When known short-seller Hindenburg Research blasted DraftKings in June over its acquisition of SBTech, a certain amount of fallout was expected. It doesn’t take long before a few overzealous shareholders went on the offensive and sued the sports betting and fantasy sports giant, but the troubles don’t stop there. DraftKings is now under investigation by the US Securities and Exchange Commission (SEC), but the operator insists there’s nothing to be worried about.
DraftKings Under the SEC’s Microscope
This past June, Hindenburg Research published a scathing report about DraftKings, its financial management and its acquisition of SBTech. It only took a couple of weeks for a shareholder lawsuit to surface as a result of the report, although DraftKings is more than ready to defend itself as necessary. While the operator’s legal teams work to put out multiple fires, the SEC is also getting involved, with DraftKings acknowledging in an earnings report last Friday that the financial watchdog is putting the company under the microscope.
DraftKings is accused of having violated the Securities Exchange Act with its SBTech acquisition, but the company isn’t too concerned about the investigation. It asserts that it is “not uncommon” for the SEC to scrutinize companies following a short-seller’s report, adding in an email to ESPN, “The SEC inquiry does not suggest any wrongdoing or agreement with the short-seller allegations, and we intend to cooperate with the SEC inquiry.”
Just Another Day in the Life of an Industry Leader
Large companies are always being sued by someone for something, and DraftKings, inarguably one of the most prolific companies in the US gaming space, isn’t immune. However, while it expects to emerge from its most recent litigious battles unscathed, it will pay the price in the meantime. DraftKings added in its earnings report that the result of the investigation won’t have “a material adverse effect” on its financial condition, but that it could impact the company’s operating results, depending on the outcome.
The news hasn’t impacted DraftKings a great deal so far. Its stock may not be trading at the $71.98 seen this past March, but it is still up overall. May saw the price drop to $42.11 for a new six-month low; however, it has remained relatively strong since. Even the announcement of the Hindenburg report didn’t affect the stock as much as Hindenburg’s Nathan Anderson would have liked. The price remained buoyed at around $51.49 when the report surfaced and closed at $51.59 as of last Friday.
DraftKings still has other issues to deal with, as well, as it prepares its legal offense and defense. It explained in its earnings report that the IRS is also taking a greater interest in the company’s books. Apparently, there are some unresolved issues related to “excise taxation of fantasy sports contests” that have led to the IRS requesting an audit of the company’s accounting records. It isn’t clear from the report which years are covered or how big of a discrepancy there may be.