SBTech Founder Shalom McKenzie, Major DraftKings Shareholder, Takes Board Seat

Posted on: May 4, 2020, 10:01h. 

Last updated on: May 4, 2020, 11:08h.

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

SBTech founder and majority shareholder Shalom McKenzie is flexing some muscle as the largest holder of newly public DraftKings (NASDAQ:DKNG) common equity, taking a board seat at the daily fantasy sports (DFS) and sportsbook operator.

Shalom McKenzie Takes DraftKing Board Seat
SBTech founder Shalom McKenzie is leveraging his massive DraftKings stake into a board seat. (Image: Nasdaq)

McKenzie’s SBTech, a provider of sports wagering technology solutions, was part of the reverse merger through a “blank check” entity known as Diamond Eagle Acquisition. That set the stage for DraftKings to become a publicly traded firm.

On April 23, Diamond Eagle, DraftKings, and SBTech ratified a business combination agreement (BCA). The next day, the combined company debuted on the Nasdaq Stock Exchange under the DraftKings name.

Immediately prior to the Closing, Mr. McKenzie was a major shareholder of SB Tech and held 34,680 shares of SB Tech, which he had acquired as a founder of SB Tech in 2007 and in subsequent transactions with SB Tech. In the Business Combination, all of Mr. McKenzie’s shares of SB Tech capital stock were converted into 34,628,397 shares of Common Stock,” according to a Schedule 13D filing with the Securities and Exchange Commission (SEC).

McKenzie is one of 13 DraftKings board members, a group that includes co-founders Matthew Kalish, Paul Lieberman, and Jason Robins, who is chief executive officer and chairman.

Big Stake

With a stake of 34.62 million shares, McKenzie is the largest owner of DraftKings Class A equity by a wide margin. That position is equivalent to 11.03 percent of the company’s shares outstanding, and the next largest investor controls just under eight percent of the company.

As Casino.org reported last week, Walt Disney (NYSE:DIS) owns about six percent of DraftKings, making it the third-largest investor.

SBTech’s McKenzie, Disney and others hold stock with little voting power. Each of their shares carry one vote, but the Class B stock, which is more than 92 percent held by Robins, accounts for 10 votes per share.

Still, it’s unlikely that McKenzie is complaining. Helped by an initiation of coverage with an “outperform” rating and $24 price target from Northland Capital Markets, DraftKings is up 5.62 percent today, trading at $21.25 at this writing. That means the SBTech founder’s stake in DraftKings is worth nearly $736 million.

He can acquire another 612,000 shares in the new company at prices ranging from $12.50 to $16, well below current market value, according to the SEC filing.

Another Potential Governance Issue

In addition to the dual share class structure that has been criticized at other companies because it can pit common investors against management in battles the latter will invariably win, DraftKings has another potential governance issue: lack of gender diversity on its board.

With McKenzie’s addition to the lineup of directors, just one of the 13 – Marni Walden – is a woman, according to the company’s website.

That at a time when investors are pushing public companies to add more women to boards. Currently, about 20 percent of board members at the 3,000 largest domestic companies are women, according to Equilar, a firm that tracks corporate governance data.

Some gaming companies are above that 20 percent mark. For example, MGM Resorts International and Wynn Resorts each have four women on their boards.