MLB's COVID-19 Struggles May Halt DraftKings Short Squeeze

Draftkings Inc DKNG shares are now down 6.5% in the past week after Major League Baseball’s opening weeks of play have been far from smooth. Miami Marlins games have been postponed after 21 players tested positive for COVID-19, and the St. Louis Cardinals games were also placed on hold over the weekend after two positive player tests.

Sports gambling puer-play DraftKings had been on a tear leading up to MLB opening day and NBA opening weekend this past weekend. However, MLB’s outbreaks have lead to increasing speculation that the season may ultimately be canceled if the league can’t keep the virus from spreading. MLB’s difficulties also don’t bode well for the NBA or college and professional football seasons as well. Football and basketball are much more high-contact than baseball.

Short Squeeze On Hold? S3 Partners analyst Ihor Dusaniwsky said Friday that expectations for a return to live sports triggered a short squeeze in DraftKings stock in recent months. In July, short sellers were forced to cover 1.7 million shares of their positions. However, the fate of both the MLB season and the DraftKings short squeeze is likely closely tied from this point forward, Dusaniwsky said.

“If the re-emergence of professional sports is delayed or interrupted, we should see some price weakness in DKNG’s stock price as its revenue stream would be severely affected, and short sellers to look once again to build their positions,” Dusaniwsky said.

As of the end of last week, DraftKings had $680.4 million in short interest, about 7.8% of its float. DraftKings short sellers have generated a net loss of $107 million year to date.

Benzinga’s Take: Cancelling the MLB and NBA seasons at this point would be a disaster for the leagues, so investors should anticipate the leagues will do whatever it takes to think outside-the-box to keep the seasons going. MLB has already said it will make all 2020 double-headers only seven-inning games, and commissioner Rob Manfred said over the weekend some teams may not be able to play a full 60-game season.

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