Cathie Wood’s Ark ETFs bought the dip in DraftKings after a short-seller report sent shares tanking

DraftKings New England Patriots
  • Two of Cathie Wood’s ARK ETFs bought a combined 870,299 shares of DraftKings on Tuesday.
  • The purchases came after a dip in share prices due to a short-seller report from Hindenburg Research.
  • DraftKings received analyst support from Morgan Stanley and Jefferies after the news broke.
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Two of Cathie Wood’s actively managed Ark ETFs bought the dip in DraftKings on Tuesday, acquiring a combined 870,299 shares after a short-seller report sent the stock sinking.

Specifically, Wood’s Ark Next Generation Internet ETF bought 181,597 shares, while the Ark Innovation ETF bought 688,702 shares, according to a daily email from Ark’s trading desk outlining recent trades.

The combined stock was worth some $42,218,204 as of Tuesday’s closing price.

DraftKings represents the 17th-largest holding of the Ark Innovation ETF and the 19th-largest component of the Ark Next Generation Internet ETF.

DraftKings’ stock came under pressure on Tuesday after the noted short-seller Hindenburg Research released a report detailing what they describe as “black market operations” at the fantasy sports and sports betting operator.

While the stock fell as much as 12% on Tuesday, it recovered to end the day down just 4%. Now, DraftKings has received some much-needed analyst support.

Thomas Allen, the managing director of equity research at Morgan Stanley, reiterated his “overweight” rating and $58 price target on shares of DraftKings after the short-seller report.

The analyst argued that “unregulated” market exposure is common for international online gaming/sports betting companies and that DraftKings’ partner, SBTech, has exposure that is more in the “grey market” area.

“We are Overweight DKNG on the thesis that its customer acquisition advantage through its legacy DFS business will drive outsized US B2C sports betting revenue and, in turn, profitability compared to consensus,” Allen said.

Jefferies analyst David Katz also maintained his “buy” rating and $75 price target on DraftKings, arguing that the SBTech acquisition was mainly meant to help the company own and developing the right betting technology, not gain international revenue.

Read more: A client portfolio manager at Cathie Wood’s Ark Invest shares which of its ETFs are projected to see the most growth over the next 5 years, and explains the recent downturn in the broader family

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DraftKings sinks 12% after short-seller report claims online sports betting company is hiding illegal activity

The fantasy sports website DraftKings is shown on October 16, 2015 in Chicago, Illinois.
The fantasy sports website DraftKings is shown on October 16, 2015 in Chicago, Illinois.

  • DraftKings plunged as much as 12% before retracing some losses on Tuesday.
  • An report from Hindenburg Research claimed the online sports betting company had “systematically skirted the law.”
  • The short seller is a frequent critic of popular startups, having previously targeted Nikola, Lordstown Motors, and Clover Health.
  • See more stories on Insider’s business page.

DraftKings plunged as much as 12% Tuesday on allegations by a short seller of illegal activity.

A report from Hindenburg Research published Tuesday morning, which unveiled the firm’s short position in the online sports betting company, claimed DraftKings had “systematically skirted the law” via two Bulgarian subsidiaries. Meanwhile, insiders made use of market froth to sell more than $1.4 billion in DraftKings shares, Hindenburg alleged.

In a statement, DraftKings downplayed the findings.

“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price,” the company told Yahoo Finance. “We conducted a thorough review of [one of the Bulgarian subsidiary’s] business practices and we were comfortable with the findings.”

Released ahead of market open, the report sent DraftKings shares sliding, bottoming out at $44.65 a share versus a previous close of $50.62. But by 11 a.m. New York time, the stock had recovered around two-thirds of the initial drop, and had remained stable as of this writing.

Since the Supreme Court legalized sports betting nationwide in 2018, DraftKings has leaned on partnerships with high-profile brands, like the NFL and NBA, to stand out in a crowded, sometimes opaque market.

The firm went public through a SPAC in 2020, combining with one of the Bulgarian subsidiaries, called SBTech, that Hindenburg accuses of criminal conduct.

The DraftKings drop continues a rough stretch for the stock, which has fallen 28% since mid-March.

Shares of the company were trading 4.65% lower at $48.26 as of 3:29 p.m. ET on Tuesday.

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Hindenburg Research reveals DraftKings short position, says company is hiding black market operations

Jason Robins DraftKings CEO
DraftKings CEO Jason Robins.

  • Hindenburg Research revealed its latest short position in a report on Tuesday, setting sights on online betting company DraftKings.
  • The short seller claimed DraftKings is hiding “black market operations.”
  • Hindenburg says 50% of DraftKings’ SPAC partner SBTech’s revenue comes from markets where gambling is banned.
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Short seller Hindenburg Research revealed its latest short position against DraftKings in a report on Tuesday.

Hindenburg said that one of DraftKings’ SPAC merger partners, Bulgaria-based gaming technology company SBTech, “brings exposure to extensive dealings in black-market gaming, money laundering, and organized crime.”

The short seller claimed that, according to their estimates based on SEC filings, “supporting documents,” and conversations with former employees, roughly 50% of SBTech’s revenue comes from markets where gambling is banned.

DraftKings did not immediately respond to Insider’s request for comment about the report.

Hindenburg said the company’s illicit customer relationships were shuffled into a newly formed “distributor” entity called BTi/CoreTech when DraftKings went public via a SPAC merger with Diamond Eagle Acquisition Corp. in April 2020.

The short seller has been a frequent critic of popular startups, many of which have gone public via SPAC. Previous targets include electric vehicle makers Nikola and Lordstown Motors, as well as Chamath Palihapitiya-backed Clover Health.

Hindenburg also noted that DraftKings insiders have dumped over $1.4 billion in stock since the company went public, and SBTech’s founder personally sold around $568 million in shares.

Finally, the short seller argued DraftKings’ business model of aggressively spending cash to acquire customers that may or may not be loyal to the platform could be a risk moving forward.

DraftKings stock traded down 7.80% as of 9:47 a.m. ET after news of the short-seller report broke.

DKNG stock chart
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The CEO of DraftKings says he’s looked into adding crypto as a form of payment, but regulations are preventing it

GettyImages 1028725344
DraftKings CEO Jason Robins onstage during the TechCrunch Disrupt SF 2018 on September 7, 2018 in San Francisco.

  • DraftKings CEO Jason Robins said current regulations prevent the company from accepting cryptocurrency as payment.
  • “As of now, crypto is not an approved payment type in any of the states where we’re live,” Robins said.
  • But he added he foresees cryptocurrencies to “likely transform some entire industries.”
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DraftKings CEO Jason Robins said he has looked into adding cryptocurrencies as a form of payment for his online sports betting company but admitted that the current regulations prevented him from pursuing the matter further.

“The payment methods we can accept are determined by the individual state regulators and, as of now, crypto is not an approved payment type in any of the states where we’re live,” Robins said during a live town hall hosted by stock trading app Public Wednesday.

The chief executive added that cryptocurrencies will “likely transform some entire industries and portions of others.”

Cryptocurrency regulation – or a lack of – has been in the spotlight recently. On Tuesday, the Internal Revenue Service asked lawmakers to give the agency more authority and funding to regulate the rapidly evolving industry.

Yet, some, such as SEC Commissioner Hester Pierce, have warned that stricter rules will hurt the cryptocurrency market.

Currently, DraftKing operations vary per state depending on the service. It will likely be the same case for when it accepts cryptocurrencies.

For instance, users can play DraftKings daily fantasy sports throughout the US except in Montana, Washington, Idaho, Nevada, and Arizona, according to its website.

Meanwhile, only 10 states allow sports betting, while just four -Pennsylvania, Michigan, West Virginia, and New Jersey – permit online gambling.

Screen Shot 2021 06 09 at 2.24.35 PM
Where online gambling is legal in the US.

DraftKings in the past year has been benefitting from a wave of enthusiasm over the country’s emerging sports-betting industry. Research firm Eilers & Krejcik Gaming in February projected that sports betting would generate $5.8 billion in revenue by 2023, up from an estimated $920 million in 2019.

The Boston-based company in May reported a better-than-expected loss per share and higher revenue for the first quarter of 2021. The company, founded in 2012, also lifted its full-year revenue guidance from a range of $900 million – $1 billion to a range of $1.05 billion – $1.15 billion.

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DraftKings jumps 8% as sports-betting company forecasts $1 billion in revenue for 2021

DraftKings New England Patriots

DraftKings jumped as high as 8% to $62 a share after upgrading its 2021 forecasts and reporting a flood of new users during the fourth quarter.

The sports betting company upgraded its revenue expectations for 2021 to a range of $900 million-$1 billion, up from $750 million-$850 million. The company said this forecast increase reflects strong fourth quarter performance, an increase in new users, and the launch of mobile sports betting in Michigan and Virginia.

“We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business and newly launched states that were not included in our previous guidance,” CEO Jason Robins said in a statement.

DraftKings said this forecast is contingent on all professional and college sports events including the NCAA’s March Madness, NBA playoffs, and NHL playoffs going forward as planned.

The sports betting firm also reported a 44% increase in monthly unique players to 1.5 million, above the highest analyst forecast of 1.45 million, according to Bloomberg. 

A rise in the number of states that permit legal gambling is likely to blame for that user surge. 

Additionally, DraftKings posted a 146% increase in revenue during the fourth quarter, bringing in $322 million compared to the $131 million during the same period in 2019. 

Following the successful launches in Michigan and Virginia in 2021, DraftKings now operates mobile sports betting in 12 states, more than any other company in the industry. 

Shares pared back earlier gains and were trading around $59 as of 10:33 a.m. ET. DraftKings is up 27% year-to-date.

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