DraftKings is now offering people another way to wager with them— on the NASDAQ. The Boston-based sports-betting company went public Friday morning, surging 15% within its first 30 minutes of trading. This Initial Public Offering (IPO) comes after a last minute merger vote at midday Thursday, which raised concerns over the concentration of voting power among a few shareholders.
Still, the betting and fantasy platform started trading on NASDAQ with the ticker DKNG for an opening share price of $17.81 and only a half an hour later the price shot up 15% to $20.25.
Upon opening, DraftKings CEO and co-founder, Jason Robins, held a $151 million stake in the company. Matt Kalish and Paul Liberman, the other co-founders, held a $77.7 million and $83.2 million stake, respectively.
Shalom McKenzie, co-founder of SBTech, a partner company, is the majority holder, with a $583 million stake at opening. The IPO deal also included hedge funds Capital Research and Management Co, Wellington Management Co, and Franklin Templeton, which have a combined stake of $304 million. The company will also reportedly be receiving as much as $500 million in cash investments.
Given that most sporting events have been canceled for the near future, this was an amazing first-day performance. The NFL draft this week, the coming PGA Tour and the return of NASCAR might have brought some added attention for the company. Still, without much sports industry action, DraftKings has strong brand recognition, indicating that shares will likely go up once the sports schedule returns to normal.
Last Minute Merger
On Thursday, Diamond Eagle Acquisition Corp. (DEAC), a blank check company, held a virtual meeting in which their share holders voted on the reverse merger between DraftKings and SBTech.
A reverse merger is one between a publicly traded company and a private company, in which the private company, instead of being assimilated in the public company, operates in the public company’s legal shell. In this case, although DraftKings was private, they are now the face of the publicly traded merged companies. The DEAC vote led to an overwhelming majority in favor.
Concerns Over The Concentration Of Power
As mentioned above, a large number of shares are held by only 4 people and not every share is created equal. DraftKings employs a dual class structure, meaning there are two types of shares available: DraftKings Class A and DraftKings Class B. Class A shares are widely available to investors and hold a 1 to 1 vote per share ratio. Class B shares, which are more difficult to come by and mostly seem to be owned by Jason Robins, hold a 10 to 1 vote per share ratio. This allows Class B shareholders to exert more control over the company.
The dual share class structure is common in the tech world, where eccentric and controlling creators want to keep as much command of their companies as possible. While this is understandable, it does raise concerns for industry experts.
According to the Harvard Law School Forum on Corporate Governance, “the discrepancy between control and economic ownership reduces accountability to the economic owners of the business, entrenching management and skewing incentives.” They also point out that, empirically, companies with this stock structure usually end up having more governance issues.