SECTOR NEWS

Shares of DraftKings (DKNG) were under pressure on Tuesday after Nathan Anderson's short selling firm Hindenburg Research published a report on the company. Hindenburg claimed that DraftKings has "systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth."

The report noted that DraftKings went public in a three-way merger between DraftKings, its SPAC sponsor and a Bulgaria-based gaming technology company called SBTech. "Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime," the report said, adding it estimates that "roughly 50% 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."

The firm continued: "We spoke with several industry experts and competitors who questioned the viability of DraftKings’ model of aggressively burning cash on promotion and marketing to acquire customers in the near term, despite a lack of evidence of long-term customer brand loyalty. We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth."

Contacted by The Fly following Hindenburg Research's short report claiming black market connections, a spokesperson for DraftKings said that "this report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. 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. We do not comment on speculation or allegations made by former SBTech employees."  Shares were down as much as 6% in the wake of the Hindenburg report.

While analysts like Truist's Barry Jonas said the SBTech and black market exposure presents a "wider risk" for DraftKings, Credit Suisse analyst Benjamin Chaiken viewed the selloff in shares of DraftKings following the report as overdone. The analyst believes minimal value in DraftKings stock is being applied to SBTech. Chaiken said he would use the selloff as an opportunity ahead of potential Canada legalization as well as New York, both of which he sees as catalysts for DraftKings. In that regard, Cathie Wood's ARK Investment bought 870.3K shares of DraftKings on Tuesday.

Audacy (AUD) announced the addition of new weekday programming on the "BetQL Network" as part of its multiplatform partnership with BetMGM (MGM). Beginning June 21, the network will launch "The Daily Tip," featuring Michael Jenkins and Chelsea Messinger, and "BetMGM Tonight," starring Ryan Horvat and Quinton Mayo. The "BetQL Network," which features sports betting programming heard across Audacy's portfolio of sports stations, can be heard on The Bet 1430AM in Denver, 93.1 HD3 in Los Angeles and The Bet 105.9 FM-HD2 in Chicago, as well as via the Audacy digital platform.

Macquarie analyst Jordan Bender initiated coverage of Churchill Downs (CHDN) with an Outperform rating and $254 price target. The analyst believes historical racing machines revenue in Kentucky can grow three-to-four times from 2020 levels. Churchill Downs Racetrack is one of the most iconic assets in the United States, has few true comps and should garner a premium valuation multiple even to a comp set of luxury and unique brands across the globe, Bender tells investors in a research note. The analyst said that growth through the historical racing machines is an "underappreciated part of the investment story."

BASKETBALL A BOOST FOR NEW JERSEY SPORTS BETTING

New Jersey's Division of Gaming Enforcement reported that total gaming revenue for May was $374.2M, compared to $95.9M in May 2020, reflecting a 290.4% increase. Internet gaming win was $108.2M in May, compared to $85.9M in the prior period, reflecting an increase of 25.9%. Sports wagering gross revenue was $52.9M for the month. Casino win for May was $213.1M. The DGE noted: "Due to COVID-19, Atlantic City casinos closed at 8:00 PM on March 16, 2020. Internet casino gaming and online sports wagering operations continued, however, most sports wagering events were cancelled beginning in mid-March 2020. As a result, casino win and sports wagering revenue for the month and the year-to-date period ended May 2021 are not comparable to 2020. Additionally, the Atlantic City casino hotel properties continue to operate under COVID-19 restrictions since reopening in July 2020."

PlayNJ.com reported that online betting accounted for 90.2%, or $736.7M, of the state's total handle in May. Retail sportsbooks took in $79.6M wagers in May, up 43.7% from $55.4M in May 2019. In all, basketball betting produced $216.7M in bets, up from the $176.2M in April. "Success from regional teams almost always gives a market a boost, and basketball is particularly popular with New Jersey bettors," PlayNJ said.

"Even more, after a year of strict capacity limits and with so many regional favorites in the NBA Playoffs, bettors seemed particularly motivated to get out and place a bet. All of it is great news for a gaming market on the mend." FanDuel Sportsbook/PointsBet (PDYPY) topped online operators with $29.8M in gross revenue. Meadowlands/FanDuel led all retail books with $4.8M in revenue in May. Online casinos and poker rooms enjoyed its third consecutive month with more than $100 million in revenue with $108.2M in May, up 0.4% from $107.7M in April. Year-over-year, online casino and poker revenue is up 25.9% from $85.9M in May 2020. May's revenue yielded $18.9 million in state and local taxes.

Benchmark analyst Mike Hickey noted New Jersey's land-based casinos were closed for all of May 2020, while sports wagering options were limited due to the cancellation and postponement of almost all major sporting events. The amount bet by consumers in New Jersey also hiked 591.3% to $814.3M. A total of $734.7M was wagered online, compared to $79.6M at retail sportsbook locations, Hickey said.

OHIO BILL PASSES THROUGH SENATE

The Cincinnati Enquirer reported that lawmakers in the Ohio Senate passed a bill to legalize sports betting in Ohio. Senate Bill 176, which passed in a 30-2 vote, would legalize sports betting in Ohio. The bill got a makeover Tuesday, increasing the number of licenses offered, giving preferential treatment to professional sports teams in Ohio and adding a new license option for bars while limiting their kiosks to two per location. Under the proposed legislation, casinos, racinos and other businesses could apply for one of up to 58 licenses – 33 designated for brick-and-mortar stores and 25 for online and mobile betting – to offer sports gambling. Applicants would need to pay a $1 million fee. The Ohio Casino Control Commission would select who gets a license and oversee how they use it.

"That's our way of saying we want to spread the economic value that we think goes with the B license," Senator Kirk Schuring, R-Canton told the Enquirer. There was also an addition of a Type C license for businesses with a liquor license. An unlimited number of businesses could apply for these licenses for $6,000 each. However, they would be limited to two kiosks per store and each vendor would need to pay a $100,000 application fee. Net revenue from sports gaming would be taxed at 10%, bringing in an estimated $17M to $23 million starting in mid-2022, mostly for K-12 education both public and private, according to an Ohio Legislative Service Commission analysis. Another 2% of tax revenue would be distributed to gambling addiction programs. 

Legal Sports Report noted that the original bill said Ohio sports betting and electronic bingo operations could not start until January 1, 2022. That language is gone and instead says the application period for both opens January 1. Schuring explained to LSR: “Here’s the thing: if we get this thing passed on June 30, which is our goal, or before June 30, it will take effect right around October 1. Obviously, you’re not going to hit the ground running. There’s rules that need to be promulgated, applications that have to be designed and disseminated. 

COMPETITION HEATS UP FOR VIRGINIA SPORTS BETTING LICENSES

The Virginia Lottery received 18 applications from May 15-31 for up to five sportsbook licenses available in the state, Matthew Waters of LSR reported, citing a lottery spokesperson. Potential online sportsbooks in Virginia are up to 18 for now. However, others could launch depending on professional teams that might move to the state and sign partnerships, like FanDuel Sportsbook with the Washington Football Team. Notably, all five licenses are not guaranteed. Legislation only required a minimum of four online-only sportsbooks and VA Lottery executive director Kevin Hall makes the final call on how many licenses are given. The ten sportsbooks currently with licenses are:

• Bally Bet (BALY)
• Barstool Sportsbook (PENN)
• BetMGM
• BetRivers
• DraftKings Sportsbook
• FanDuel Sportsbook
• Golden Nugget (GNOG)
• Unibet
• William Hill (CZR)
• WynnBET (WYNN)

PointsBet and theScore Bet both applied the first time and are yet to receive licenses.