Draftkings Stock Jumps 8% on Michael Jordan Advisory Role

September 3, 2020

American online fantasy sports betting firm Draftkings Inc (NASDAQ: DKNG) saw its shares pop 8.0% after it revealed that basketball legend Michael Jordan will be coming on to its board of directors.

The former Chicago Bulls player will advise the company’s board on strategy, product development and marketing and will receive an equity stake in DraftKings in return.

Tim’s Take:

Online sports betting has taken on a new lease of life in the Covid-19-induced lockdown. That’s especially true in America, where fantasy sports betting is big.

Within the space, DraftKings is the leading player. The company allows individual punters, such as you and me, to place fantasy-sports related bets in order to win money. The company generates revenue by taking a cut of a larger overall prize pool as more people enter an event and play off against each other.

There are many reasons to like the stock at the moment. The demand for fantasy online sports betting has exploded, coinciding with the resumption of sports events in the US.

Add to that the company’s growing user base (it has over 720,000 monthly unique players) along with higher average revenue per user, and you can see why investors are excited.

Regulatory uncertainty on gambling

However, the uncertainties in the business model – both on the regulatory front and after the pandemic has passed – are still too great for me to see whether the company can flourish over the long term.

Many states in the US still haven’t granted approval to DraftKings to operate. Investors betting on increasing legalisation as one of the key investment themes are doing exactly that – gambling on favourable regulatory change.

And when live-action sports events and other entertainment options do return (whenever a vaccine is available and life returns to some sort of normal), will DraftKings still be posting these sorts of growth numbers? I’m not convinced.

Disclaimer

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.