Raising capital is the lifeblood of public companies but sometimes the practice can be bad for shareholders, like today’s news from DraftKings ( (DKNG) - Get Draftkings, Inc. (DKNG) Report).

The online sports betting company announced Wednesday that it will offer 32 million new shares, half of which will come from insiders. The shares will be priced at $52.

The sale is a red flag for shareholders. Insiders are bailing.

DraftKings has big plans to move sports betting and other games of chance online. It’s an important digital transformation story that could not have come at a better time. With many casinos still shuttered, online betting is being given a golden opportunity to gain market share.

The Boston, Mass.-based firm is the product of an April three-way merger with U.K-based SB Tech, a sports betting technology company, and Diamond Eagle Acquisition Corp. The combination mixes strengths in online fantasy sports community, finance and best-in-class digital wagering technology. It’s also the only publicly traded, vertically integrated sports betting company in the United States.

That’s important because legalized sports betting is sweeping across the United States as cash-strapped states seek new tax and licensing fees opportunities.

Since a New Jersey supreme court ruling in 2018, 21 states have made gambling on sports legal, according to an ESPN report. An additional 26 states are on track to do the same. At this point, only Idaho, Wisconsin and Utah are on the outside looking in.

The appeal for states is fees from a pot of money that could be huge.

David Katz, an analyst at Jefferies, says the total addressable market for legal sports betting in the United States is currently $13 billion. A DraftKings investor presentation from last December claimed the market might be as large as $21 billion, if all of the states come online through the next two years.

DraftKing’s advantage is tech. SB Tech’s bet engine, risk management tools and algorithms are robust enough to accommodate a barrage of non-standard, in-game bets. Patrons will be able to wager on live, play-by-play outcomes. It means a lot more betting in a country that is the hotbed of professional and college sports.

For example, in New Jersey, the first state to move aggressively toward iGaming, DraftKings has been able to achieve 30% market share, and $75 million annual sales. With the backend SB Tech now in-house, margins are expected to climb a lot.

Unfortunately there is no way to know by exactly how much, yet. Previously managers said the company should do $700 million in 2020 revenues. However when the company reported second quarter results in August, revues were only $71 million.

In fairness, that number was hurt by the shuttering of many professional sports leagues during the height of the COVID-19 crisis. And while DraftKings did fill some of the void with eSports -- a deal with Electronic Arts ( (EA) - Get Electronic Arts Inc. Report), the publisher of the Madden NFL video game franchise, showed live simulations 6 times every day -- managers admit those events were mostly about keeping patrons engaged.

Despite weaker than expected financial results this year, investment firms have been universally upbeat on the prospects for DraftKings.

In an Oct. 1 note to clients, a Needham analyst said the online sports betting total addressable market could be between $42 billion and $58 billion annually, over the long term. In raising his price target to $70, the analyst noted DraftKings has a strong technology lead over competitors.

The problem is shares are up 450% in 2020. The market capitalization is now $22 billion, 61.5x sales. And with no earnings to speak of, the stock is not cheap by any metric.

This might explain why insiders are selling.

According to the filing with the Securities and Exchange Commission, half of the proposed 32 million share offering will come from insiders. Keep in mind these early investors are cashing-in despite the bright prospects for online betting, and the likely tax implications of realizing their profits.

I strongly favor digital transformation investment themes and DraftKings is well positioned. However, the stock is over-loved and overhyped at this point. Take a cue for insiders, ring the cash register.

Shares are likely headed to the middle $40s from its current perch in the mid-$50s.