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Why DraftKings Stock Struck Out on Thursday

By Eric Volkman – Sep 3, 2020 at 7:12PM

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The whiff was a bit surprising given the good news the company divulged.

What happened

DraftKings (DKNG 3.42%) was another victim of the stock market's no-hitter on Thursday. Investors  seemed to have a particular disdain for companies that have flown high so far this year, and DraftKings -- still up a dizzying 255% year to date even after the day's decline -- is a prime candidate.

So what

Mr. Market wasn't in any kind of mood to be pleased by good news. That was too bad for DraftKings, as it had something quite positive to report. 

A baseball in the hand of a pitcher, hidden behind the player's back.

Image source: Getty Images.

The company announced that it has snagged the Chicago Cubs as the team's "Official Sports Betting and Daily Fantasy Partner" in a multiyear deal, the terms and price of which were not disclosed.

Ultimately, the company aims to set up a sportsbook -- i.e., a venue for sports gambling -- directly at the team's hallowed home of Wrigley Field. Such a facility requires approval from the city's government, even though gambling on athletic events is legal in Illinois, and the company already operates one sportsbook in the state.

Now what

It's encouraging that the still-young DraftKings has managed to team up with such a big name in a professional sport. This isn't the first time: The Cubs announcement closely follows the news that Michael Jordan will serve as a special advisor to the company's board of directors.

So while DraftKings is certainly a pricey investment, particularly considering its sky-high valuations, the obviously determined and dynamic company didn't necessarily warrant the sell-off it experienced on Thursday. 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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