Breakingviews: E-betting boss opens all his presents in one go

One of the seminal investing lessons reinforced by the events of 2019 was to not give chief executives free rein. Uber Technologies had taught that one already, but WeWork’s spectacular fall from grace this year really should have made it clear that an all-powerful CEO can wind up being a huge liability. Backers of online-gambling and -gaming company DraftKings, though, appear unconcerned.

On Monday, three major investment firms which ought to know better, Capital Research and Management, Wellington Management and Franklin Templeton, led a $304 million investment in the outfit, which at the same time announced two other deals: a takeover of sports-betting and gaming tech firm SBTech, and a reverse merger into a blank-check company set up by former CBS executive Jeff Sagansky.

These so-called special-purpose acquisition companies are often frowned upon for providing quick, quiet and cheap ways for private companies to go public. But all in, DraftKings’ deal hat trick could offer a smart play on the rapidly growing U.S. online gambling market. Revenue from its New Jersey operations rose almost ninefold in the first three quarters of this year, and the company reckons regulators could open the market up to a fifth of the U.S. population by 2021.

Trouble is, investors are all-too-giddily handing over their money to a company in which founder and CEO Jason Robins will have 10 votes for each share he owns. Such a structure is not unusual for startups, but WeWork and Uber are vivid warnings of what can happen when too much power is vested in one founder’s hands.

Uber’s Travis Kalanick pushed the ride-hailing service to break so hard and fast into new markets that it created a toxic culture that threatened the firm’s existence. Adam Neumann’s WeWork, which Wellington also invested in some five years ago, was laid low by conflicts of interest, mission creep and an inability to make money.

Robins, who’s surely enjoying opening all his holiday presents in one go, may well be different. But investors shouldn’t want to take the chance. For all DraftKings’ prognostications of rapid growth, regulations can always change, and it’s hardly beyond imagination that societal concerns could turn gambling into a big ESG – environmental, social and governance – risk for investors. Investors are betting against themselves before the game has even begun.

_____________________________________________________________________

Request a free trial of Breakingviews here