Short Sellers are Coming For DraftKings’ Crown

Somebody call Tony Soprano.

Yesterday famous short-seller Hindenberg research came out with a damning report claiming that DraftKings, the fantasy sports and online gambling app, earns a significant portion of its revenue from illegal gambling markets.

The Story

DraftKings went public last year through a three-way SPAC merger with blank-check company Diamond Eagle and B2B gaming services company SBTech.

The report zeros in on SBTech, which Hindenberg says, citing evidence from former employees back-end internet infrastructure, operates an entity for its black market operations:

• Specifically, the short seller claims that SBTech operated in Iran for as long as five years, and continues to operate in China despite strict regulations against online wagering.
• Adding fuel to the allegations, Hindenburg says Shalom Meckenzie, the founder of SBTech, has sold out of or transferred almost his entire 11% stake in the company (worth north of $1.5 billion).

The Rebuttal: DraftKings was quick to re-raise: “This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price.”

Why It Matters: DraftKings has emerged as one of the most successful businesses to go public through a Spac, with its shares up more than 400% from its initial listing. Yesterday, shares of DraftKings fell as much as 7% before recovering to fall 4% on the day. No doubt the companies board — which includes Michael Jordan and supermodel Gisele Bündchen — was on the phone deep into the night to discuss the allegations.