The casino industry is synonymous with illegal activities and that is the narrative told to the public through films and documentaries. According to such productions, one is likely to find criminals and ex-convicts in a casino environment compared to any other entertainment spot. DraftKings has in the recent past made it under the radar of the law for allegations of criminal involvement.
The fact that the company acquired SBTech, sports betting technology company based in Bulgaria is not news. This is for a fact what DraftKings and other companies of its caliber are doing to enhance their position in the market.
The Securities and Exchange Commission has come in to investigate allegations of money laundering, organized crime and black market gaming. If not for Hindenburg Research that blew the whistle on possible criminal activity taking place right under DraftKings’ watch, the federal investigators would not know where and what to look for.
The fact that DraftKings is under investigation does not mean that they are indeed guilty of what they are suspected of. The news has obviously opened up a can of worms but it is upon the investigators to either confirm or deny allegations.
According to a report that Hidenberg published 2 months ago, there were indications that the company that DraftKings had acquired was associated with questionable activities. SBTech has been mentioned as the center of illegal online gambling that has ties in China, Vietnam and Thailand. Friends of New Jersey based DraftKings must be in utter shock given that all they know about the company was its quest for greater markets especially around 2019 when they were planning to list on the securities exchange.
Speaking on the current state of affairs at DraftKings, a representative of the management commended the work of the SEC in investigating and unearthing illegal gambling activities. In what the industry refers to as short-seller reports, the company appears confident that the investigation will serve to clear their name in the industry. There is no confirmed report or evidence of misconduct on the part of DraftKings so far so the public is urged to avoid undue speculation.
This is not going to be the first time that the SEC is digging deep into allegations published in a short-seller report. According to the DraftKings spokesperson, launching this kind of investigation is standard practice now owing to the fact that the public is aware of the allegations made against the company. It is important for the investigation to be given a chance to uncover whatever is hidden from the public, if at all it exists.
DraftKings on its part is happy that an independent Federal Investigator is heading the investigations because they are looking forward to having their name cleared by the results. Since the SEC is a sovereign entity, it is going to be easy for everyone involved for DraftKings to offer them any support they need in connection to the casino activities investigation. This is definitely not going to be a problem because the spokesman has revealed the commitment of DraftKings in cooperating with the investigation officials.
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DraftKings’ stand on the allegations
When DraftKings was reporting its earnings, the management stated that it had every intention to lay out a defense for the accusations leveled against the business. At the same time, the company is clear on its inability to neither influence nor predict what the investigation is going to bring to the surface.
This is definitely a bad time for such to be happening to the company – the Covid-19 situation is easing up in most parts of the world and businesses are reading into this like a crystal ball. There is a possibility that this situation will affect business in the short run. The company is however confident that nothing significant will be held against the management or the company operations.
The management predicts a tough period ahead depending on how long the SEC investigation is going to last. It is however unlikely that the effects will be as severe as experienced with the Covid-19 situation.
In a move that indicates that the investigation has already been launched, DraftKings has confirmed that the company did indeed receive a subpoena from the investigating body along with a request to provide some documents for review. The documents listed on the request letter are particularly meant to collaborate or refute allegations mentioned in the research report published by Hindenburg.
According to the report, the alleged dealings are most likely hidden from the knowledge of the investor, which is DraftKings. Although the deal in which DraftKings bought out SBTech was initiated in 2019 it was finally completed in 2020. During this time, DraftKings must have been involved in scrutinizing the company’s records as well as the nature of transactions.
It must be a surprise to DraftKings that their new acquisition which is a force to reckon with in the global sports betting scene could be involved in criminal gambling. This is why the management of DraftKings responded to the report with a dismissal of the allegations when they were published in June. The response which was told to Fox Business indicated that DraftKings had done its due diligence of SBTech operations and nothing was suspicious at the time.
Conclusion
DraftKings is not new to investigation; in their recent revenue report, the company revealed that the Internal Revenue Service is scrutinizing their finances. Of interest to the IRS is whether the betting provider has been filing returns as stipulated by law; this requires an audit of a few years back. Even though the IRS will be looking to establish that DraftKings has been tax compliant, the main item of focus at this time is taxation of DFS contests. None of the ongoing investigations have brought any concrete evidence to the surface so far so the betting giant is free to rule the market as is its norm.
