Why Investors Are Dumping DraftKings Stock Tuesday

DraftKings Inc DKNG shares are dropping in Tuesday's after-hours session following an online sports betting deal between PENN Entertainment Inc PENN and ESPN. 

What Happened: Penn entered into an exclusive agreement with ESPN, which gives Penn exclusive rights to the ESPN Bet trademark for online sports betting in the U.S. for an initial 10-year term. 

The Barstool Sportsbook is set to be rebranded to ESPN Bet in the fall, and the agreement may be extended for an additional 10 years upon mutual agreement.

Penn also sold 100% of the Barstool Sports common stock back to Dave Portnoy in exchange for certain non-compete and other restrictive covenants.

Penn will pay ESPN, which is 80% owned by Walt Disney Co DIS, $1.5 billion for the initial 10-year term and grant ESPN approximately $500 million in warrants to purchase 31.8 million shares of Penn common stock in exchange for media, marketing services, brand and other rights provided by ESPN.

Penn estimated that the deal would add $500 million to $1 billion of annual long-term adjusted EBITDA potential. 

DraftKings and Penn compete in the online sports betting space. DraftKings shares sold off immediately following the announcement.

Related Link: PENN Entertainment Stock Soars On ESPN Deal, Selling Barstool Sports Back To Dave Portnoy: The Details

DKNG Price Action: DraftKings shares were down 8.55% after hours at $29.00 at the time of writing, according to Benzinga Pro.

Photo: courtesy of DraftKings.