DraftKings Slips After Pricing Share Sale at Steep Discount to Recent Close

DraftKings (NASDAQ:DKNG) stock is sliding today. The sportsbook operator said it priced its secondary offering at $52 a share, an 8.4 percent discount to Tuesday’s close of $56.48.

The daily fantasy sports (DFS) company shed more than 15 percent from its recent highs, putting the stock in correction territory. Equities typically drop when firms announce new offerings because those transactions are priced below where the name trades on the open market and dilutes current investors. This is the case with DraftKings. The Boston-based company announced the sale on Monday.

The sportsbook firm said it’s selling 16 million shares, and early investors are doing the same. However, DraftKings itself will only command proceeds from the equity it’s selling. Underwriters Credit Suisse and Goldman Sachs can buy another 4.8 million shares. So if the company sells 20.8 million shares, it will raise $1.08 billion.

DraftKings will not receive any proceeds from the sale of Class A common stock offered by the selling stockholders,” according to the company. “DraftKings intends to use the net proceeds it receives from the offering for general corporate purposes.”

Although it’s trading lower today, DraftKings stock has not retreated to $52. It’s hovering around $54, up 430 percent this year.

Good News: Lockup Limited

DraftKings notes its lockup period ends Oct. 20, in an 8-K filing with the Securities and Exchange Commission (SEC). This means executives and employees that received equity-based compensation can sell stock.

Newly public companies — DraftKings debuted in April — typically have six-month lockup periods, and when that time expires, executives and staffers usually sell a massive amount of equity, punishing the stock price in the process.

Uses for the Cash

“General corporate purposes” is the default statement companies, regardless of industry, use when raising capital. It’s a way of telling investors there are uses for the cash without specifying what those uses are.

On Tuesday, DraftKings took a $3 million wager on the Green Bay Packers and the universities of Alabama and Georgia to win their respective divisions. At odds of +186 (bet $100 to win $186), DraftKings could pay out $5.5 million to the gambler.

Investors probably shouldn’t fret over that wager, though. DraftKings has other catalysts with which to woo the investment community, and the gambler on that futures parlay bet into a house advantage of 43 percent.