DWAC, the Trump Social-Media SPAC, Could Make Its Backers $400 Million

The creators of Digital World—better known by its stock ticker, DWAC—include Chief Executive Officer

Patrick Orlando,

a former derivatives trader at

Deutsche Bank AG

who has been involved with several SPACs. One of his other SPACs was based in Wuhan, China, and recently called off a roughly $7 billion deal with a Chinese energy company. DWAC’s Chief Financial Officer is

Luis Orleans-Braganza,

a member of Brazil’s National Congress.

No other executives are listed in Digital World’s registration statement with the Securities and Exchange Commission. Five members of the SPAC’s board of directors are listed. It isn’t clear how the incentives would be shared among Messrs. Orlando, Orleans-Braganza, the board and any other advisers. SPACs, also known as “blank-check companies,” often don’t have to disclose full details of how incentives are shared under SEC rules.

A spokesman for the SPAC declined to comment.

The deal with Trump Media & Technology Group resulted from a meeting between Messrs. Trump and Orlando within weeks of the former president leaving office this year, The Wall Street Journal has reported.

Here is how an investment that cost the SPAC team about $10 million has ballooned to be worth roughly $410 million, according to New York University School of Law Prof.

Michael Ohlrogge,

who studies SPACs: Shell companies like Digital World raise money from investors and begin trading in the stock market with the sole intent of merging with a private company such as Trump Media & Technology Group. In return for finding a company to take public and launching the SPAC, the creators are allowed to buy 20% of the shares at ultracheap prices.

When the SPAC merges with the private company, the private firm replaces the blank-check company in the stock market. The creators’ deeply discounted stake is then transferred into a sizable position in the newly public firm, allowing them to typically make several times their initial investment of several million dollars. Their paper profit from the “sponsor promote” typically comes out to tens of millions.

But because shares of Digital World have soared after the deal was announced, the SPAC creators would stand to make much more money than usual. Even if the shares were to fall sharply, they would together stand to make tens of millions. The SPAC team isn’t allowed to sell any of the sponsor promote until several months after the deal is completed, according to the firm’s registration statement. If it follows a typical SPAC timeline, the deal would likely close some time next year.

The $400 million estimate excludes parts of the promote that were given to early-investing hedge funds when the blank-check company was created in September. It doesn’t include other investments that might be part of the deal.

The potential payout shows the divergence between SPAC executives and individual SPAC investors, who often buy shares at lofty prices and stand to lose money if the stock reverses.

Shares of Digital World ended Tuesday’s session at $59.07, up from less than $10 last Wednesday, before the deal was announced. They traded as high as $175 Friday.

Digital World warrants—which are part of the promote and allow the holder to buy more shares at specific prices in the future—have risen to $23 from roughly 50 cents before the deal was announced.

The deal to take Trump Media & Technology Group public values Mr. Trump’s new company at about $875 million, including debt, but the SPAC’s stock price now implies a valuation of several billion dollars. Little is known about the new company other than it plans to launch a new social-media network called Truth Social in the coming months to combat large technology firms. It could use the SPAC’s roughly $290 million to fund its growth.

In the coming months, Trump Media & Technology Group will have to disclose its ownership structure and financial performance in regulatory filings before its SPAC deal can be completed.

Mr. Trump’s firm would benefit from his large online following but would compete with the likes of

Facebook Inc.

and

Twitter Inc.,

as well as other social-media platforms targeting conservatives, such as Parler and Gab. The former president was banned from Facebook, Twitter and other mainstream platforms following the January assault on the U.S. Capitol by some of his supporters.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com