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A report by Hindenburg Research stated that DraftKings’ technology subsidiary derives as much as half of its revenue from the illegal gambling market. This is the latest move by short-sellers to target companies that are listed through special purpose acquisitions.
After the report was released on Tuesday, the sports betting company’s stock price fell by more than 7%.
DraftKings’ Public listing in April 2020 It is widely regarded as an early accelerator of the latest Spac craze. It merged with Diamond Eagle, a blank check company, and a B2B gaming service company called SBTech.
In a report released on Tuesday, Hindenburg claimed that SBTech has a long history of operating in illegal gambling markets (including China and Iran), and that half of its current revenue comes from jurisdictions that operate illegally.
Hindenburg said it has shorted DraftKings, which means that if DraftKings’ stock price drops, it will make a profit. The company cited interviews with an unknown number of former employees, its own analysis of Securities and Exchange Commission documents, and back-end Internet infrastructure as evidence of its claims.
DraftKings said in a statement: “This report was written by people shorting DraftKings stock with the motivation to drive down the stock price. Our business combination with SBTech was completed in 2020.
“We conducted a thorough review of their business practices and we are satisfied with the results of the investigation. We do not comment on the speculations or allegations of former SBTech employees.”
DraftKings has become one of the most successful companies listed through SPAC, and its stock price has risen by more than 400% from the $10 price at which a blank check company was listed.
Hindenburg said that company insiders benefited from the sharp rise in DraftKings’ share price by selling a total of 1.4 billion U.S. dollars worth of stock.
According to documents submitted to the US Securities and Exchange Commission reviewed by the Financial Times, SBTech founder Shalom Meckenzie has sold or transferred almost all 11% of shares In the company.
Beginning in June 2020, Meckenzie has sold shares worth nearly 568 million U.S. dollars and transferred most of his remaining shares to a trust last month. Based on the current stock price, the trust is worth nearly 1 billion U.S. dollars.
Mackenzie could not be immediately reached for comment.
The short-seller report cited Oregon public record requirements and evidence from interviews with former employees, stating that SBTech has been operating in Iran for five years and continues to operate in China, despite strict regulations on online betting.
SBTech previously denied doing business in Iran, According to the statement provided in 2019 To the Statesman Magazine in Salem, Oregon.
DraftKings started as a daily fantasy sports company and later expanded to provide sports betting services, especially after the U.S. Supreme Court overturned the federal sports betting ban in 2018. Since then, more than half of the states in the United States have legalized this practice, triggering a game of gold gaming operators from all over the world scrambling to focus on the US market.
The Boston-based company also benefits from grow rapidly In online gambling during the coronavirus pandemic.As DraftKings has grown stronger in the past year, the company has added top celebrities to its board of directors, including basketball legends Michael Jordan And supermodel Gisele Bundchen.
Hindenburg focuses on companies listed through Spacs, including electric vehicle startups Nicholas. Short sellers are also taking aim Lordstown Motor Company, An electric truck manufacturer recently warned that it might fail, and Shamrock Health, A healthcare company that later became a popular meme stock.
Other short sellers, including legendary investor Jim Chanos, expressed concern about the Spac boom and compared it to the dot-com bubble.
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