DraftKings under federal probe over SBTech’s acquisition

D

raftKings is under federal investigation by the Securities and Exchange Commission over its acquisition of SBTech, a sports betting technology provider based in Bulgaria. The provider was bought by DraftKings in December 2019, and the acquisition was completed in 2020.

The company has received a subpoena from the SEC. On these developments, a Draftkings spokesperson told ESPN: “It is not uncommon for the SEC to investigate allegations” in short-seller reports, and remarked that the inquiry does not suggest “any wrongdoing or agreement with the short-seller allegations.”

News come after the release of an earnings report last Friday, in which the company acknowledged the filing of two federal securities law putative class actions.

It is alleged that DraftKing committed violations of the Securities Exchange Act related to its purchase of SBTech, stemming from a report by financial research firm Hindenburg Research.

The firm alleges SBTech has been involved in black-market gaming, money laundering and organized crime in a report back in June. “We estimate that roughly 50 percent of SBTech’s revenue continues to come from markets where gambling is banned, based on an analysis of DraftKings’ SEC filings, conversations with former employees, and supporting documents,” described said report.

Upon the release of the Hindenburg report, DraftKings dismissed the allegations after a “thorough review” of SBTech’s practices, revealed the company to Fox Business in June.

In its earnings report, the company described plans to defend itself against the claims, and has also remarked that it does not believe that the proceeding will have a “material adverse effect” on DraftKings’ financial condition.

In addition, DraftKings said it is also under an audit by the Internal Revenue Service (IRS) related to the payment of excise taxes on daily fantasy sports, for prior tax years. “The final resolution of that audit, and other audits or litigation, may differ from the amounts recorded in these consolidated financial statements and may materially affect the company’s consolidated financial statements in the period or periods in which that determination is made”, said DraftKings.

Meanwhile, the company has continued to expand its acquisition plans with a new deal to buy Golden Nugget Online Gaming Inc. valued at about $1.56 billion. The deal has been approved by both companies’ boards and is expected to close in the first quarter of 2022.

The acquisition will enable the company to leverage Golden Nugget’s brand, iGaming product experience and existing combined database of more than 5 million customers.

“This deal creates meaningful synergies such as increased combined company revenues driven by additional cross-sell opportunities, loyalty integrations and tech-driven product expansion as well as technology optimization and greater marketing efficiencies,” said Jason Robins, DraftKings’ CEO and Chairman of the Board.