The entire sports betting industry has been negatively impacted with the shutdown of major sports leagues due to the coronavirus pandemic. The NBA and NHL seasons have been on hold since mid-March and the new MLB season never even got off the ground.
Heading into the second half of June, a slow recovery is underway with NASCAR, UFC, The PGA Tour and most international soccer leagues back in action. Until one of the big betting sports such as the NBA is back on the board, both land-based and online sportsbooks including Fanduel, bet365 and Pointsbet will continue to feel the economic pinch.
There are always exceptions to the rule and right now DraftKings Inc. is prominent on that list. The company went public earlier this year on NASDAQ trading as DKNG. Earlier this week, it announced a public stock offering of 14 million shares.
According to Oppenheimer analyst Jed Kelly, the reasoning behind this decision is to take advantage of “favorable market conditions.”
DraftKings is looking to raise up to $525 million in net proceeds from the sale. Part of those funds will be used to “shore up” the balance sheet. This is in anticipation of more states such as Indiana and Colorado offering legal sports betting within their borders in the coming months and years according to Kelly.
The total cash reserves could reach $1.2 billion with this offer. The estimated cost of sales and marketing efforts over the next three years could reach $900 million. The entire complexion of the sports industry is likely to change in the aftermath of the coronavirus health crisis. The competitive environment in the US market will definitely be on the rise given the increase in states offering legal sports betting.
Recent stock ratings from three of the biggest investment firms on Wall Street offer the current ratings:
- Oppenheimer: Outperform (June 20)
- Goldman Sachs: Neutral (May 20)
- Craig-Hallum: Buy (May 20)
In other company news, DraftKings’ stock price has been boosted by strong online gambling revenue numbers in the state of New Jersey. Along with Nevada, the Garden State is one of the biggest sports betting markets in the nation. It has actually topped the list several months prior to the current health crisis.
May’s online gambling revenue in NJ nearly hit $100 million based on state industry numbers. Online sports betting almost brought in $10 million despite the lack of live sports and sporting events.
According to Barron’s, DraftKings is one of two market leaders in the state (along with FanDuel). The company estimates that legal sports betting in the US could blossom into a $21 billion industry based on annual revenue. New Jersey continues to lead the way in this tremendous growth.
Further estimates forecast that online sports betting will command the majority of that revenue as an $18 billion market. This is based on legal sports betting reaching 65% of the US population.
At the close of markets on June 15, DraftKings stock was trading at $39.11. This is nearly double the price when the company first went public in April.