Critique of Draft Kings by Joshuah Rick
MIKE JONES
Liberty University, Dr. James Shelton
Author Note
Alberto Benavides, I have no known conflict of interest to disclose. Correspondence
concerning this article should be addressed to Alberto Benavides. Contract:
abenav07@liberty.edu
Company History
Joshuah, you did a great job on your analysis of Draft Kings. I would add, that it was
reported that the company awarded $50 million in prizes to players in sports fantasy leagues.
The company also reported 50,000 active daily users and as much as one million registered
players. Great job discussing Draft Kings top competitors. However, “Draft Kings was not
the first company to enter the space, with FanDuel already busy raising money and gaining
a lead amongst early competitors. (Heitner, 2017) Since Draft Kings’ inception Fan Duel
has been Draft Kings’ top competitor and a quarrel had ensued. As noted, “the bickering
between FanDuel and DraftKings began back in March 2014, a couple of years after
DraftKings' inception. FanDuel delivered a demand letter to DraftKings, telling DraftKings
to stop claiming that it was the "#1 destination for daily fantasy sports on the internet" and
that it offers the largest cash pools in one-day fantasy sports. (Heitner, 2017)
Client Acceptance
As noted, “employing strong client acceptance procedures — the process by which a
prospective client is evaluated before undertaking any services. While client acceptance is no
crystal ball, sound client acceptance procedures can help CPA firms identify potential
problem clients before they cause trouble.” (Ference, 2020)
Excellent job including supporting documentation on what to look for when accepting a
new audit client. I agree with your assessment to accept Draft Kings as an audit client,
especially given its strong growth and future earnings potential.
Board of Directors
Joshuah, you presented a clear statement of the Independent Status of the Board of Directors.
Also, great job stating the stating the criteria for determining the independent status of a
Board member and identifying the 14 board members. It is also noteworthy that Draft Kings
has a special group of special advisors to the board of directors including Michael Jordan, Cal
Ripken Jr. and Gisele Bundchen.
Independent Audit Committee
Joshuah, you included and identified the four audit committee members in your posting.
The audit committee meets the SEC’s requirements for independence. As noted, “under the
SEC’s rules, auditors generally lack independence “if a reasonable investor with knowledge
of all relevant facts and circumstances would conclude that the accountant isn’t capable of
exercising objective and impartial judgment on all issues” related to the work at hand.”
(Briggs & Veselka, 2022)
Financial Statement 8-K
Great job, including the latest 8K. It is of great importance to find out who Draft Kings
wants to merge with in the United Kingdom. Based on net income numbers over the last four
years, the company has been losing more and more money over the last four years and in year
ending December 31st, 2021 they lost over a staggering $1.5 billion dollars, I would believe a potential
merger may help the company become more profitable in the future.
Financial Statement Ratios
As noted, “financial ratios are created with the use of numerical values taken from
financial statements to gain meaningful information about a company. The numbers found on
a company’s financial statements – balance sheet, income statement, and cash flow statement
– are used to perform quantitative analysis and assess a company’s liquidity, leverage,
growth, margins, profitability, rates of return, valuation, and more. (CFI, 2022)
Joshuah, you did a phenomenal job discussing the financial ratios from the consolidated
financial statements as of December 31st, 2021. I really like the fact that you compared Draft
Kings’ most prominent competitor in Fan Duel when doing your comparison, this couldn’t
have been done any better. It strikes me interesting that even though they are strikingly
comparable companies and their ratios are somewhat different from each other. From the
overall numbers, it appears that Draft Kings is better positioned for growth and less likely to
fall into bankruptcy.
Audit Risk Summary
As noted, “Audit risk is the risk that financial statements are materially incorrect, even
though the audit opinion states that the financial reports are free of any material
misstatements.” (Tuovila 2022) This is of great importance as we want to minimize our audit
risk as much as possible to conduct a transparent audit opinon.
Joshuah, you listed this as a separate section in your project. Based on your project, and
my review of the Draft Kings financial statements and ratio analysis, I agree with you that
Draft Kings is in a position to continue to grow its revenue and become more profitable.
References
(Briggs & Veselka, 2022), An article titled, “Auditor Independence: What are the SEC Rules?”
retrieved from https://www.bvccpa.com/resources/blog/auditor-independence/#:~:text=Under%20the
%20SEC's%20rules%2C%20auditors,to%20the%20work%20at%20hand.
(CFI, 2022). An article titled, “Financial Ratios”, retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/
(Ference, 2020), Journal Accountancy, article titled “Client acceptance: A liability gatekeeper”
retrieved from https://www.journalofaccountancy.com/issues/2020/dec/cpa-firm-client-acceptance-
procedures.html#:~:text=Employing%20strong%20client%20acceptance%20procedures,clients
%20before%20they%20cause%20trouble.
(Heitner, D. 2017), An article titled, “The First Five Years of Draft Kings” as appears on Forbes.com
retrieved from https://www.forbes.com/sites/darrenheitner/2017/04/25/the-first-five-years-of-
draftkings/?sh=28c7fb365254
(Tuovila, 2022), An article titled, “Audit Risk” retrieved from
https://www.investopedia.com/terms/a/audit-risk.asp
