DraftKings Flirting with Nasdaq 100 Index Inclusion

Posted on: December 3, 2024, 02:02h. 

Last updated on: December 3, 2024, 02:28h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The annual reconstitution process for the widely followed Nasdaq 100 Index (NDX) commenced last Friday and it’s possible that when the results are released on December 13, DraftKings (NASDAQ: DKNG) will get a promotion to that gauge.

DraftKings
DraftKings stock is highlighted at the Nasdaq market site in New York City. The stock could join the Nasdaq 100 Index. (Image: Nasdaq)

DraftKings making the leap to the NDX largely depends on how many stocks Nasdaq decides to add and remove from the index. When the benchmark was rebalanced in December 2023, seven stocks were added and another seven were deleted.

For the gaming stock to join NDX in this year’s reconstitution, Nasdaq would likely have to expand the field from it which chooses additions. As of November 29, DraftKings was the ninth-largest Nasdaq-listed stock by market capitalization that isn’t an NDX member. The company has previously been close to joining NDX, but has yet to make the leap.

Based on its current market capitalization of $21.42 billion, DraftKings is larger than just two of the bottom 10 members of NDX. That implies Nasdaq might have to exceed last year’s seven additions for DraftKings to join NDX. As of today, the surest bets for NDX inclusion are Palantir Technologies (NASDAQ: PLTR) and MicroStrategy (NASDAQ: MSTR).

Pathway to DraftKings NDX Membership

Currently, DraftKings is a member of the NASDAQ Next Generation 100 Index, which is something of a proving ground for potential NDX members.

The Index is comprised of securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index,” according to Invesco.

DraftKings is one of four gaming stocks in the next-generation index. The other three are, in order of weight, Wynn Resorts (NASDAQ: WYNN), Churchill Downs (NASDAQ: CHDN), and Caesars Entertainment (NASDAQ: CZR). DraftKings is the only member of that quartet with a credible chance of earning an NDX promotion this year.

While consumer discretionary — the home sector for gaming equities — maintains the third-largest exposure in NDX, no gaming stocks currently reside in the gauge. FanDuel parent Flutter Entertainment (NYSE: FLUT) and Las Vegas Sands (NYSE: LVS) are the two largest US-listed gaming stocks by market value, but they trade on the New York Stock Exchange (NYSE), making them ineligible for NDX membership.

NDX Inclusion Could Be Boon for DraftKings

Joining NDX would be a major milestone for DraftKings because the stock currently isn’t a member of either that gauge or the S&P 500.

Should the online sports betting giant make the leap to the Nasdaq 100, it would open the doors to more active and passive funds that benchmark to NDX buying shares of DraftKings. Today, DraftKings is held by just 108 exchange traded funds (ETFs), according to the ETF Research Center. That figure would increase upon inclusion in the NDX.

When new stocks join an index, active managers and passive funds that benchmark to the gauge must buy shares of the freshly added name. That means if DraftKings joins NDX, it would also join the Invesco QQQ (NASDAQ: QQQ) and the Invesco NASDAQ 100 ETF (NASDAQ: QQQM) – ETFs with more than $358 billion in combined assets under management.