Written by Sergeo Domtchenko
DraftKings (NASDAQ DKNG), the rising online sports betting platform, turned the heads of NASDAQ investors last week after rising 10.4% on its debut. DraftKings hosts sports contests and provides sports betting services for the world’s biggest sporting leagues. These include the NBA, MLB, NFL, Premier League, UEFA Champions League, Tennis, and NASCAR.
The company went public on Friday. However, DraftKings did not enter via an Initial Public Offering (IPO).
Instead, the company merged with a special purpose acquisition company (SPAC) named Diamond Eagle Acquisition Corp (). SPACs are publicly traded firms that have little to no operating assets. By merging with a SPAC, DraftKings avoided the hurdles associated with an IPO.
Come lunchtime on Friday, the stock rose by 18%. Finishing the day at $19.35
BREAKING: Today, @DraftKings completed its business combination with DEAC and @SBTech_. DraftKings to begin trading tomorrow on Nasdaq under the ticker symbol "DKNG.” https://t.co/37KJJrFQMI pic.twitter.com/wO1KxA7NMC
— DraftKings News (@DraftKingsNews) April 23, 2020
Why is there so much hype surrounding DraftKings?
Sporting activity is frozen because of COVID-19. Making it unusual for DraftKings, a company that profits off sport, to go public. Thus, when DraftKings entered the market in an unorthodox fashion on Friday, they instantly captured attention.
DraftKings’ CEO, Jason Robins, stated that “I am confident a publicly-traded DraftKings can still do well in this environment. Sports leagues, after all, will eventually resume their games. It’s a matter of when not if.”
The shortage in sports hasn’t stopped DraftKings from offering new gambling opportunities to customers. Entries on the company’s fantasy e-sports contests “absolutely exploded”, soaring 50-fold in March as virus shutdowns began. Also, there are massive increases in betting on Russian table tennis tournaments during the U.S. lock-down.
Will DraftKings pose a threat to PointsBet Holdings?
Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research into this area.
I believe that DraftKings will be a serious player in the gambling industry for two reasons.
Firstly, the company will have a whole host of opportunities to increase revenues in the future. Since DraftKing’s services heavily rely on the actual performance of different leagues, the product performance should improve as leagues return to business as usual. The unfreezing of sporting activity should see DraftKings revenue skyrocket.
Secondly, DraftKings must become more efficient to survive the competitive gambling industry. Similar to the competitive nature of the telecom industry with Telstra , Optus, and TPG. DraftKings could update their technologies, implement TQM, or forge new partnerships. The need to continually improve should enable DraftKings to emerge as a market leader.
Is DKNG or DEAC worth the investment?
DraftKing’s story involves just as many setbacks as it does forward leaps. DKNG started in the DFS sector, failed an IPO attempt, and the US government came close to shutting them down. However, DKNG persevered and is now a public company in the newly legal sports betting sector.
DraftKings went from smallish upstart in the DFS space to nearly shut down by the government to paving way for legal sports betting in USA. Now they going public. Wild ride. https://t.co/FNRPQGMaMP
— Adam Levitan (@adamlevitan) April 24, 2020
Many investors are curious whether the sky is limit for Draftkings? Based on the astronomical growth Points Bet Holdings (ASX: PBH) saw upon entering the market, there is a high chance DKNG will follow in the same footsteps.
Despite a probable recession, DKNG should emerge even more dominant in the sports betting sector. Because DKNG can proactively obtain state licenses during the recession. Thus, once we recover from a recession, DKNG has the licenses to launch its business into the stratosphere.
However, For now, I would hold off from investing in this company until I get hold of the company’s financials. From there, I will be able to make an informed decision on whether this company will meet my financial objectives.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, and Sergeo Domtchenko, Senior Manager, and Associate of YIG.