A week ago on a Thursday, the Twitter community witnessed a great corporate contradiction as per industry experts that follow DraftKings news. According to the report that declared the revenue collected from the second quarter, the social post made by CEO Jason Robins made a grave contradiction. Right now, observers are eager to know what the differences mean and how much they differ from the actual company position.
The post which was updated on July 27 portrayed that the expected performance of the gambling giant would be robust. This result was supposed to exclude new state launches but capitalize on the vintage state segment. The action that caused the tweet to raise eyebrows is that it was pulled down less than 30 minutes later. All efforts to contact DraftKings on several occasions were declined so no comment has been obtained on the matter.
In a statement that Robins has shared recently, the company has the potential to record huge growth in emerging markets. This does not however mean that existing states are not performing well – the growth potential is guaranteed. In the 2018-2019 financial year, the company reported more than 80% growth in the first quarter year-over-year basis. Based on these figures, the management of DraftKings is optimistic that they will have good progress even without factoring in the opening of new states.
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SEC regulation demystified
The posting of Robin’s tweet comes at a time when most companies are becoming aware of a new trend that many have dubbed quiet periods. Before the tweet even came to light, nothing much was thought about the performance of DraftKings –now the entire market is curious as to what the real message of the tweet was. While every company must develop and maintain its unique quiet-period policy, Regulation FD covers all publicly traded entities.
Regulation FD or Fair Disclosure stipulates that all material information of a nonpublic nature must be made accessible to everyone. For most organizations, disclosure takes the form of email alerts that are offered as an insight into information contained in all filed SEC documents. So far, it has not been categorically indicated that Robins’s Twitter account is a place where nonpublic material information can be sourced.
The earnings report for the gambling operations of DraftKings is expected to be released to the public after the close of trading followed by a conference call. As of Wednesday 3 pm ET, the stock of the company was listed as $30.45, a slight decline from the opening of $31.15. If this fall is anything to go by, the company has a task to explain why they are headed to the dip in a segment that they predicted is doing well.
The problem with DraftKings tweet
A professor at Duke, James Cox , has described the tweet made by Robins as problematic based on the nature of the information contained. Information that has been shared before portraying the positive projects in the company’s performance is a great contradiction to the message. This is information that had been earlier shared publicly but there is now a wave of confusion. On one hand, is the anticipated segment growth while on the other is actual earnings reported.
A corporate and securities law expert, Cox has extensive publications in the matters of corporate governance and market regulation. His most notable appearances given his expertise span appearances in market reforms, class actions, and insider trading; some of these presentations have been before the U.S. House and Senate.
In 2012, the then-CEO of Netflix, Reed Hastings announced on Facebook that his company had managed to stream over 1 billion hours of content in the previous month of June. That was incredible news, especially for shareholders who for the fourth quarter had been informed that the company had streamed content amounting to 2 billion hours. This led to an increase of 16% in the price of stock. In 2013, the SEC came to the decision that social should be treated like a company page and investors could look for news from that account.
In addition to that, it is important to emphasize that the guidance given by the commission in 2008, although at the time targeting websites, does in the present day cover evolving social interaction platforms. In the 2008 guidance, issuers had the responsibility of taking sufficient measures before communicating any news to their investors and partners. If this guidance is adhered to, it is going to play a huge role in ensuring Regulation FD compliance and a balanced market.
Was Regulation FD followed by DraftKings?
Key management executives within DraftKings chose to either distance themselves from the comments made or outrightly decline it as the company’s position. While no one has so far come out to deny that the tweet was in violation of laid down regulations, the fact that it raises concerns means that it needs to be probed further. SEC representatives absolved their position stating that it was in their power to explain situations arising within the company. Probed at a different angle, a member of the team termed it as hypothetical.
Conclusion
Speaking to the press regarding official matters is a complex matter and is in most organizations a role reserved for a specific office. This does not at all limit executives from making their own comments albeit it might be from personal opinion. In the case of DraftKings, the harm definitely occurred when a contradiction was discovered. Some groups may side with the CEO as a human being who has basic rights of self-expression but the majority will crucify him for using his influence to form a false image of the organization. This might just be a simple tweet but the impact on financial experts particularly, speaks volumes to the analytic skills of the management of DraftKings.
