In early 2020, a sports betting platform known as SBTech merged with DraftKings. A recent report published by the Hindenburg Research group alleged that SBTech has its hands in black market illegal activities. Rather than shocking industry executives, the news elicited little more than a yawn, according to CDC Gaming Reports Jake Pollard.
The details seemed impressive enough and Pollard called it an “eye-catching” release. But do not dismiss the seriousness of the allegations nor the goal of driving down DraftKings share price. FYI: Pollard worked for SBTech for some nine months and did not have the most pleasant of experiences, he said.
In the end, shares fell 4 percent. And most industry folks supported DraftKings in this issue.
The most egregious allegations focused on SBTech’s operations in China and the Middle East. The report said several third-party resellers connected to SBTech work in those markets—where gambling is banned—which could account for half the company’s revenue.
DraftKings is knowingly benefiting from these operations, something the sportsbook giant denies.
Hindenburg said industry people wondered about DraftKings “model of aggressively burning cash on promotion and marketing to acquire customers in the near term, despite a lack of evidence of long-term customer brand loyalty.”
Truist Securities said SBTech’s business didn’t contribute enough to DraftKings’ revenues, so risks were “more limited to reputation and market sentiment.”
The team at Jefferies said it really doesn’t matter as others do the same thing.
But the charges may curtail efforts to bring sports betting to additional states as those responsible for establishing the ground rules “could possibly feel compelled to examine digital gaming companies’ exposure to gray markets more closely going forward.”
Credit Suisse estimates that the percentage of revenue from DraftKings could be 10 percent in 2021 and 8.6 percent for 2022.
Industry analysts anticipate DraftKings will cut off many of the B2B deals it inherited from SBTech. And operators running SBTech are already discussing alternatives.
