DraftKings (DKNG) has come totally out of the closet. The “fantasy sports” company is now advertising “Online Casino Games for Real Money.”
The DraftKings Casino features digital versions of blackjack, slots, roulette, poker, craps, and other casino games. Hence, DraftKings has dropped all pretense of being a fantasy sports company. DraftKings is in the gambling business.
Nor is casino gambling the only questionable activity at DraftKings. DraftKings also takes bets on professional wrestling. DraftKings is the “official gaming partner” of World Wrestling Entertainment (WWE). Moreover, DraftKings sponsored All Elite Wrestling’s (AEW’s) flagship pay-ver-view All Out on 4 September 2022. DraftKings logos even appeared on the AEW rings, under the wrestlers’ blood.
Yes, DraftKings is taking bets on a scripted event. I have to wonder if DraftKings will take bets on soap operas or next week’s House of the Dragon plotline next.
DraftKings makes little money
Skeptics will wonder why DraftKings Inc. (NASDAQ: DKNG) is engaging in such questionable practices. My answer is that DraftKings makes almost no money. DraftKings is a desperate company that will do anything to make a buck.
For example, on 30 June 2022, DraftKings reported quarterly revenues of $466.19 million, a quarterly gross profit of $153.42 million, and no quarterly operating income. The good news is DraftKings has not reported an operating loss in 2022. The bad news is the last quarterly operating loss, DraftKings reported was -$368.76 million on 31 December 2021.
However, DraftKings is growing. Stockrow estimates DraftKing’s revenues grew by 56.65% in the quarter ending on 30 June 2022. The revenue growth rate rose from 33.6% in the quarter ending on 31 March 2022 and fell from 316.57% in the quarter ending on 30 June 2021.
DraftKings’ quarterly revenues grew from $297.61 million on 30 June 2021 and fell from $473.19 million on 31 December 2021. Conversely, the quarterly gross profit grew from $110.60 million on 30 June 2021, and $103.83 million on 31 December 2021.
How Much Cash Does DraftKings Generate?
I think DraftKings (DKNG) shows gambling is a lousy investment because it burns cash.
For example, DraftKings reported a quarterly operating “cash flow” of -$172.95 million on 30 June 2022. DraftKings reported no ending cash flow on 30 June 2022. The last ending flow at DraftKings was -$245.19 million on 31 December 2021.
Hence, DraftKings’ business is not bringing in any cash. One reason for this is that as a gambling company, DraftKings needs to pay customers to use its products by giving out prizes.
Frighteningly, the last time DraftKings reported a positive quarterly ending cash flow was 30 June 2022, when it reported a $142.63 million cash flow. DraftKings reported a quarterly ending cash flow of $2.818 billion on 31 March 2021.
However, DraftKings only got that money by borrowing shown by a $1.129 billion quarterly financing cash flow on 31 March 2021. Yet DraftKings’ debt is stable. DraftKings reported a Total Debt of $1.334 billion on 30 June 2022. The total debt fell from $1.324 billion on 30 June 2021.
What Value does DraftKings (DKNG) offer?
DraftKings (DKNG) had $1.514 billion in cash and short-term investments on 30 June 2022. The cash and short-term investments fell from $2.647 billion on 30 June 2021.
Conversely, DraftKings had $4.154 billion in Total Assets on 30 June 2022. The Total Assets fell from $4.359 billion on 30 June 2021. Thus, DraftKings has lost value over the past year.
Mr. Market agrees with this assessment. DraftKings’ share price fell from $61.07 on 2 September 2021 to $15.49 billion on 2 September 2022. Hence, DraftKings has lost almost three quarters of its share price in a year.
I think DraftKings’ stock is collapsing and sliding towards the junk category. I expect they will pull the stock soon before it loses all of its value.
Will Gambling Addiction Destroy DraftKings?
DraftKings (DKNG) and other companies have a dirty secret that hides in plain sight. That dirty secret is gambling addiction.
Determining the extent of gambling addiction is tough because gambling addicts are hard to see. For instance, gambling addicts don’t shoot up or get drunk or high, so you can’t spot them easily. Yet gambling addiction is a growing problem.
The National Council on Problem Gambling (NCPG) estimates that are six to eight million problem gamblers in the United States. To elaborate, the NCPG estimates around two million US adults are severe gambling addictions and four to six million US adults are problem gamblers.
Gambling Addiction is a Major Social and Economic Problem
These numbers could be higher because the NCPG claims 1% of US adults have a severe gambling addiction and 2% to 3% of US adults have a moderate gambling addiction. WorldoMeter estimates the US population was around 335.258 million on 1 September 2022.
I calculate 1% of US adults is 3.36 million people, or 3.36 million severe gambling addicts. Conversely, 2% of 335.258 million is 6.705 million, or 6.705 million moderate gambling addicts. Meanwhile, 3% of 335.258 million is 10.0577 million mild, or moderate, gambling addicts.
Thus, there could be 13.418 million gambling addicts in the United States. That’s a major social and economic problem. Frighteningly, this means several million Americans blowing the rent or mortgage payment and the grocery money at the online casino.
DraftKings is a Terrible Stock
I predict there will be an enormous backlash to gambling in America. Particularly, when the news stories about people with good jobs and college degrees living in their cars because they spent all their money at DraftKings appear.
I think DraftKings (NASDAQ: DKNG) is a terrible stock in three ways. It loses money, its stock value is collapsing, and it has an unethical business model that promotes addiction.
I advise smart investors to stay away from DraftKings and other gambling stocks because they lose money. My prediction is that DraftKings stock and the online gambling business will collapse.