DraftKings Faces Allegations of Profiting from Black Market Gambling

Popular American daily fantasy sports betting operator DraftKings is facing a disastrous downturn in its reputation and stock valuations after a report by an investment research firm Hindenburg Research claimed to find links between the company and illegal online gambling sites.

Not only are they facing backlash in the court of public opinion but concerned investors are seeking legal counsel in case there is merit to the claims made in the inflammatory report.

Making Your Bed

In 2020 DraftKings merged with the Bulgaria-based gambling company SBTech in a landmark deal worth $3.3 billion. The merger saw both companies going public which opened their business dealings up to scrutiny by market analysts and traders.

Hindenburg claims that their research revealed that SBTech, and now by extension DraftKings, had undeniable links to black-market gambling sites. In particular, the report highlighted SBTech’s business dealings in China, Vietnam, and Thailand, countries where online gambling is highly illegal.

The report goes on to claim that as much as 50% of SBTech's revenue was derived from offering illegal offshore gambling in restricted markets. This revelation saw DraftKings’ stock price plummet by 4.17% in a single day, closing at $48.51, more than $2 down from its opening price.

 Investors Rise Up

DraftKings defended their position and the merger with SBTech saying:

“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. 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. SBTech does not operate in any black markets. We do not comment on speculation or allegations made by former SBTech employees.”

Despite their bravado, the old adage holds “where there is smoke there is fire” and in this case a group of DraftKings shareholders have engaged the services of Bragar Eagel & Squire, a reputable shareholder rights law firm, to investigate whether the company “violated the federal securities laws and/or engaged in other unlawful business practices”.

With the amount of money at stake it is no surprise that a second shareholder rights litigation firm, The Schall Law Firm, also announced that it had been hired, by a separate group of stockholders, to investigate DraftKings for “for violations of the securities laws”.

While Bragar Eagel & Squire chose to take the high road and kept their comments limited to the brief they had received The Schall Law Firm took a far more aggressive stance calling the company “a $21 billion SPAC betting it can hide its black market operations”.