Introduction
Shalom MecKenzie is a name that has only recently emerged in the spotlight, despite his significant impact on both Israel’s business landscape and the global sports betting industry. At 44, MecKenzie is one of Israel’s youngest billionaires, with a net worth estimated at $1.7 billion, as per Forbes’ 2023 rankings. However, his wealth and success have recently been marred by controversy following allegations concerning his company’s operations in illegal markets. This article delves into MecKenzie’s meteoric rise, the operations of his company SBTech, and the recent challenges that have placed him under scrutiny.
From Humble Beginnings to Billionaire Status
Born in Bat Yam, Israel, Shalom MecKenzie spent part of his formative years in the United States before returning to Israel. He now resides in the affluent town of Savyon with his wife and four children. Despite his wealth and accomplishments, MecKenzie remains relatively low-profile compared to other prominent Israeli billionaires.
MecKenzie’s journey to wealth began in 2007 when he founded SBTech, a company specializing in providing technological solutions for online sports betting and gaming. By leveraging a deep understanding of the industry and an eye for innovative technology, MecKenzie built SBTech into a global enterprise. The company operated across several jurisdictions, with development hubs in Bulgaria and Ukraine, administrative offices in Israel, and commercial support in London. Its clients included gambling operators, lotteries, and casinos, including the Czech and Oregon state lotteries.
SBTech’s business model revolved around offering a comprehensive system for managing sports betting, complete with marketing tools and customer management systems. The company’s revenue model included taking a percentage of the gambling income generated by users of its technology. By 2018, SBTech’s annual revenue had reached €94 million, with a net profit of €26 million.
The DraftKings Merger: A Career-Defining Move
In 2019, SBTech’s trajectory took a monumental turn. The company entered a three-way merger with DraftKings, a U.S.-based sports betting and daily fantasy sports giant, and Diamond Eagle Acquisition Corp., a Special Purpose Acquisition Company (SPAC). The deal, valued at $3.3 billion, allowed DraftKings to gain control of SBTech’s technology and propelled MecKenzie into billionaire status. MecKenzie emerged as DraftKings’ largest private shareholder, holding an 11.3% stake.
DraftKings, founded in 2012, had initially focused on daily fantasy sports. It took advantage of legal loopholes that categorized fantasy sports outside the realm of gambling. The company’s fortunes changed dramatically in 2018 when the U.S. Supreme Court struck down a federal law prohibiting sports betting, enabling individual states to legalize the practice. DraftKings quickly expanded into the burgeoning market, and the SBTech merger positioned it as a leader in the space.
The merger was heralded as a triumph. DraftKings’ stock debuted at $10 per share but soared to $72 by March 2021. The company’s appeal was bolstered by endorsements from high-profile figures like NBA legend Michael Jordan and supermodel Gisele Bündchen, who joined as investors and special advisers. The success of this merger was credited with sparking a wave of SPAC activity on Wall Street, making MecKenzie one of the key figures behind this financial trend.
The Hindenburg Report and Allegations
In June 2023, MecKenzie’s success story took a sharp turn. Hindenburg Research, an investment house specializing in short-selling, released a damning report alleging that SBTech had conducted substantial operations in countries where gambling is illegal, including Vietnam, Malaysia, Thailand, China, and Iran. These markets, the report claimed, accounted for nearly half of SBTech’s revenue. Furthermore, it alleged that these operations were often run by criminal organizations.
The report accused SBTech of attempting to obscure its activities in these jurisdictions to gain entry into the lucrative U.S. market. It detailed a strategy whereby SBTech shifted its controversial operations to a connected entity named BTi, later rebranded as CoreTech. According to Hindenburg, BTi was founded by one of MecKenzie’s close associates and operated primarily out of Bulgaria. The entity’s CEO was identified as an Israeli entrepreneur who had previously managed a binary options platform—a sector notorious for regulatory violations.
Hindenburg’s allegations sent shockwaves through the market. DraftKings’ stock price plummeted by over 11% following the report’s publication, although it briefly recovered before facing further declines. The controversy has also led to a spate of planned class-action lawsuits against DraftKings by U.S. law firms.
Responses and Fallout
DraftKings responded to the allegations by denying any wrongdoing and asserting that the Hindenburg report was motivated by financial gain. The company stated that it had conducted a thorough review of SBTech’s business practices before the merger and was confident in its findings. MecKenzie, on the other hand, has remained silent on the matter.
Meanwhile, prominent investors like Cathie Wood’s ARK Investment Management have doubled down on their support for DraftKings. ARK increased its investment in the company, which is now valued at approximately $600 million. This backing underscores the divided sentiment among stakeholders regarding the validity of the allegations and the long-term prospects of DraftKings.
A Closer Look at SPACs and Their Impact
The DraftKings-SBTech merger was emblematic of the SPAC boom that swept through Wall Street in 2020 and 2021. SPACs, or blank-check companies, are publicly listed entities created for the sole purpose of merging with private companies to take them public. They offer a faster and often less scrutinized route to public markets compared to traditional IPOs.
The success of the DraftKings SPAC deal inspired a frenzy of similar mergers. However, the subsequent performance of many SPAC-backed companies has been underwhelming, leading to increased regulatory scrutiny. The controversy surrounding DraftKings and SBTech has only added fuel to this fire, raising questions about the due diligence conducted in SPAC transactions.
MecKenzie’s Wealth and Strategic Moves
Despite the turmoil, MecKenzie has managed to secure his financial future. According to filings with the U.S. Securities and Exchange Commission (SEC), MecKenzie sold approximately $588 million worth of DraftKings shares between June 2020 and the release of the Hindenburg report. Additionally, he has placed the majority of his remaining shares, valued at around $1 billion, in a trust for his family.
These moves suggest a strategic approach to preserving his wealth amid uncertainty. However, they have also drawn criticism, with some viewing the share sales as an indication that MecKenzie anticipated potential trouble.
The Road Ahead
The Hindenburg report and ensuing lawsuits represent a significant challenge for both MecKenzie and DraftKings. The allegations of illegal activities, if proven true, could result in substantial financial and reputational damage. Moreover, they could invite stricter regulatory oversight of the online gambling industry and SPAC transactions.
For MecKenzie, the controversy threatens to overshadow his achievements as a trailblazer in the sports betting industry. His ability to navigate these challenges will determine whether he emerges as a resilient entrepreneur or becomes a cautionary tale.
Conclusion
Shalom MecKenzie’s journey from Bat Yam to billionaire status is a testament to his entrepreneurial vision and strategic acumen. His role in the DraftKings merger not only transformed his personal fortune but also catalyzed a wave of SPAC activity on Wall Street. However, the recent allegations against SBTech have cast a shadow over his legacy.
As the legal and regulatory battles unfold, MecKenzie’s story serves as a poignant reminder of the complexities and risks inherent in high-stakes business ventures. Whether he can weather this storm and retain his place among Israel’s elite billionaires remains to be seen.
