DraftKings Acts as Leading Edge Guide for Normalizing Industry Rivals

Miami, FL, The amazing up and down progress of DraftKings, seen most recently through its withdrawal of its attempt to acquire British mega company Entain PLC in October 2021, has been an inspiration to smaller-scale companies in sports-related entertainment. This impression has also been felt by other significant moves the business has made in the same quarter, from expanding its Connecticut operations through Foxwoods, to reaching an agreement with the NHL to be a sports fantasy partner.

Many are amazed that a business in a field still building its legitimacy or solvency in the US was capable of making multi-billion dollar offers and deals. Some observers speculate one objective behind the transactions is to further its image as a “big player” in the industry, so as to create its own momentum in scaling up the company. This in turn serves to satisfy its very enthusiastic supporters, as well as offset financial setbacks—e.g., in November DraftKings (ticker: DKNG) posted a quarterly loss of $1.35 a share on revenue of $213 million.

In this context, even the stock decline and the falling through of the Entain deal is viewed as positive by investors, as it confirms the company is willing and able to operate at a high altitude, now and going forward. “Being in the conversation” when it comes to making large transactions builds confidence about its capacity to grow and remain at that level in the future, supporters say.

Another aspect of these financial moves has emerged, and that is the positive impact DraftKings has had on the reputation building of competing offline and web-based companies alike. Sports prediction firms have ranged in size and capitalization from fly by night outfits, to other long-term businesses in the game whose online presence have at times been maligned by unsupported anonymous reviews. The approach of DraftKings in becoming a public offering has positioned it above being vulnerable to unsworn claims or criticism. The business wants to explode upwards, yet is currently constrained by market limits on its price, and the industry’s image.

SeekingAlpha’s Howard Jay Klein likens this double appeal of DraftKings (to both investors and rivals) to “a racing car stuck in a traffic jam,” due to these dynamics, and describes its exit ramp as “puzzling.” He suggests that the enthusiasm for the company’s prospects, and its indirect reputation-building effect for other such firms, is borderline irrational. “Nobody on the bull side of the ledger can confidently predict other than in bubble land when the company’s profitability will eventually catch up to its revenue growth and begin ringing that great big cash register in the sky for holders.”

Klein’s general conclusion, that “we like a lot of DKNG’s positioning fundamentals going forward,” should provide cautious optimism to both the stock holders in DraftKings and its rivals in sports entertainment, big or small, as “if does reach our call of a $25b business by 2030, we do see DKNG holding something between a 15% and 18% share of market.” That outcome would not only be good news for its investors, but helpful for the company acting as a guide for normalizing the rest of the industry.

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