- DraftKings (DKNG) CEO Jason Robins caught flak for not buying more DKNG stock when it was trading so low.
- Investors look to insider buying as a sign of confidence in the company’s plan.
- Is Jason Robins doing enough to earn his CEO compensation?
A recent spat ensued on Twitter between a disgruntled DraftKings (NASDAQ:DKNG) shareholder and company CEO and co-founder, Jason Robins. The shareholder thought Robins should be buying boatloads of DKNG stock as a vote of confidence.
“Buy some shares if you believe in your company. If you don’t then you’re robbing us blind,” @ron84443992 tweeted on May 10.
Robins replied, “I cannot buy shares due to short swing profit rules. Believe me I’d be buying if I could.”
The LegalSportsReport does an excellent job explaining the subject of short-swing profits and why Robins didn’t answer the question despite selling close to $200 million in DKNG stock.
I’ve been bullish about DraftKing’s prospects — especially in Ontario, where I used to live — but the dustup got me wondering whether Robins has earned his keep as CEO.
Here’s a look at both sides of the argument.
Warren Buffett Is the Gold Standard of CEO Pay
Whenever I evaluate a CEO’s pay, I look to Warren Buffett for guidance. Not directly from him, but I compare his pay package as Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) founder and CEO to other CEOs. In this case, it’s Robins.
In the fiscal years 2019 through 2021, Warren Buffett earned cumulative total compensation of $1.13 million, an average of $376,101. For fun, I tried to find the section “Option Exercises and Stock Vested” in Berkshire’s 2021 proxy to see how much he really made in those three years.
No luck. Berkshire doesn’t issue options to its executives. Greg Abel, who runs the company’s non-insurance business, and will take over from Buffett as CEO, earned a little over $19 million on average over the past three years. If he wants to own more Berkshire stock, he’ll have to buy it on the open market like the rest of us. Abel currently owns five Class A shares and 2,363 Class B shares worth $3 million.
That’s nice, but it’s hardly $200 million.
96% of Robins’ Compensation Is in DKNG Stock
Robins’ total compensation was $14.0 million in 2021, $236.8 million in 2020, and $4.4 million in 2019. That’s an average of $85.1 million per year — quite a bit more than Buffett. Except for $9.6 million in cash payments, it’s been all in stock and option awards.
But that’s not all. The CEO also made $49 million from option exercises and stock awards in 2021 alone. So, his actual compensation in 2021 was $51.7 million — you take out the stock and option awards and add back the $49 million from option exercises and stock awards — not $14.0 million as stated in the summary compensation table.
Despite Robins selling close to $200 million in DKNG stock, he owns 408.9 million Class A and Class B shares that control 90.7% of the voting power.
I’m not sure what the compensation committee chair does to earn his $17,500 annual retainer and the $45,000 annual retainer for serving on the board. Robins essentially has a rubber stamp.
Jason Robins Is Paid Too Much
The disgruntled shareholder has a point.
Either Robins, as co-founder, should no longer receive stock options and awards — his 408.9 million shares are plenty of incentive to grow the business — or he should commit to not selling any shares for the next three to five years.
As it stands now, he’s sucking and blowing, which might be acceptable if the stock was doing something, but it’s down 49% year-to-date and 68% over the past year.
I don’t think there’s any question that Jason Robins is exceptionally overpaid. The question is, what can Vanguard and Ark Investment Management — DraftKings’ two most prominent institutional investors — do about it? Nothing.
Robins holds all the cards.
Situations like this give dual-class share structures a terrible name. I, too, would be disgruntled if I were a DraftKings shareholder. It’s an outrageous excess. Avoid DKNG stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.