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DraftKings To Lose Throne Over Alleged Black Market Betting?

draftkings scandal

One of the biggest reasons potential bettors are hesitant to join a legitimate online sportsbook has to do with the issue of perceived legality.

All the most reputable online sports betting sites are legal and safe to use for US players, but there’s a lot of misinformation out there.

That’s especially true now that so many states have legalized sports betting.

After all, a state with domestic sports gambling options wants to attract customers to its own books, and the offshore betting market is any local gaming brand’s primary competition.

That’s why you hear things like “black market” bandied about in reference to offshore books, even though they’re anything but.

Remember, excepting Washington, no state has outlawed online sports betting with internationally-based operators.

Similarly, there are no federal gambling laws that prevent US residents from betting real money with these outlets.

Laws like the UIGEA and the Federal Wire Act apply only to domestic financial institutions and sportsbooks, respectively. The don’t target individual players in any way.

Nevertheless, the specter of “illegal” online betting is a dark cloud over the industry, and legitimate domestic operators are also far from immune.

Take DraftKings, for example.

As the biggest DFS operator in America, DraftKings got into the legal sports betting business almost immediately after PASPA was overturned in 2018.

To provide a quality product right out of the gate, the company partnered with SBTech, a leading sports betting software company based in Bulgaria.

Per a new report from Hindenburg Research, SBTech is beset by scandal, and DraftKings is alleged to be a willing facilitator of that.

Here’s the headline from Hindenburg:

“DraftKings: A $21 Billion SPAC Betting It Can Hide Its Black Market Operations”

That sounds pretty damning.

In the body of the above article, several scary-sounding summaries are provided (emphasis added):

“DraftKings has been considered one of the more successful deals in a recent wave of SPAC transactions marred by scandal and bad actors. Its stock is up ~398% from its announcement price.”

“Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.”

“We estimate that roughly 50% of SBTech’s revenue continues to come from markets where gambling is banned, based on an analysis of DraftKings’ SEC filings, conversations with former employees, and supporting documents.”

“As one former employee told us, DraftKings’ subsidiary SBTech has “sold to plenty of mobs”, a sharp contrast to the clean image of DraftKings’ brand-conscious partners, including the NFL, NBA, NASCAR, UFC and PGA, and the company’s recent hire of supermodel Gisele Bundchen to advise on governance issues.”

“We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth.”

In the wake of these “revelations,” of course, DraftKings stock has taken a huge hit, dropping 12% during trading on Tuesday.

Many investors, it seems, are worried about DraftKings’ relationship with SBTech.

Naturally, DraftKings put together a short statement in response to the above “findings,” which it released via Yahoo! Finance:

“This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings.”

So, is DraftKings breaking the law in the United States? Are they really partnered with a software company that facilitates organize crime?

No and no.

In reality, the above article is a prime example of market manipulation, preying on the fears of investors and potential players who aren’t particularly familiar with gambling laws in the US and abroad.

In other words, you shouldn’t let this kind of fear mongering deter you from joining any reputable offshore sportsbook, as these venues – despite the narrative – are safe, legitimate businesses with millions of US members.

That said, these kinds of stories are relevant for those who might consider investing in domestic sports betting stocks.

But that’s not us, and it’s probably not you, either.

We’d rather make our money betting at sportsbooks, not betting on sportsbooks.

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