Why Draftkings Stock Price Is Surging Right Now

(MENAFN- ValueWalk) Except for Major League baseball and one or two other pro-level sports, the U.S. sports calendar is entering the summer doldrums. However, DraftKings (NASDAQ:DKNG) stock has been on fire lately.

The online sports-betting company has seen its stock price rise 19.7% year to date (YTD) and some 9% this week, trading at about $42.25 per share as of Tuesday.

Several catalysts have been driving the price higher, including strong earnings results and the Acquisition of JackPocket, a digital lottery app. This week, an additional catalyst involved a Supreme Court decision.

On Monday, the U.S. Supreme Court refused to hear a challenge to Florida's gambling agreement from West Flagler Associates and Bonita-Fort Myers Corp.

The denial of the challenge essentially keeps online sports betting in the control of the Seminole Tribe through an agreement it struck with the state in 2021.

The two companies had challenged the compact the state had signed with the tribe on the grounds that betting should only take place on tribal lands and not across the state.

However, in its denial, the court concurred that betting does take place on tribal lands because that's where the servers are located and the bets are ultimately placed.

DraftKings is not available to bettors in Florida, as Hard Rock Bet has the exclusive rights to online sports betting. However, the door is open for Hard Rock Bet to let in DraftKings and others through a revenue-sharing agreement, according to Legal Sports Report (LSR).

“I don't think we've ever stated that we wouldn't work with some of the other companies, whether it be Caesars, BetMGM, DraftKings or FanDuel. We've always stated that we'd be receptive to that conversation,” Hard Rock CEO Jim Allen told LSR .

This comment aside, there is an even bigger reason why this denial could boost the fortunes of DraftKings.

The big reason this decision - or rejection, as it were - is fueling DraftKings stock is because it sets a precedent for other states to do the same, which is expanding online sports betting across the state through tribes.

As Steve Bittenbender from FloridaBet told the South Florida Sun Sentinel , this could open the door for sports betting in states like New Mexico, Washington and Wisconsin, where it's currently limited.

Bittenbender said the case could allow these and other states“to expand upon those agreements and let the recognized tribal gaming nations in those states operate online sports betting across the state. This, too, could open the door for iGaming, or online casinos, in a number of states.”

DraftKings is one of the largest online sports-betting providers in the country, but it is only available in about 25 states . However, sports betting is only legal in 38 states, and online wagering is allowed in just 30 states .

Thus, any time DraftKings can expand into a new state, it is a huge revenue opportunity. This case in Florida could enable DraftKings to expand its footprint.

DraftKings has been generating lots of revenue but has not been consistently profitable. In the first quarter, the company's revenue climbed 53% to $1.2 billion, but it posted a net loss of $143 million.

DraftKings raised its revenue guidance for 2024 and is moving closer to profitability, so it appears to be headed in the right direction. With gambling on the ballot in three more states this year, the company could see more opportunities soon.

I'm a little wary of DraftKings just because of the run-up it's already had, the uncertainty surrounding gambling expansion in more states, and the lack of profitability. However, it's a stock worth watching.

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