DraftKings Shares Slump On News Of IRS Daily Fantasy Tax, Spotty Q2 Financials
Shares in DraftKings fell 6% Friday after it disclosed mixed second-quarter results and the IRS said it plans to impose an excise tax on daily fantasy betting.
The firm reported a loss of 55 cents a share for the quarter ending June 30, which was wider than the loss of 15 cents in the year-ago quarter and also bigger than the 20 cents expected by Wall Street analysts. Revenue, though, beat estimates, rising to $70.9 million from $57.4 million in the 2019 quarter.
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The stock slipped below $34 in the final minutes of the session, on twice the normal trading volume.
In a memo, the IRS said firms like DraftKings — not individual daily fantasy players — would have to pay a tax on such wagering. Daily fantasy betting totaled $3.2 billion across the industry in 2018, which would have yielded $8 million in taxes under the newly imposed setup.
Daily fantasy is a more accessible form of betting, using some of the rudiments of season-long fantasy leagues, in which gamblers assemble imaginary rosters. The real-life performance of athletes that bettors have on their fantasy team determines the financial outcome.
Fox Corp. is among media companies putting increasing emphasis on sports betting, acquiring a gaming firm and launching a service called Fox Bet last year. It also recently invested in Flutter, parent company of FanDuel, the chief rival of DraftKings.
In 2018, the U.S. Supreme Court issued a ruling effectively legalizing sports wagering in New Jersey. As of the start of August, 18 states and the District of Columbia have now lifted bans on betting on sports.
DraftKings had a successful IPO in April after closing a merger with a company controlled by former Hollywood executives Harry Sloan and Jeff Sagansky. It has held up reasonably well despite the effects of COVID-19, which shut down sports for months and forced the company to start encouraging customers to bet on Survivor and video game contests.
On a conference call with analysts to discuss the results, CEO Jason Robins called the IRS memo “deeply flawed in its analysis.” He also said the return of sports in the quarter, primarily golf, soccer and auto racing, was a boost to DraftKings. While the pandemic remains a key unknown in the months ahead, even the cancellation of some conferences’ college football seasons and the looming threat of NFL disruptions isn’t a major concern to Robins.
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