Ark Investment bets big on DraftKings as it pulls it into an ETF

A business man watering a plant with gold coins on its side. Investment concept.
A business man watering a plant with gold coins on its side. Investment concept.

Ark Investment Management is betting on gambling. The large asset management firm has taken an interest in DraftKings, purchasing 630,000 shares of the sports gambling and fantasy sports operator to add to its ARK Next Generation exchange-traded fund (ETF). ETFs have been around for a long time, but have begun to see more interest in recent years as a way to make investments in certain industries while minimizing, to a degree, the risk involved. 

Since DraftKings went public last year, it has enjoyed almost constant growth. On June 1, it was trading at $43.70 before spiking at $63.78 on October 2. It bounced around a little since then but, as of yesterday afternoon, was trading at $59.31. Ark, a major supporter of Tesla’s future, is confident that it will be able to capitalize on that growth, as well as future climbs, and it has the track record of success to back it up. Over the past three years, the Next Generation ETF has seen a return of more than 273%, more than double the return from the S&P 500 and the S&P 500 Technology Index combined. 

Part of the decision to invest in DraftKings and add it to the ETF was a forecast provided by Ark analyst Nicholas Grous. He believes that sports gambling, as well as eSports and fantasy sports, have nothing but pure upside potential going forward and predicts 31% in the compound annual growth rate (CAGR) for the combined activity through 2025. Online sports gambling alone is poised for massive growth, with Grous anticipating a handle of $180 billion within four years. That would be ten times the handle from 2019. 

Grous, who follows the gaming industry for Ark, adds, “Since it legalized online sports betting in mid-2018, for example, New Jersey’s online handle has totaled $12 billion, half of which took place in 2020. Based on the $12 billion, we believe New Jersey has earned $100 million in taxes and enabled sports betting companies to generate $750 million in revenue. In the last two weeks, both New York and Texas have weighed in favorably on the prospective approval of online sports betting and, given their desperate need to plug gaping deficits, other states seem likely to follow.”

The inclusion of DraftKings in the ETF makes it the second gaming company to be added. Skillz, a mobile gaming and eSports provider, is already included, and the response has been significant. Through November 25 of last year, the company’s stock had remained flat almost all year and closed that day at $12.98. However, since then, it has continued to rise and, as of yesterday afternoon, was at $28.86. That is close to its highest ever price, the $29.73 it recorded on January 26.