California Gambling Reform May Help Prop Up DraftKings’ Falling Stock

It has been rough going for online betting operator DraftKings. The company’s stock continues to lose value despite recent good news and outstanding growth prospects. Its earnings call on May 6 scored significantly better than the Nasdaq consensus estimate, and with the continued efforts to legalize sports gambling across the entire US, long-term prospects are looking good. So what gives?

DraftKings Is Hemorrhaging Funds and Will Likely Continue to Do So for a Long While

An important caveat in all these predictions is that DraftKings continues to operate at a loss. The sports betting company reported net losses of $467.7 million, up from losses of $346.3 during the first quarter of 2021. DraftKings announced this February that it intends to go in the green by Q4 2023, but this is far from a certainty. This may be surprising, given that the platform ranks among the top three in the US and operates in 18 states out of the 30+ states where sports gambling is legal and regulated. However, the company is still an entity that has consistently reported losses upwards of $100 million in every quarter since it went public in April 2020. Coupled with a lengthy transition to profitability, this is driving investors away and keeping stocks down.

It’s Not All Doom and Gloom for DraftKings, Though

The company recently acquired Golden Nugget Online Gaming and claimed they plan to integrate it with their existing business. However, it is not outside the realm of probability that the recently acquired company will later be sold off at a premium if a deep-pocketed acquirer expresses interest. 

Another thing to note is that more US states are preparing to legalize sports betting. Ohio, Maryland, Nebraska, and California could conceivably finish the required legislation by this year. Their combined population is a considerable 58,5 million people, and there is no doubt that DraftKings will try to grab its share of the new market.
However, the situation in California is currently somewhat complex. In November, voters there will decide on two competing measures on sports betting. One is supported by tribal casinos, and the other is backed by commercial operators, including DraftKings. The tribes’ proposition will only allow in-person sports betting at their own establishments. It currently leads at the polls, it is yet unknown how the tribes will operate the business if they win. They could either do it themselves using tech stack suppliers or partner with existing platforms. In both cases, a tribal victory in California could stem the expansion of major sportsbook operators in the state for a long time.