DraftKings made a major announcement this week. The sportsbook went public in April of 2020 but recently announced $32 million shares of common stock available for sale. A little over 16 million shares will be sold directly by DraftKings, but the rest will be available through tother stockholders.
According to the announcement, DraftKings will allow insurance underwriters 30 days to purchase an additional 4.8 million common stock shares. The amount of each share was not included in the company announcement, but a source says the price is about $60 per share ($53.33 at close October 7th).
The sale of these stocks could raise just under $1 billion dollars, but some stock analysts have doubts about behind the scenes partnerships. New England’ Patriots owner Robert Kraft for example, was an early DraftKings investor but sold off over 300,000 shares of his stock before the market opened on Monday. Kraft’s selloff sent the stock falling about 16% from Friday’s close to mid-week.
DraftKings Looking for Alternate Revenue Sources
Analysts said on Monday that the sale of other shareholder stocks would generate more than $100 million for the sportsbook in just one quarter. Thanks to the sale of the Common A stock, DK will come out ahead on the year, despite losing a ton of revenue due to the pandemic-related sports shutdowns.
Many individuals in the financial sector and the sports betting industry are wondering why DraftKings decided to have this huge sell off. According to the statement, “DraftKings had a goal of quickly raising $1 Billion for general corporate purposes.”
According to experts, this is a very vague reason, so it remains a question on why the selloff now, and also for these amounts? Analysts say since DraftKings went public in April, the company’s stock has increased by 500%, which is obviously positive.
Randell Murphy of Charles Schwab said “The DraftKings sell off could be done for a number of reasons. Maybe they are planning some sort of business acquisition, where they needed instant capital for investment purposes. The various reasons are too numerous to speculate. They have been doing everything right in a very short amount of time, all arrows point to some sort of tactical reason.”
DraftKings Spending Big on Advertising
According to published reports, DraftKings has spent more than $200 million in advertising in the third quarter alone. That is a sizable amount, but the company is in a competitive battle with a large number of emerging providers.
Murphy said, “this stock movement may seem odd to some looking in, Really it isn’t with these type of Fortune 500 companies, money is moved around all the time, and this is one way of doing it. They are still getting their feet wet, it’s a very new industry not even a full two years old. They have to figure out what works and what doesn’t work. Some of the steps they take along the way may seem strange, but by all accounts they are doing very well and have a very good team they have assembled.’ There is more confidence now with sports betting now that sports has returned after the several months long of a shutdown due to Covid.”
Murphy added, “From all angles, they are probably looking down the line to make all types of prudent business investments to keep their brand solid now and in the future as sports betting continues to expand in the US.”