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DraftKings Shares Jump: Jim Cramer Says Hindenburg Note 'Not A Reason to Sell'

Jim Cramer says DrafKings' future looks solid, adding that the issues Hindenburg raised regarding SBTech are 'not a reason to sell.'

DraftKings  (DKNG) - Get Report shares jumped higher in pre-market trading Wednesday as Cathie Wood's ARK Investments scooped up shares during yesterday's decline and TheStreet's founder, Jim Cramer, said the Hindenburg-triggered sell-off was overdone.

Woods' ARK Innovation ETF  (ARKK) - Get Report snapped up 42 million shares of DraftKings shares during the Tuesday session, which saw shares fall nearly 10% following a damning report from Hindenburg Research that the betting group's merger with Bulgaria-based SBTech has opened it up to exposure linked to black-market gaming and money laundering.

Hindenburg said DraftKings, which went public last year via a three-way merger with special acquisition company sponsor Diamond Acquisition and SBTech, has 'systemically skirted the law and taken elaborate steps to obfuscate its black market operations" as insiders "aggressively cash out amidst the market froth".

DraftKings told TheStreet the report was "written by someone with an incentive to drive down the share price", adding that  "our business combination with SBTech was completed in 2020" and that its comfortable with a recent reviews of its business practices.

"The issues (in the Hinderburg report) were really confined to one division," Cramer said. "I don't think it's that important (SBTech) is only about 8% of the company, based on some of the research I've read, so I don't think it's a reason to sell."

"You could sell if you thought that (the expanse of gambling authorizations) would be halted in this country, but I think that's going to be the opposite, and I think every state is going to allow gambling."

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DraftKings shares were marked 2.7% higher in early trading Wednesday to  change hands at $49.80 each.

Sports betting shares have been rising steadily since the Supreme Court struck down a two-decades old law in 2018 that prohibited New Jersey from allowing sports betting at state casinos.

The ruling paved the way for U.S. states to challenge the 1992 Federal Professional and Amateur Sports Protection Act that effectively allowed only Nevada, Oregon, Delaware and Montana to offer full or limited facilities in the $150 billion global sports betting market.

Analysts at Oppenheimer estimate legal sports gaming in the United States will grow 34% a year to around $15.3 billion by 2028.

Credit Suisse analyst Benjamin Chaiken also questioned the impact of the Hindenburg note, arguing, like Cramer, that he sees minimal value in DraftKing's being applied to SBTech.

"Our view is that SBTech was purchased by DraftKings for its tech platform rather than its existing revenue stream," he said. "Said another way, if SBTech revenues were to go away entirely, we think there would be minimal impact on the DraftKings stock."

"While not ideal, in a worst case scenario, an SBTech issue would not necessarily interfere with betting operations today," he added. "We would use today’s weakness as an opportunity ahead of potential Canada legalization as well as New York, both of which are catalysts for DraftKings."