DraftKings (NASDAQ:DKNG) is now a public company after merging with an already public shell company in April. Despite the unconventional IPO process, investors have bid up the company’s stock price considerably. The market is betting on the immense growth opportunity that may unfold in the coming years as online sports gambling is legalized in several states.
Is Draftkings over-hyped, or could it live up to expectations?
U.S. online sports gambling
DraftKings was founded in 2012 and has primarily facilitated daily fantasy sports. Daily fantasy sports is an online game where players build hypothetical team rosters and earn points when athletes perform well in their actual games. DraftKings collects revenue from players who pay money to enter contests and from sponsorships. It attracts and retains players by offering cash prizes to those who construct winning teams.
Daily fantasy sports is a nice business, but a much larger growth opportunity exists for Draftkings and its rivals to operate as bookmakers in the legal sports gambling market in the U.S. Sports gambling has long been illegal, but in 2018 a law changed which enabled states to legalize and regulate their own sports-gambling industries. Since this change, 14 states have already legalized online sports betting, and the industry has already started operating in 9 states. Many more states are expected to join this party in the coming years.
At the time of writing DraftKings operates online sports betting in 7 states