DraftKings NFL NFT Deal ‘Call Option’ on Stock

Posted on: December 13, 2021, 09:43h. 

Last updated on: December 13, 2021, 10:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Last week, DraftKings (NASDAQ:DKNG) announced an accord with the NFL Players Association (NFLPA) to distribute collections of non-fungible tokens (NFTs). Some market observers see potential investment implications in the deal.

DraftKings NFT
Tampa Bay Buccaneers quarterback Tom Brady at the 2021 Super Bowl. He’s one of the most recognizable NFL stars involved with non-fungible tokens, a space DraftKings is moving further into. (Image: CNBC)

Notably, the NFLPA is granting the gaming company name, image, and likeness rights for active NFL players. The NFT collections will debut on DraftKings Marketplace during the 2022-2023 NFL season. While NFTs and cryptocurrency aren’t DraftKings’ core business at this point, there’s potential for the company to grow into a major NFT player as that market expands.

Imagine an arcade-style NFL game (i.e., NFL Blitz) where you own the playable version of Patrick Mahomes as an NFT. Now layer on an element of peer-to-peer wagering based on the outcome of a match against another team owner,” says RoundHill Investments co-founder Will Hershey.

NFTs are units of data stored on and verified by the blockchain. NFTs have applications with a variety of digitized items, such as audio and video files, as well as pictures. They are not traditional works of art that hang on walls or standard trading cards.

NFT Expansion Logical for DraftKings

DraftKings isn’t an old company — it turns 10 years old next year — but there are already hints that several years from now, it might not look much like it does today.

NFTs are one way of enhancing that evolution, diversifying the operator’s revenue stream beyond the hyper-competitive world of sports wagering. That’s while leveraging a brand that’s highly recognizable to sports fans. DraftKings launched its NFT marketplace earlier this year, immediately revealing an agreement with Autograph, an NFT collecting platform cofounded by Tampa Bay Buccaneers quarterback and seven-time Super Bowl champion Tom Brady.

As Hershey notes, DraftKings clients could be receptive to not only investing in NFTs, particularly those of the sports variety but also leveraging those assets for potential upside via gamification.

“If executed properly, the potential is certainly there, particularly with a captive DraftKings audience that is likely comfortable with the risk-taking associated with speculative assets like NFTs,” he adds. “From an investment perspective, the opportunity feels like a worthy call option for a company with a low cost of capital and cash on the balance sheet.”

There’s an element of cryptocurrency in the equation, too. DraftKings customers looking to purchase NFTs must do so with the digital token Polygon, which is based on the ethereum blockchain. Polygon outperform bitcoin, the largest digital coin, in recent months.

Another New Rating on DraftKings

Separate from the commentary on NFTs, DraftKings stock landed another new rating today. MoffettNathanson analyst Robert Fishman starts coverage of the gaming equity with a “neutral” rating and a $36 price target. That is implying upside of almost 20 percent from the Dec. 10 close.

Fishman sees high promotional spending — long a point of contention with DraftKings investors — hampering near-term profitability, but notes that spending “cements its top positioning over the long term.”

The market is “still in the very early stages of this war, and the costs of these battles will be with us for years to come,” adds Fishman.