DraftKings, Flutter Hammered by Blumenthal Letter, NCAA Prop Bet Ban Idea

Estimated read time 3 min read

While most gaming stocks rallied, shares of DraftKings (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT) slumped Wednesday amid concerns US sports betting operators could be subject to increased federal oversight and more regulatory hurdles.

NCAA President Charlie Baker speaks at the NCAA Convention on Jan. 12, 2023. His plan to ban prop bets on college games weighed on shares of DraftKings and Flutter. (Image: AP)

In late trading, both stocks were lower by more than 6% — slides hastened in part by NCAA President Charlie Baker floating a plan to ban prop betting on college games.

The NCAA is drawing the line on sports betting to protect student-athletes and to protect the integrity of the game — issues across the country these last several days show there is more work to be done,” Baker said in a statement.

Baker, the former Republican governor of Massachusetts, appears to be alluding to the NBA’s newly launched probe into suspect betting patterns involving props on Toronto Raptors’ basketball player Jontay Porter.

Propositions, or props, are popular with sports bettors, including clients of DraftKings and Flutter’s FanDuel because the wagers provide avenues for wagering on something other than sides or totals. Prop bets are also frequently included as parts of same-game parlays, which are increasingly profit drivers for gaming companies.

Blumenthal Letter Also Pinches DraftKings, Flutter

Shares of DraftKings and Flutter were also pinched by reports that federal regulators could seek more oversight regarding how online sportsbook operators may be targeting problem bettors.

In a recent letter to leaders of eight internet sportsbook firms doing business in the US, including DraftKings and FanDuel, Sen. Richard Blumenthal (D-CT) said he’s “deeply concerned” about tactics operators may use to entice the biggest bettors to keep wagering even after they’ve incurred large losses.

“Instead of using this data to identify and proactively offer help, such as self-exclusion and treatment services, gambling operators have prioritized profits over people,” wrote the senator. “I urge you to leverage the data you collect to identify problem gamblers and proactively provide these individuals with services, such as a confidential advisor, to help them access treatment.”

Blumenthal added that he wants operators to cease marketing and promotional efforts aimed at compelling “high-value” bettors “to continue spending money through exploitative bonuses, credits, and enticements.”

‘Overreaction’ in Stocks Could Be Opportunity, Says Research Firm

While shares of DraftKings and Flutter were clearly hampered by the Blumenthal letter and the NCAA news on Wednesday, some analysts believe the selloff was hastily born. The “overreaction in the stocks” could be a buying opportunity, according to research firm Craig-Hallum.

The firm endorsed the idea of banning NCAA prop bets, saying it would be beneficial regarding wagering integrity. It added that such wagers likely represent a low-single-digit percentage of all wagers placed on college games and if the ban went into effect, bettors would simply direct their cash to other wagers.

Acknowledging that the Blumenthal letter and Baker’s plan to halt prop bets are cases of “unfortunate timing,” Jefferies believes Flutter “sits in a relatively better position to address the topics of increased tax, VIP scheme scrutiny, and a potential ban on college betting.”

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