Sports fantasy betting platform Draftkings Inc (NASDAQ: DKNG) saw its shares surge to close 17.3% higher on news that the company has struck a deal with ESPN – the go-to sports television network – to be its exclusive daily fantasy sports provider.
Tim’s Take:
I’ve talked before about DraftKings before and whether it’s a “one-hit wonder” or if it can maintain its sizzling form going forward. Shares are up nearly five-fold since the beginning of 2020.
I had my doubts, even after they persuaded Michael Jordan to join its board of directors as an adviser. Within its space (online fantasy sports betting), though, it is clearly the leader.
The latest deal with ESPN also gives DraftKings exclusive real estate space on ESPN’s website, which will link directly to DraftKings’ own sportsbook.
The timing of the deal, coinciding with the start of the NFL season in the US, is fortuitous. No doubt, it will garner a lot of attention as sports resumes in the country.
Business sustainability yet to be proved
Yet, to what extent the company’s business model is sustainable is still questionable, particularly in the face of regulatory uncertainty.
There’s a good case for DraftKings being labelled as both a tech stock but also “sin stock” given its association with online gambling.
In a similar vein to the marijuana industry in the US, which saw a massive boom and bust a few years ago on hopes for widespread legalisation, it might be better for investors to sit on the sidelines for now.
Watching how the first half of this game turns out seems, before reassessing whether to jump in, is the approach I would take.
