Shares of DraftKings Inc. slid as much as 12% on Tuesday after short seller Hindenburg Research said that the sports-betting firm’s gambling-technology subsidiary SBTech operates in countries where gambling is banned and said it is positioned for DraftKings shares to fall.
Hindenburg published a report early Tuesday that said DraftKings’s gambling-technology subsidiary, SBTech, makes about half of its revenue in countries where gambling is banned. According to the report, SBTech created an entity for what Hindenburg calls its black-market operations ahead of last year’s merger with DraftKings and a blank-check company that took the combination public. DraftKings shares slid in early trading, then recovered. They ended the day down more than 4%.
“SBTech does not operate in any illegal markets,” a DraftKings spokesman said. “We conducted a thorough review of their business practices and we were comfortable with the findings.”
New York-based Hindenburg said it based its report on conversations with former employees, regulatory filings and assessments of illegal international gaming websites. It claimed SBTech poses a risk to DraftKings because SBTech accounted for roughly 25% of the firm’s overall sales at the time of the 2020 SPAC merger and brought its technology to the combined company.
The Wall Street Journal hasn’t been able to verify independently the accusations in Hindenburg’s report. DraftKings CEO Jason Robins has said publicly that SBTech gives the company a technological advantage and provides better user experiences.