DraftKings Says Impact of Hack Limited, Analysts Concerned About User Confidence

Posted on: November 22, 2022, 02:57h. 

Last updated on: November 22, 2022, 03:26h.

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

DraftKings (NASDAQ: DKNG) investors and clients were spooked Monday after the sportsbook operator confirmed some customer accounts were hacked by cyber thieves.

DraftKings hack
The DraftKings sportsbook at the Brook Casino. The company said a hack of client accounts resulted in less than $300K in losses. (Image: Getty Images)

The Boston-based gaming company said late Monday that less than $300K in client funds were affected by the cyber breaches. While the goal is perfection when it comes to prevention, perfection is a moving target when it comes to cybersecurity. And $300K in losses is small compared to other well-known cybercrime events.

We currently believe that the login information of these customers was compromised on other websites and then used to access their DraftKings accounts where they used the same login information,” said DraftKings cofounder and President Paul Liberman in a statement. “We have seen no evidence that DraftKings’ systems were breached to obtain this information. We have identified less than $300,000 of customer funds that were affected, and we intend to make whole any customer that was impacted.”

It’s believed fewer than 100K DraftKings customer accounts were affected. The company added that it found no evidence that its internal corporate systems were compromised during the attack.

DraftKings Customer Confidence Could Be Rattled

Assuming the aforementioned $300K (or less) estimate is on the level, that’s not massive in cyber loss terms. But DraftKings may have to deal with additional fallout affecting consumer confidence.

Typically, customers’ priorities with sports wagering apps are ease of use, fast withdrawal times, and the breadth of betting options. However, the DraftKings hack could make operators’ cybersecurity protocols points of emphasis for clients.

That makes sense, because like it or not, the gaming companies need to act as guardians of client data because they hold so much of it, including banking and credit card information, addresses, and dates of birth.

In a note to clients on Tuesday, Susquehanna analyst Joseph Stauff said such an event at an online gaming company was “inevitable” because of the amount of capital that flows in and out of client accounts. He added that the largest fallout from the attack will likely be on DraftKings user trends and confidence.

Stauff rates DraftKings stock “positive” with a $19 price target, implying upside of about 35% from the Monday close.

Gaming Companies Need to Spend on Cybersecurity

Over the past several years, there have been multiple examples of cyber criminals targeting gaming companies of all shapes and sizes. With wagering an increasingly online endeavor, the number of those attacks is likely to increase.

That’s to say gaming companies, particularly those that generate the bulk of their revenue online, have no choice but to diligently invest in cybersecurity.

Those that fail to do so risk inviting data breaches, and with that, the risk becomes the possibility of harsh judgment in the court of public opinion and in the investment community.