Should I Invest in Draftkings Stock?

Draftkings is at the forefront of an industry poised to explode, though there are several factors you should consider before investing.

DraftKings Inc.
company nameDraftKings Inc.
sectorConsumer Cyclical
industryGambling
address222 Berkeley Street, Boston, MA, United States
countryUnited States
websitehttp://www.draftkings.com

Draftkings’ focus on online gambling has led them to the top of their industry. As more states legalize the practice, Draftkings allows investors to reap the benefits.

If you’re willing to take on some risk, we recommend buying Draftkings stock. If not, we recommend waiting and watching.

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What is Draftkings?

Draftkings was founded as a fantasy sports website in Boston, MA in 2012. The founders are still key people on their management team: Jason Robins (CEO), Paul Liberman (President, Global Technology and Product), and Matthew Kalish (President, North America). 

Users create teams by drafting real-world players. The players’ various statistics are converted into points for the users, who compete against each other over the course of the season.

Draftkings raises revenue through entry fees, advertising, and corporate partnerships.

Draftkings entered the online gambling industry after SCOTUS overturned the Professional and Amateur Sports Protection Act (PAPSA), which had effectively outlawed sports gambling.  


DKNG stock went public in 2020 after a merger with Diamond Eagle Acquisitions and SBTech.

Bull Case

  • Draftkings has consistently delivered strong earnings reports. They nearly doubled their revenue to $600 million in 2020, and they reported $312 million of revenue for Q1 2021.
  • Draftkings has secured a partnership with the NFL. As an official betting and fantasy partner of the NFL, Draftkings enjoys exclusive rights to NFL IP and marks, hosting gambling content on NFL-branded properties such as the NFL App and NFL.com.
  • Draftkings has also partnered with Dish. The Draftkings app will now be available on the DISH TV Hopper platform, allowing customers to place bets and enter fantasy contests. Potential collaborations with Sling TV are also in the works.
  • Draftkings is pure-play. Unlike Flutter Entertainment (which owns FanDuel) or Penn National Gaming (which has a stake in Barstool Sports), Draftkings does not operate physical casinos, an attractive feature to investors focused on online gambling.
  • New York State’s budget for FY 2022 legalized online betting. New York is now the most populous state to legalize online sports gambling, although questions remain regarding whether the industry will be administered through casinos or the state-run lottery.
  • By a 2-1 margin, Maryland voters approved Question 2, which legalized sports wagering at certain licensed facilities.
  • 60% of Colorado voters approved a repeal of limits on the type of games upon which it is legal to gamble, expanding beyond slots, blackjack, poker, craps and roulette.
  • Each individual Louisiana parish voted on whether to allow online sports gambling. A vast majority--55 out of 64 parishes, including the populous New Orleans and Baton Rouge parishes--voted for legalization.
  • Three Nebraska ballot measures related to online sports gambling passed. Amendment 429 legalized gambling at racetracks, Amendment 430 created a state gaming commission, and Amendment 431 incorporated gambling into the tax code.
  • South Dakota voters expanded gambling rights. Sports gambling is now legal on the Deadwood reservation.
  • New Jersey was the first state to allow Draftkings to operate online sports gambling. Revenue from the Garden State expanded from $85 million in 2019 to $150 million in 2020. Draftkings has calculated that New Jersey revenue could top $200 million in 2021.
  • Draftkings stock rose 5.3% in response to these victories. 25 states allow casino gambling; 21 allow sports betting. Draftkings expects that after legalization reaches “maturity” (65% of states), their annual grosses will reach $2.9-4.3 billion.

Bear Case

  • Draftkings is still not turning a profit. They reported a net loss of $844 million in 2020 and $325 million in Q1 2021. The founders are confident that expanding legalization will soon have them in the black, but acknowledge that prospects are uncertain.
  • A Hindenburg Research report has linked Draftkings’ corporate partners to organized crime: “SBTech has a long and ongoing record of operating in black markets,” with “extensive dealings in black-market gaming, money laundering, and organized crime.” 
  • Legalization efforts are facing setbacks in Canada. Bill C-218, the Safe and Regulated Sports Betting Act, has been criticized for not doing enough to penalize fixing. A proposed amendment would send the bill back to committee.
  • Legalization efforts have fizzled in Texas. A bill to legalize sports gambling failed to make it out of the State Affairs Committee. The legislature will not meet again until 2023. Both Gov. Greg Abbott and Lt. Gov. Dan Patrick oppose the legalization of online gambling.
  • Legalization efforts face pushback from social conservatives. This dynamic was especially prominent in legalization efforts in Louisiana, where gambling has been associated with divorce and drug addiction.
  • Other groups also make ethical objections. Gambling may be seen as not meeting ESG (Environmental, Social, and Governance) standards important to young investors. YouTube banned gambling ads from their headline spaces amidst ethical concerns. 
  • Draftkings risks being associated with other “meme” stocks. These stocks are already becoming notorious for overhyped speculation producing wild volatility. This is an especially pressing dynamic given Draftkings’ aforementioned pure-play status.
  • Another rise in COVID-19 cases could spell trouble for sports. A resurgence of the pandemic could lead to canceled games and less disposable income on average. Draftkings would face rapidly falling revenue and an uncertain future for investors.

Draftkings Competitors

PPenn National Gaming, Inc.
$74.71
SymbolPENN
Price$74.71
Change$1.67
Change %2.19%
Volume$3,838,299.00
Marketcap11.94B
SScientific Games Corp
$76.73
SymbolSGMS
Price$76.73
Change$0.0700
Change %0.09%
Volume$681,362.00
Marketcap7.37B
BBoyd Gaming Corporation
$61.59
SymbolBYD
Price$61.59
Change$0.6200
Change %1.00%
Volume$592,858.00
Marketcap6.90B
GGenius Sports Limited
$19.32
SymbolGENI
Price$19.32
Change$0.7300
Change %3.93%
Volume$898,341.00
Marketcap3.70B

Final Verdict

The long term investing forecast for the online sports gambling industry is positive. as more and more states legalize the practice. According to Needham analyst Brad Erickson, the market could be worth as much as $58 billion only a few years from now.  

Draftkings remains uniquely poised to take advantage of this growth thanks to its online focus and name recognition. CEO Jason Robins compared the sports gambling market in the USA to the UK, arguing the former could become as culturally and financially dominant as the latter. 

There are drawbacks to buying Draftkings stock now. Risk-averse investors should wait until legalization takes hold in a few more states. But investors willing to accept risk in order to profit from a lean, mean, and prepared company should strongly consider buying Draftkings stock.

Should you invest $1,000 in Draftkings, Inc. right now?

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