Shares of SPAC darling DraftKings are crashing during pre-market trading after short seller Hindenburg Research (most recently responsible for ousting the CEO and CEO of Lordstown Motors) has released a new report called "DraftKings– A $21 Billion SPAC Betting It Can Hide Its Black Market Operations".
Shares were down about 8% pre-market.
"DraftKings has been considered one of the more successful deals in a recent wave of SPAC transactions marred by scandal and bad actors. Its stock is up ~398% from its announcement price," the report says.
"Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime."
"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," Hindenburg alleges. "As one former employee told us, DraftKings’ subsidiary SBTech has 'sold to plenty of mobs', a sharp contrast to the clean image of DraftKings’ brand-conscious partners, including the NFL, NBA, NASCAR, UFC and PGA, and the company’s recent hire of supermodel Gisele Bundchen to advise on governance issues."
The CEO selected to run BTi/CoreTech was formerly an executive of a ‘binary options’ gambling firm that was raided by the FBI and subsequently charged by the SEC for deceiving U.S. investors out of over $100 million. pic.twitter.com/G00W2WuOYi— Hindenburg Research (@HindenburgRes) June 15, 2021
The report also states:
- DraftKings trades at a ~26x last twelve months (LTM) sales multiple and a ~20x estimated 2021 sales multiple despite (i) no expectation of earnings for years, (ii) intense competition, and (iii) regulatory risk. The company posted net losses of $844 million in 2020 and $346 million last quarter.
- Insiders 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.
- Despite a rocky track record prior to taking DraftKings public, the company’s SPAC sponsors ultimately received 9.3 million shares, worth around $114 million at the time, in exchange for a token $25 thousand contribution.
- We spoke with several industry experts and competitors who questioned the viability of 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.
"We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth," Hindenburg concludes.
We will update this article as more information becomes available and as the company responds.