DraftKings Sold at Least $100M in Stock, According to SEC

A recent regulatory filing suggests that DraftKings (NASDAQ: DKNG) may have sold more than $100 million worth of stock.

The Boston-based gaming startup sold at least $100 million worth of shares on October 21, according to a Form D Notice of Exempt of Offering of Securities submitted to the Securities and Exchange Commission (SEC). The parent business of prediction markets company Railbird Exchange, Railbird Technologies, was acquired by the sportsbook operator on the same day.

"Form D is used to file a notice of an exempt offering of securities with the SEC. The federal securities laws require the notice to be filed by companies that have sold securities without registration under the Securities Act of 1933 in an offering made under Rule 504 or 506 of Regulation D or Section 4(a)(5) of the Securities Act,” according to the SEC.

DraftKings did not explicitly state in the SEC filing that the share sale was connected to the Railbird agreement, nor were the financial details of that transaction disclosed. Following the announcement of the acquisition, rumors circulated that DraftKings was paying up to $250 million for the prediction markets company.

The gaming business will launch DraftKings Predictions in the upcoming months thanks to that acquisition. There are rumors that the buyer was Railbird's only suitor.

Use Previous DraftKings Deals to Share Sale Jibes

A portion of the Railbird is probably being funded by the share sale, however this has not been confirmed. Additionally, there are rumors that the buyer paid $50 million in cash up front.

This is consistent with earlier DraftKings deal arrangements wherein the buyer has utilized its shares as currency in conjunction with a small initial cash payment and earn-outs over longer periods of time, providing specific financial goals are fulfilled.

Combining the reported $70 million paid for Sports IQ Analytics, $170 million (maybe) for Simplebet, and the $750 million the operator paid for online lottery supplier Jackpocket, DraftKings spent almost $1 billion on acquisitions last year. Although DraftKings hasn't made as many deals this year, the Railbird acquisition was thought to be crucial in easing investors' worries that the company was doing nothing while event contract exchanges produce a sizable amount of sports derivatives.

Regarding the Concerns of Investors

For current DraftKings investors, the share sale still amounts to dilution even though it is being used to finance a potentially profitable and probably essential acquisition. Given that the stock has dropped 38.27% over the last ninety days and closed at $27.92 on Wednesday—its lowest level below $28 in two years—some investors would contend that the offering is ill-timed.

The gaming business enters the earnings confessional on Thursday following the close of US markets, with analysts predicting $1.20 billion in revenue and a 41-cent loss per share based on generally accepted accounting standards (GAAP).