Why the NCAA Is Threatening DraftKings (DKNG) Stock

The NCAA’s president goes on a legal campaign against prop bets on collegiate sports

Source: T. Schneider / Shutterstock.com

DraftKings (NASDAQ:DKNG) stock is down about 4.5% over the past five trading sessions amid the NCAA’s recent legal tirade against certain kinds of sports betting.

As March Madness rages on, the NCAA is making a case for legal reform against proposition or “prop” bets on college athletes. For the 38 states that allow sports betting, prop bets refer to wagers on miscellaneous aspects of a game rather than the final score itself.

“Sports betting issues are on the rise across the country with prop bets continuing to threaten the integrity of competition and leading to student-athletes getting harassed,” NCAA President Charlie Baker posted Wednesday. “The NCAA has been working with states to deal with these threats and many are responding by banning college prop bets.”

Using basketball as an example, prop bets could be on anything from how many points an individual player scores to assists, rebounds, three-pointers and more.

There are two major issues with prop bets. Firstly, the public has a history of harassing players for failing to meet certain benchmarks that make up the bet. Secondly, it opens the door for athletes to manipulate their play in order to meet certain betting criteria.

Unfortunately, simply banning prop bets isn’t a perfect solution, though some states have already prohibited the wager. Indeed, some gamblers may be pushed to illegal, offshore sports books, which makes monitoring the practice even more difficult.

“While it is unclear how this advances our shared goal of reducing athlete harassment, we do know that driving customers to illegal channels will ultimately hinder the ability to monitor for and detect potential suspicious betting behavior,” Chris Cylke, senior vice president for government relations for the American Gaming Association said told the Associated Press.

DKNG Stock Slides Amid Prop Betting Controversy

While prop betting represents only a sliver of total wagers, it still brought in almost $105 billion in revenue for sports gaming operators last year.

As such, talk of more stringent regulation against prop bets has weighed on DraftKings stock recently, albeit not too heavily. While DKNG stock is down 4.5% over the past five days, the stock is up 36% so far this year and in the green 160% over the past 12 months.

At the end of the day, the issue of prop bets will likely be handled on a state-by-state basis. In that regard, it’s uncertain how the popular wager will persist going forward.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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