California gaming reform could help support DraftKings stock drop

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It has been difficult for online betting operator DraftKings. Shares of the company continue to decline in value despite recent good news and exceptional growth prospects. Its May 6 earnings call scored significantly higher than the Nasdaq consensus estimate, and with continued efforts to legalize sports betting across the United States, the long-term outlook looks good. So what gives?

DraftKings is bleeding funds and will likely continue to do so for a long time

An important caveat in all of these predictions is that DraftKings continues to operate at a loss. The sports betting company posted net losses of $467.7 million, compared to losses of $346.3 in the first quarter of 2021. DraftKings announced last February that it plans to go green by the fourth quarter of 2023, but it is far from a certainty. This may come as a surprise, given that the platform ranks in the top three in the United States and operates in 18 of the more than 30 states where sports betting is legal and regulated. However, the company is still an entity that has consistently recorded losses of more than $100 million per quarter since its April 2020 IPO. Coupled with a long transition to profitability, this is keeping investors away and keeping inventories low. .

It’s not all Doom and Gloom for DraftKings, though

The company recently acquired Golden Nugget Online Gaming and said it plans to integrate it into its existing business. However, it is not beyond the realm of the likelihood that the recently acquired company will later be sold at a premium if a deep-pocketed acquirer expresses interest.

Another thing to note is that more and more US states are gearing up to legalize sports betting. Ohio, Maryland, Nebraska and California could possibly complete the required legislation by this year. Their combined population is a sizable 58.5 million people, and there’s no doubt that DraftKings will be looking to grab their share of the new market.
However, the situation in California is currently somewhat complex. In November, voters will vote on two competing measures on sports betting. One is backed by tribal casinos and the other by commercial operators including DraftKings. The tribes’ proposal will only allow in-person sports betting at their own establishments. He is currently leading at the polls, it is still unclear how the tribes will operate the business if they win. They could either do it themselves using tech stack providers or partner with existing platforms. Either way, a tribal victory in California could stem the expansion of major sports betting operators in the state for a long time.

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