DraftKings‘ Q2 earnings additionally introduced with them two doubtlessly critical points for one of many leaders in US sportsbook betting.
A US Securities and Change Fee Kind 10-Q filed on Friday confirmed that:
- DraftKings obtained a subpoena from the SEC on the heels of an activist investor’s report on DraftKings’ acquisition of SBTech.
- DraftKings is below an audit by the Inner Income Service associated to the cost of excise taxes on daily fantasy sportsbook.
Each come as disclosures for a publicly traded firm, and the way a lot of an influence, if any, both of those revelations may have on DraftKings Sportsbook enterprise is unknown and speculative.
DraftKings and the SEC subpoena
The subpoena associated to a report from Hindenberg Analysis about DraftKings buying SBTech, and allegations of its service of black markets, amongst different issues. For the reasonably difficult backstory, you may learn Authorized Sports activities Report’s rundown.
A pair of sophistication actions had been filed within the US District Court docket for the Southern District of New York in early July within the wake of that report. Then the subpoena got here. From the 10-Q:
On July 9, 2021, the Firm obtained a subpoena from the SEC looking for paperwork regarding sure of the allegations raised within the Hindenburg Report. The Firm intends to adjust to the associated requests and is cooperating with the SEC’s ongoing inquiry.
Right here is DraftKings’ handicapping of the state of affairs within the 10-Q:
Regardless of the potential for important damages, the Firm doesn’t imagine, based mostly on presently accessible data, that the end result of this continuing may have a fabric adversarial impact on DraftKings’ monetary situation, though the end result might be materials to DraftKings’ working outcomes for any specific interval, relying, partially, upon the working outcomes for such interval.
DraftKings and the IRS audit
We additionally discovered that DraftKings is going through an audit. Once more from the 10-Q:
The Firm is presently below Inner Income Service audit for prior tax years, with the first unresolved points referring to excise taxation of fantasy sportsbook contests and informational reporting and withholding. The ultimate decision of that audit, and different audits or litigation, might differ from the quantities recorded in these consolidated monetary statements and should materially have an effect on the Firm’s consolidated monetary statements within the interval or intervals wherein that dedication is made.
That is virtually definitely associated to IRS steering that got here down in 2020 that daily fantasy sportsbook operators are topic to the federal excise tax for sportsbook betting. The excise tax is utilized as .25% of all wagers, or within the case of DFS, contest entries obtained.
DraftKings, FanDuel and others have lengthy held that DFS contests are video games of talent and wholly unrelated to sportsbook wagering.
If the excise tax had been utilized to DFS contests, DraftKings may in concept be on the hook for a whole bunch of hundreds of thousands of unpaid taxes. DraftKings and FanDuel have taken tens of billions of USD in DFS contest entries over the previous decade.
It’s not recognized if FanDuel or another daily fantasy sportsbook operators are going through comparable audits.