprising, but SBTech founder, Shalom McKenzie, had sold more than $568 million in stock during this time as well.

DraftKings Market Scare

On top of the allegations that have recently come forward, the stock market did not appreciate the level of executive compensation for the rising stock prices. Morgan Stanely, specifically, did not hold back on DraftKings’ money moves.

After Morgan Stanley made that statement, the stock price plunged some but nothing terrible. The stock’s price at the time was down roughly 37 percent from its $47 high in March.

Then on top of all of that news, the stock dropped five percent on Tuesday. On pre-market open, the stock was down 10 percent but regained half of the loss on the day.

DraftKings Partners and a Fair Report?

SBTech operates the sportsbook for the Oregon Lottery, and one of the claims in the report was that they misled the Oregon Lottery about black market operations. The lottery could potentially review their due diligence, but no word on that yet.

DraftKings has partnerships with major professional leagues such as the NFL, NBA, NASCAR, PGA Tour, and the UFC. If more information becomes available, these partnerships could be in jeopardy.

As far as the report being fair, it does come off as quite negative. Of course, this is all negative news, but the company is seeking out to reveal a potentially ugly side of DraftKings’ SBTech.

DraftKings has since made the statement defending their process of acquiring SBTech and was positive in their business model. They also denied the allegations and claimed that comments by former employees were not subject for comment.