DraftKings stock on watch after New York embraces mobile sports betting

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to… read more.
on Jul 21, 2021
  • DraftKings and rivals are expected to submit gaming applications to the New York State Gaming Commission.
  • New York approved mobile betting in April.
  • However, the state could demand a revenue sharing agreement of at least 50%.

Investors may want to keep a closer eye on Draftkings Inc stock (NASDAQ: DKNG) after the state of New York indicated it is open to granting licenses for mobile sports betting companies to operate, The Wall Street Journal reported.

New York is a ‘massive market’ for DraftKings

DraftKings along with rival sports betting sites FanDuel are expected to submit their respective applications to the New York State Gaming Commission in the coming weeks. But there is a catch as government officials are demanding sports betting companies share at least 50% of revenue collected in the state. This number could ultimately rise to as much as 60% or 65% if the bidding process becomes competitive.

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Nevertheless, state officials believe that “one way or another” DraftKings and its rivals will accept the state’s terms. Robert Mujica, a fiscal adviser to Governor Andrew Cuomo, said New York represents a “massive market” for the major players. Online sports betting was legalized in April as part of the New York State budget

DraftKings CEO Jason Robins said in June at a Goldman Sachs conference that it is “excited and hopeful” to become “one of the handfuls of operators” in the state.

DraftKings stock weakness

Shares of DraftKings peaked near $75 in early 2021 and are now trading at around $46 per share. The company is a leader in the mobile sports betting industry although its expansion plan may be taking longer than some investors initially expected.

The US Supreme Court gave the green light for states to authorize sports betting in 2018 — if they chose to do so. Since then, 31 states and the District of Columbia have legalized sports betting, although not necessarily on mobile platforms.

Meanwhile, DraftKings continues to secure new licenses across the US. On Tuesday, the company became the first to secure a daily fantasy sports license by the Louisiana Gaming Control Board. If it secures the rights to operate in New York, it will come at a hefty fee.

Daniel Wallach is a lawyer who advises gaming companies. He told WSJ that New York that it wouldn’t be unreasonable for DraftKings, should it win a license, to fork over 60% of its revenue to the state. This would represent the “highest revenue-sharing model for mobile sports,” he said. By contrast, neighboring New Jersey collects a tax rate of 13% on digital sports betting.

But based on DraftKings’ stock 3% gain Wednesday morning, it appears that investors are cheering the news.

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