In May 2018, the U.S. Supreme Court overturned a federal law that banned wagering on college and professional games nationwide and left the legalization to individual state legislatures. This left regulations in Arizona hazy.Alyssa Williams/azcentral
DraftKings Inc., a legal sportsbook company in the United States that plans to soon operate in Arizona, is being accused by an investment-research firm of profiting from gambling in countries where it is illegal.
The company has partnered with the PGA Tour and intends to build a sportsbook at TPC Scottsdale, the course where the Waste Management Phoenix Open is played.
It is one of three companies that already has announced its intent to build a sportsbook in Arizona following the recent legalization of sports betting and fantasy sports wagering in the state.
The report released Tuesday by Hindenburg Research says that a recent merger between DraftKings and SBTech, a Bulgarian company, allows DraftKings to operate in illegal gambling markets.
“We estimate that roughly 50% of SBTech’s revenue continues to come from markets where gambling is banned, based on an analysis of DraftKings’ (regulatory) filings, conversations with former employees, and supporting documents,” the report from Hindenburg Research said.
DraftKings issued a statement on Tuesday that didn’t directly refute the accusations.
“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,” DraftKings said in a company statement. “We do not comment on speculation or allegations made by former SBTech employees.”
A representative for the PGA Tour said the association did not have a comment on the matter.
DraftKings last year finished a three-way merger with SBTech and Diamond Eagle Acquisition Corp., which allowed the newly combined company to offer public shares of stock.
Hindenburg Research is known for issuing highly negative reports on companies and profiting by shorting the stock. A stock short is essentially a gamble that the value of stock in a company will decline. Hindenburg helps its own wagers on those stock declines by issuing reports that tend to move stock prices downward.
Arizonans might recall Hindenburg as the company that published a damning report on Phoenix-based Nikola Motors Corp. in September, which sent the alternative-vehicle company reeling. Not only did the founder resign as executive chairman following the report, but the company lost billions in stock value, which it has yet to fully recover.
Much like Nikola’s initial statement when Hindenburg targeted that company, DraftKings’ response on Tuesday called out Hindenburg as a short seller.
“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price,” DraftKings’ statement said.
In the past year, DraftKings’ stock has ranged from about $27 to $75 per share. Following the Hindenburg report on Tuesday, shares dropped about 4% to close at $48.51 a share.
In the case of Nikola, Hindenburg reported that the company had overstated the capabilities of its alternative-fuel vehicles, even rolling one downhill for a promotional video because it couldn’t drive.
In the case of DraftKings and its merger partner SBTech, Hindenburg researchers allege illegal activity overseas.
“Based on conversations with multiple former employees, a review of (Securities and Exchange Commission) and international filings, and inspection of back-end infrastructure at illicit international gaming websites, we show that SBTech has a long and ongoing record of operating in black markets,” they wrote.
The Hindenburg researchers said they have analyzed the back-end gambling platforms made by SBTech and another company SBTech formed called BTi/CoreTech and determined the company is operating in places where gambling is not legal, such as Thailand and China.
“For all practical purposes, it appears that BTi/CoreTech functions as DraftKings’ undisclosed illegal gaming division,” Hindenburg wrote.
The new Hindenburg research is based on former workers at SBTech.
“As one former employee told us, DraftKings’ subsidiary SBTech has ‘sold to plenty of mobs,'” the firm alleged.
AZ sports betting to start by fall
Mobile sports betting is legal in Arizona but is not yet operational. The Arizona Department of Gaming on Monday was scheduled to release draft rules for licensees, but instead announced those rules were delayed.
The department has said it aims to have live betting by Sept. 9, when the defending NFL champion Tampa Bay Buccaneers will host the Dallas Cowboys in the first game of the football season. The Arizona Cardinals open their season on Sept. 12 against the Tennessee Titans.
DraftKings was one of the first companies to announce it would launch in the Arizona market when the legislation was approved. The Phoenix Suns have plans for a sportsbook with FanDuel Group and the Arizona Diamondbacks have a deal with Caesars Entertainment.
The newly passed legislation allows for 10 sportsbooks run by pro teams like those already announced as well as 10 at tribal casinos. It’s not yet known where the remainder of Arizona’s sportsbooks will locate, but they will all need licensing through the Department of Gaming.
The Department of Gaming did not immediately respond on Tuesday to questions about the Hindenburg report and whether the accusations would affect a license for DraftKings.
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