DraftKings tumbles after research firm alleges black market ties

Shares of sports betting giant DraftKings tumbled in early trading Tuesday after a prominent research firm accused the company of hiding alleged ties to illegal gaming operations.

Hindenburg Research claimed in a lengthy report that SBTech, a firm that DraftKings merged with when it went public last year, “brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.”

DraftKings fell 4% in late-morning trading after tumbling nearly 9% earlier in the morning.

The stock rebounded after the company issued a statement denying the allegations from Hindenburg.

“Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings,” DraftKings said in a statement.

But Hindenburg said in the report that its findings were “based on conversations with multiple former employees, a review of SEC & international filings, and inspection of back-end infrastructure at illicit international gaming websites.”

The research company has also accused SBTech of running illegal sports betting operations in Vietnam, Thailand, Malaysia and Iran.

DraftKings said in its statement that it would “not comment on speculation or allegations made by former SBTech employees.”

Hindenburg noted in the report that it now has a short position against DraftKings — meaning that it has borrowed shares of the company and sold them with the hopes of buying them back at a lower price and pocketing the difference as a trading gain.

DraftKings also highlighted that fact in its statement, pointing out that “this report is written by someone who is short on DraftKings stock with an incentive to drive down the share price.”

DraftKings has been on a tear

DraftKings has surged nearly 200% since it went public through a special purpose acquisition company, or SPAC, deal in April 2020.

The company has benefited from the return of live sports over the past year following pandemic-related shutdowns as well as more states legalizing sports betting.

And that’s helped make DraftKings one of the more successful so-called blank check mergers over the past few years. Several DraftKings insiders have sold stock since the market debut as well.

“We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations,” Hindenburg alleged in its report. “These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth.”

Hindenburg has made waves lately for pointing out discrepancies at electric truck maker Lordstown Motors. Lordstown denied most of the allegations but conceded on Monday that there were some inaccuracies tied to how it accounted for pre-orders of its Endurance vehicle.

Lordstown announced Monday that its CEO and chief financial officer were stepping down and that the company had hired an executive search firm to find new leadership.