Why is DraftKings stock soaring? Find out here

Aside from Major League Baseball and one or two professional sports, the U.S. sports schedule is entering a summer slump. but, DraftKings (NASDAQ:DKNG) stock has been on fire lately.

Shares of the online sports betting company are up 19.7% year-to-date (YTD) and up about 9% this week, trading at about $42.25 per share as of Tuesday.

Several catalysts drove the price higher, including strong earnings results and the acquisition of digital lottery app JackPocket. This week, a Supreme Court decision provided additional catalyst.

Florida ruling could help DraftKings

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

Rejecting the challenge essentially kept online sports betting under the control of the Seminole Tribe through an agreement reached with the state in 2021.

The two companies challenged the state’s compact with the tribe on the grounds that wagering should take place only on tribal lands and not statewide.

However, in denying this, the court agreed that bets are placed on tribal lands because that is where the servers are located and the bets are ultimately placed.

Hard Rock Bet has a monopoly on online sports betting, so DraftKings is not available to Florida bettors. However, according to Legal Sports Report (LSR), the door is open for Hard Rock Bet to bring in DraftKings and others through revenue-sharing agreements.

“I don’t think we’ve ever said we wouldn’t work with other companies, whether it’s Caesars, BetMGM, DraftKings or FanDuel. “We have always said we would be open to such dialogue.” Hard Rock CEO Jim Allen told LSR.

This comment aside, there is a bigger reason why this rejection could increase DraftKings’ fortunes.

Supreme Court precedent may apply to other states

The biggest reason this decision (or rejection) is giving DraftKings stock a boost is because it sets a precedent for other states to do the same. It is expanding online sports betting across the state through tribes.

As FloridaBet.com’s Steve Bittenbender told the South Florida Sun Sentinel, this could open the door to sports betting in states like New Mexico, Washington and Wisconsin, where it is currently restricted.

Bittenbender said the case could allow these states and others to “extend these agreements and allow recognized tribal gaming nations in those states to operate online sports betting statewide.” This too could open the door to iGaming, or online casinos, in several states.”

DraftKings is one of the largest online sports betting providers in the United States, but is only available in about 25 states. However, sports betting is only legal in 38 states, and online betting is only allowed in 30 states.

So, whenever DraftKings can expand into a new state, it’s a huge revenue opportunity. This story in Florida allows DraftKings to expand its presence.

Should I buy it?

DraftKings has been generating a lot of revenue, but it hasn’t been profitable on a consistent basis. In the first quarter, the company’s revenue rose 53% to $1.2 billion, but it posted a net loss of $143 million.

DraftKings appears to be moving in the right direction, raising its 2024 revenue guidance and moving closer to profitability. With gambling added to the ballot in three states this year, the company could soon see more opportunities.

I’m a little cautious about DraftKings because of the business it already has in place, the uncertainty surrounding gambling expansion in more states, and the lack of profitability. But it is a stock worth watching.