Political Sensitivities Might Be a Headwind for DraftKings
When conservative talk radio host Larry Elder went head-to-head against incumbent California governor Gavin Newsom during last year’s recall election, it had significant implications for DraftKings (NASDAQ:DKNG). You see, Elder has some libertarian views, but he’s not too fond on gambling, which of course would have boded poorly for DKNG stock had he won.
When describing the meme-stock phenomenon, the sharp-witted radio personality stated, “I am a big fan of investing in the stock market. I’m a big fan of believing in America. I believe in investing. I don’t believe in gambling. This strikes me as gambing [sic].” So, now that Newsom is still very much the governor of the Golden State, is it time to advantage the discount in DKNG stock?
Frankly, if you’re heavily involved in the sports betting scene, it’s difficult not to be excited about the more attractive entry point into DraftKings. On a year-to-date basis to the end of the Feb. 4 session, DKNG stock dropped 20%. Over the trailing half-year period, it’s hemorrhaged 55%.
True, the red ink stemmed largely from a rotation out of risk-on assets to names known for their stability and dividend-yielding track record. With the Federal Reserve pivoting toward a hawkish monetary policy, it doesn’t make sense for many investors to hold onto something like DKNG stock.
However, Morgan Stanley analyst Thomas Allen sees that as a mistake. In a note to investors, Allen stated, “While we and the market have been focused on near- to medium-term profit concerns, we believe at the current price one should not ignore that DKNG is a leading market share player in what will be a very large profitable market.”
According to the analyst, sports betting could grow to a $21 billion sector, with California playing a huge role.
Consider the Possible Backlash for DKNG Stock
When it comes to any national endeavor, you cannot ignore the Golden State. Obviously, it’s the biggest economic engine for the U.S. If California were its own country, it would represent the fifth largest economy in the world. Therefore, it seems only reasonable that the state would legalize sports betting.
Even more encouragingly, recent moves by New York, Louisiana, Ohio, Maryland and Nebraska imply brewing momentum for legalization. If so, California probably won’t allow silly laws to stand that prevent it from dipping its hand into the cookie jar. It all seemingly augurs so well for DKNG stock.
Except there’s one major problem: the laws aren’t quite so silly.
Per GamingToday.com, “California’s local Native American tribes have heavily contested new sports wagering legislation, especially online wagering as it would not be under their direct control.” And that’s where the music might stop, no matter how glamorous legalization would be.
To be fair, it’s difficult to gauge political sentiment in the U.S. considering how former President Donald Trump changed the rule book. Still, if I’m reading between the lines correctly, mainstream Americans have grown increasingly concerned about the needs and struggles of Indigenous Americans.
As you’ve probably heard, Cleveland’s MLB team will change its name from the Indians to the Guardians. Perhaps most significantly, Washington’s NFL team will be known as the Commanders from next season. Maybe unsurprisingly, football fans aren’t happy about the change, but here’s the thing — Washington has been reluctant to change its name for a very long time. It changed its tune, though, following multiple calls for social justice.
Therefore, I find it at least somewhat difficult to believe that California will simply allow sports betting to be the law of the land, knowing full well it could financially disrupt Indigenous businesses.
Just the Facts
Now, my point about DKNG stock is not to take sides on this issue. The issue is about whether sports betting would disrupt already thriving Indigenous businesses in California. Fiscally, it makes sense for the state. But if legislation passes, it may be perceived as a slap in the face of Indigenous American business.
Granted, the situation could go either way. But at the very least, I don’t want you to think the sports-betting angle is a sure thing in the Golden State. Assess carefully, perform your due diligence and see what you think about DKNG stock then.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
