DraftKings Falls On Hindenburg Short Report, Calls Out Sports Betting Co. For Skirting Law & Hiding 'Black Market Operations'

Early Tuesday morning, Hindenburg Research issued a short report on the sports betting company DraftKings Inc DKNG.

What Happened: In a report called “A $21 billion SPAC betting it can hide its black market operations,” Hindenburg Research targets DraftKings and its fully owned SBTech unit.

The SPAC deal that brought DraftKings public was a three-way merger between the SPAC, DraftKings and Bulgaria-based gaming technology company SBTech. Hindenburg accuses SBTech of being a red flag unit hidden within the DraftKings business.

“Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime,” the report says.

Hindenburg spoke to former employees and reviewed SEC filings to find that SBTech, which will soon power DraftKings’ back-end infrastructure, has a record of operations in the black market.

According to Hindenburg, SBTech attempted to hide some of the illegal operations prior to the merger by spinning off a unit into a newly formed company called BTi/CoreTech.

At the time of the SPAC merger, SBTech represented 25% of the company’s revenue and was the only positive contributor to positive operating income.

Hindenburg also questions the $1.4 billion in insider sales since the company going public with the founder of SBTech the biggest seller with transactions of around $568 million.

Related Link: DraftKings Q1 Revenue Up 175%, Paying Users Rise 114%

Why It’s Important: Since completing its SPAC merger, DraftKings has been one of the most successful companies to go public this route with shares up almost 400%.

Unlike other short reports that Hindenburg has put out, the accusations don’t question the financials of DraftKings but rather the operations that are used for the money.

Also not lost on Hindenburg is the mention in the report that DraftKings has major partnerships with the NFL, NBA, Nascar, PGA and UFC.

Readers should also note that Hindenburg Research is holding a short position in shares of DraftKings. The firm has targeted several companies that completed SPAC mergers in the past including Lordstown Motors RIDE, Clover Health Investments CLOV, Nikola Corp NKLA and PureCycle Technologies PCT.

Benzinga did not receive a response from DraftKings at the time of writing.

DKNG Price Action: Shares of DraftKings are down 6.7% to $47.18 at publication time.