A report by Hindenburg Research has claimed that DraftKings’ technology subsidiary is earning up to half of its revenue from illegal gambling markets, the latest move by a short seller to target companies that have gone public with a special purpose buyout firm.
Shares of the sports betting company fell more than 7 percent after the report was released on Tuesday.
Draft Kings April 2020 general list It is widely considered an early acceleration of the latest Spac boom. It merged with Diamond Eagle as well as a B2B gaming services company called SBTech.
In the report released Tuesday, Hindenburg claimed that SBTech has an extensive history of operating in the illegal gambling markets, including in China and Iran, and that up to half of its current revenue comes from jurisdictions where the business is not legal.
Hindenburg said it took a short position in DraftKings, which means it will benefit if the DraftKings share price falls. The company cited interviews with an unspecified number of former employees, and its own analyzes of Securities and Exchange Commission filings and Internet infrastructure as evidence for its claims.
DraftKings said in a statement: “This report was written by a person who lacks shares in DraftKings with an incentive to lower the share price. Our business merger with SBTech was completed in 2020.
“We conducted a thorough review of their business practices and were satisfied with the results. We do not comment on speculation or allegations made by former SBTech employees.”
DraftKings has emerged as one of the most successful companies ever to go public through Spac, with shares up more than 400 percent from the $10 price at which the blank-listed screening companies are.
Hindenburg said company insiders benefited from the massive increase in DraftKings’ share price by selling $1.4 billion worth of stock.
According to Securities and Exchange Commission filings reviewed by the Financial Times, SBTech founder Shalom McKenzie has either sold or transferred nearly all of his assets. 11% share In the company.
Meckenzie has sold approximately $568 million in stock as of June 2020, and last month transferred the majority of his remaining stake to his family’s trust fund, which has a current stock price of about $1 billion.
McKinsey could not be reached for comment.
Citing evidence from a public records request in Oregon and interviews with former employees, the seller’s short report claimed that SBTech has been operating in Iran for up to five years, and continues to operate in China despite strict regulations against online betting.
SBTech previously denied that it conducted business in Iran, According to a statement issued in 2019 The Statesman Journal in Salem, Oregon.
DraftKings originated as an everyday fantasy sportswear before expanding to offer sports betting services, particularly after the US Supreme Court overturned a federal ban on sports betting in 2018. Since then, more than half of US states have legalized the practice, resulting in the The golden medal. Rush among bookmakers around the world to focus on the US market.
The Boston-based company also benefited from sharp rise In online gambling during the coronavirus pandemic. As DraftKings has grown over the past year, the company has added A-list celebrities to its board, including the basketball legend. Michael Jordan The famous supermodel Gisele Bundchen.
Hindenburg focused on companies listed via Spacs, including electric vehicle startups Nicola. Target the short seller too Lordstown Motors, the electric truck maker that recently warned it could fail, and Alfalfa health, a healthcare company that has since become a popular meme stock.
Other short sellers, including legendary investor Jim Chanos, have raised concerns about the Spac boom and compared it to the dotcom bubble.