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DraftKings: a $21B SPAC betting it can hide its black market operations
- samizdis 5y ago> Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime. > Based on conversations with multiple former employees, a review of SEC & international filings, and inspection of back-end infrastructure at illicit international gaming websites, we show that SBTech has a long and ongoing record of operating in black markets. > Contrary to representations made to Oregon’s state lottery, a former employee told us SBTech had extensive operations in Iran, violating local laws in a market subject to heavy U.S. sanctions. We were told SBTech knowingly operated there for 4-5 years with the founder directly overseeing the operation.
- Mauricebranagh 5y agoPerfectly legal gaming operations outside of the USA have been considered illicit and had employees arrested. The US does seem to have a lot of puritan hang-ups not helped by local gambling monopolys. Surprised that draft kings don't go with one of the UK online gaming firms.
- adamrezich 5y agoon the other hand, when I visited Ireland a couple years ago I was kind of shocked at how common sports betting establishments were there, much like you'd see payday loan-type places here in poorer areas of the States
- deleted 5y ago[deleted]
- Mauricebranagh 5y agoBetting on the horses is a very Irish thing to do grin You'd rather have illegal off course betting ala Peaky Blinders or like IRL my Great Great Great Uncle ran in Birmingham (does make watching peaky Blinders interesting)
- chrisgd 5y agoI don’t know enough about online gaming in Asia to be informed, though some of it looks suspicious. The Iran talking point is strange-They discovered it, shut it down and moved on it seems. The talking points of selling shares is stupid-that is the point of being public so you can start selling stock. And transferring shares to a trust doesn’t relieve the trust of public reporting requirements when the insider is still responsible for the trust. Valuations for a lot of companies are strange but being valued at 2x a peer when it has agreements with the NFL is not absurd.
- elliekelly 5y ago> And transferring shares to a trust doesn’t relieve the trust of public reporting requirements when the insider is still responsible for the trust. It looks like TFA author is correct that they structured the transfer specifically to avoid Meckenzie or the trust falling within the definition of “beneficial ownership” that would trigger a 13D reporting obligation and since they transferred 0.7% of outstanding shares (less than 1% with a bit of wiggle room for market movement) I’m assuming the shares were transferred to an irrevocable trust so they’d be outside the scope of Form 4 unless he’s serving as trustee which is unlikely (although, not entirely impossible) judging by the way the disclosure is phrased in his SEC filing: > On May 26, 2021, Mr. Meckenzie transferred his beneficial interest in 19,075,875 shares of Common Stock (the “Shares”) for no consideration to a trust for the benefit of his spouse and children and remoter issue and for which an independent trustee has been appointed (the “Trust”), and the Trust immediately transferred the Shares to a company (the “Company”) wholly-owned by the Trust (the “Transfers”). Mr. Meckenzie does not exercise voting or dispositive power over the Shares or have a right to reacquire the Shares. As a result of the Transfers, Mr. Meckenzie no longer has or shares, directly or indirectly, voting or investment power over the Shares. If he’s acting as co-trustee alongside an independent trustee and phrasing it in such a way to insinuate he’s not at all involved that would be very shady indeed.
- freshhawk 5y agoAren't SPACs just nonoperating shell companies that own only cash? I thought the whole point of them was to be allowed to disclose nothing and report nothing.
- mgh2 5y agoDisney has also invested in Draftings and is the reason why they changed their anti gambling stance. I am no longer a Disney fan, considering their influence on children and families https://www.lineups.com/betting/how-disney-became-a-part-owner-in-draftkings-what-next/ https://www.lineups.com/betting/how-disney-became-a-part-own... Note: I can't blame them after their resorts closed due to COVID, they were pressured by investors to ramp up profit - ex: canceling stock dividends, investing heavily in Disney+ content, get into sports gambling. But being so close to children (family values), having their corporate values corrupted was a big disappointment.
- echelon 5y agoI'm surprised Disney has been allowed to buy up so many media companies. They control the box office, have a major interest in sports and news, and seem to have an appetite for more.
- mgh2 5y agoDisney's main revenue sources: https://www.statista.com/statistics/193140/revenue-of-the-walt-disney-company-by-operating-segment/ https://www.statista.com/statistics/193140/revenue-of-the-wa... I might also add their growing influence on advertising, by leveraging these media channels https://variety.com/2021/tv/news/disney-wraps-upfront-tv-advertising-streaming-1234996146/ https://variety.com/2021/tv/news/disney-wraps-upfront-tv-adv... Everyone smells money on this industry and is trying to capture market share (ex: Microsoft Bing and Amazon Search). Disney might not be that different than Google after all, except for targeting a different demographic (closer to Facebook) - making it more disturbing.
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- cwkoss 5y agoI haven't been a disney fan for a while, because their lobbyists are arguably the primary reason copyright terms have been extended to such absurd lengths: they want complete control of the mouse. Steamboat Willie was created in 1928. It won't enter public domain until 2024 (assuming Disney isn't successful in extending copyright yet again...) Disney raided the public domain to build it's animated films empire, then pulled up the drawbridge to the magic kingdom behind themselves.
- helios_invictus 5y agoI'm shocked, shocked to find that gambling is going on in here!
- earnesti 5y agoThey should have raised ICO instead.
- arcturus17 5y agoAre you aware of any ICOs that have raised a cool $21B?
- atatatat 5y agoBitcoin
- Animats 5y agoIs the real purpose of this deal money-laundering by organized crime? DraftKings was supposedly losing money, while SBTech makes money illegally. The BTi/CoreTech CEO was formerly the CEO (and previously CTO) of SpotOption, the binary option scam run out of Ramat Gan, Israel.[1] That was a big operation. Out front were the fake "binary option brokers", in reality bucket shops, such as Banc de Binary. SpotOption provided the back-end services, while the front companies ran call centers to recruit more suckers. Some of the front companies appeared to be operated directly by SpotOption, although that was never entirely clear. Until 2017, it was legal for Israeli companies to scam non-Israelis in this way.[2] When the binary option business was made illegal in Israel, the companies were given three months to move to another country. "Officials say that numerous Israeli-owned binary options firms have already begun moving to countries where the activity has not yet been banned." SpotOption moved to Bulgaria. The scam goes on, under new names.[3] "Since then, some scammers have shifted to schemes involving forex trading, CFD or cryptocurrency speculation." So that's the back story here. [1] https://www.timesofisrael.com/sec-charges-israels-main-binary-options-firm-and-its-2-chiefs-with-vast-fraud/ https://www.timesofisrael.com/sec-charges-israels-main-binar... [2] https://www.haaretz.com/israel-news/business/israel-bans-binary-options-industry-that-defrauded-millions-1.5460002 https://www.haaretz.com/israel-news/business/israel-bans-bin... [3] https://www.timesofisrael.com/german-police-raid-call-centers-allegedly-running-israel-linked-investment-scams/ https://www.timesofisrael.com/german-police-raid-call-center...
- ordinaryradical 5y agoIt's interesting to me that people like this can continue to succeed in modern democracies. There seems to be no consequences for massive financial crimes anymore, and the more brazen you are the more you are rewarded. If I broke into the homes of millions of people to fleece them of their life savings I'd never be seeing the outside of a prison but these guys do it via a confidence scam and the internet and never see the inside of a prison. Then they become CEO of another company and start all over agin. I stop believing in democracy when I read stories like these.
- adolph 5y agoit has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time https://richardlangworth.com/worst-form-of-government https://richardlangworth.com/worst-form-of-government
- vmception 5y agoMore black market companies should be publicly traded so that exposure and price discovery is established. Or certain categories of vices whether they are legal or illegal in their jurisdiction. Whats the revenue multiple or the price to equity ratio on a brothel? If you don't know, thats the reason to float those shares. People treat being publicly traded as a reward, and thats the mistake that clouds their judgement.
- driverdan 5y agoBetter yet, stop making these things illegal and let individuals live their lives the way they want.
- sbarre 5y agoYes of course because the world is really that simple.
- vmception 5y agoHopefully replaced with better consumer and worker protections.
- NationalPark 5y agoYeah, I'm sure DraftKing's organized crime partners will totally respect the NAP. Or GAAP.
- rchaud 5y agoIsn't that why Las Vegas exists?
- snake_plissken 5y agoI like this report, just enough scandal and shady characters to make sense. But also, you have to think the SPAC sponsor and DraftKings performed a good level of due diligence on SBTech? The one thing I really took out of reading this report was how many breadcrumbs we all leave out there on the internet. Which then, to me, boils this all down to: A) the due diligence was sufficient and the lawyers signed off on everything or B) this is some sort of scheme to launder money and the whole thing is dirty. Or, C) they did their due diligence and decided it was worth the risks.
- clusterhacks 5y agoMaybe companies that went public via SPAC are going to become attractive targets for short sellers? I know Matt Levine has been writing about how SPACs can market their "upside" without the normal scrutiny that an IPO would bring. Any of our HN readers playing around with shorting the stock of public companies as an individual investor?
- AlexandrB 5y ago> Any of our HN readers playing around with shorting the stock of public companies as an individual investor? This seems really risky without any institutional backing. If the market is volatile or "irrational" (WSB + GME for example), you can be margin called and lose a lot of money even if you're eventually right. Unlike a normal equity you can't just hold your short through volatility.
- gregwebs 5y agoYou can buy a long-term short with cash rather than margin. You can hold onto such an option until it expires. Options have a reputation for risk, but this mostly seems to come back to using margin.
- gregwebs 5y agoShorting is a more time consuming investment approach. You need high conviction to open a PUT without owning a CALL or the stock as well. One thing I have learned is that a SPAC or any company with a low stock price may have low liquidity, particularly for longer-dated options. This risks making a short position dramatically less profitable. So SPACs end up not being the gold mine for shorts that you might expect. For me a short position is not about speculating but instead about being strategically "long volatility". Which means you can actually make money when the rest of your stocks (which are "short volatility") are tanking and provide a better return for your portfolio. So I now try to always have PUTs open (along with CALLs that balance each other out). Don't buy your short position with margin: that introduces short volatility to what should be a long volatility position.
- sQL_inject 5y agoFor those of you not familiar, Hindenburg Research has done a riveting, blistering critique and 'takedown' of the sham company "Nikola." Highly recommend the read: https://hindenburgresearch.com/nikola/ https://hindenburgresearch.com/nikola/
- erhk 5y agoThey also profit immensely off of these "takedown" articles.
- umanwizard 5y agoOf course. Why else would they publish them?
- deleted 5y ago[deleted]
- bob33212 5y agoIt would be a pretty stupid business plan to do a ton of fake research about a company just to make a quick buck off the initial drop in the stock. If NKLA turned out to be a great company that was on their way to huge success the researchers would look incompetent, regardless of if they made any money off of shorts.
- mgh2 5y agoOf course, should they not get compensated for calling out fraud and protecting investors? “Infamous” short sellers play a big part in public market ethics after all - contrary to current Reddit sentiment. The real villains hide behind anonymous forums like WSB, using social media media to pump and dump stocks and change the public narrative. Hindenburg also published this piece to emphasize the importance and dispel the negativity of short sellers https://hindenburgresearch.com/clover/ https://hindenburgresearch.com/clover/
- weasel_words 5y ago
- aerovistae 5y agoI interviewed at DraftKings and didn't like it.
- socialist_coder 5y agoWhy?
- ggggtez 5y ago> roughly 50% of SBTech’s revenue continues to come from markets where gambling is banned Yeah, duh. Isn't that the whole point?
- avipars 5y agoAs a Jew in Israel, I've grown quite skeptical of these Israeli startups. On multiple occasions, some of these founders have been caught doing shady things and they get away with them (mostly)... In general these israeli startups tend to be way overvalued
- jollybean 5y agoI love Hindenberg reports. Their 'releases' are more exciting than most things I can think of.
- genpfault 5y agoSince TFA never got around to it... SPAC: special-purpose acquisition company[1] [1]: https://en.wikipedia.org/wiki/Special-purpose_acquisition_company https://en.wikipedia.org/wiki/Special-purpose_acquisition_co...
- xrd 5y agoMy favorite part: "company’s recent hire of supermodel Gisele Bundchen to advise on governance issues."
- hitpointdrew 5y agoHmm...A sports book hires the wife of one of the leading NFL quarter backs for "governance issues". "Hey Gisele, can you 'govern' us on how Tom doing this week? His elbow seem OK?"
- hogFeast 5y agoThere are quite a few mistakes here. 1) These markets aren't "black market"...they are unregulated. Operating in unregulated markets is fairly normal, investors don't like it because it is risky but there are other operators doing this (Entain is one). 2) It is also fairly normal to white label your product in Asia. Betfair does this, almost everyone does this because the Asian market is the largest in the world. Again, totally unregulated but it is not particularly shady (there are larger gambling companies than DraftKings in Asia owned by individuals). 3) The FBI has repeatedly accused people in this business of being linked to the Triads. So far, this has been unproved but, whether this is true or not, these businesses are legitimate and are some of the largest gambling companies in the world. I don't doubt that the merger pre-listing is suspicious, this is why SPACs aren't a very good idea. I don't doubt that DK is an overpriced PoS (their marketing RoI is terrible). But, as ever, much of what people just coming to the industry write is nonsense (and usually related to whether they grew up somewhere where gambling was illegal...the ironic thing about the weird moralism about gambling in the US is that the unregulated companies are usually far more ethical than firms operating in the US).
- Animats 5y agoFirst lawsuit filed.[1] [1] https://www.frankcruzlaw.com/cases/draftkings-inc/ https://www.frankcruzlaw.com/cases/draftkings-inc/
- foolzcrow 5y agoNBA NFL etc honest corporations. Lol.
- deleted 5y ago[deleted]
- emodendroket 5y agoIf it's as they say I guess it will look pretty bad for someone like Martha Coakley to have been their face.