The chief executive officer of DraftKings Inc. says the Boston-based bookmaker plans to stay disciplined in the face of fresh competition, which the online sports betting company expects will continue its recent surge in market share and revenue.
DraftKings CEO Jason Robins was asked Friday about their promotional spending plans for 2024 compared to 2023, with a key difference between the two years being that next will involve a full 12 months of rivalry with the likes of ESPN BET, which plans to launch on Nov. 14.
Robins said DraftKings has already seen “multiple waves” of competition and that it chose not to hike its spending rate on free bets and other bonuses during that time. It doesn’t expect to do so this time around either.
“We've certainly contemplated a variety of different scenarios in our guidance,” Robins said. “And at this point, I think we have a decent amount of experience and historical data on ... different types of competition that might emerge. But I think the important thing for us is just to continue what we've done all along, which is to stay disciplined, to focus on bringing down the promotion rate through optimization, and then just naturally, I think, continuing to see the user base mature and so much of that promotion goes to new customers.”
If DraftKings can do that, Robins thinks the trends the company has seen over the past two years will continue. In a letter to shareholders, Robins and DraftKings Chief Financial Officer Jason Park likewise downplayed the competitive threat.
“We operate in an industry that has faced multiple waves of new operators deploying marketing and promotional dollars upon launch,” the two said in the letter. “We have experience managing through these waves and look forward to competing against new entrants as well as current operators. Our plans and guidance appropriately contemplate expectations for the competitive environment at all times, including now, and we are prepared to continue to execute and win through the remainder of this year and beyond.”
The almost welcoming attitude toward new competition is shared, at least publicly, by DraftKings’ biggest rival, FanDuel. Still, the shareholder letter was published Thursday along with DraftKings’ third-quarter results, which showed both market share and revenue gains for the company so significant the company recast its financial projections in a much more positive light.
DraftKings' financial results for the three months ending Sept. 30 included $790 million in revenue, a 57% increase compared to the third quarter of 2022. DraftKings also touted recent reports that place it first among other U.S. sports betting and iGaming companies by gross gaming revenue during the third quarter, as it captured around 33% of total receipts in the markets in which it operates.
Hey now: DraftKings says in recently released financial results and investor materials that it was the #1 company in terms of gross gaming revenue from U.S. online sports betting and iGaming during the third quarter in the markets in which it operates.https://t.co/drutgpHhTi pic.twitter.com/Smpej02MgH
— Geoff Zochodne (@GeoffZochodne) November 2, 2023
The Boston-based company said the bump in revenue was "driven primarily by continued healthy customer engagement, efficient acquisition of new customers, the expansion of the company’s sportsbook product offering into new jurisdictions, product innovation leading to increased parlay mix and thus higher hold percentage, and improved promotional reinvestment for sportsbook and iGaming."
Robins said earlier this year that they were predicting improvement in their online sports betting product. The “structural” sportsbook hold percentage reported by DraftKings for the quarter was more than 9.5%. The company said the better-than-expected win rate came as it tightened up its trading operations and enticed more players into placing parlays, which they lose more often than straight bets.
“Structural hold was particularly strong in MLB as customers engaged significantly more with parlays, player props and live betting markets on a year-over-year basis,” Robins and Park said in the shareholder letter. “Our actual sportsbook hold percentage was approximately 9%, inclusive of customer-friendly sport outcomes primarily due to college and professional football.”
DraftKings shrunk its loss for the third quarter as well, to $283.1 million this year compared to a $450.5 million deficit in 2022. That was due in part to trimming some costs, including on the sales and marketing side of the business. Those promotional expenses amounted to $313.3 million for the three months ending Sept. 30, slightly lower than the $321.7 million reported a year earlier.
A sunnier forecast
With the improved quarter in its rearview mirror, DraftKings announced Thursday that it was hiking its financial guidance for both revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
For 2023, the company raised its revenue guidance to a range of $3.67 billion to $3.72 billion from its previous range of $3.46 billion to $3.54 billion. DraftKings is now projecting a loss on an adjusted EBITDA basis this year of between $95 million and $115 million, rather than its previously projected shortfall of between $190 million and $220 million. Furthermore, DraftKings said it expects revenue in 2024 in the range of $4.5 billion to $4.8 billion and positive adjusted EBITDA of between $350 million and $450 million.
Online sports betting companies such as DraftKings have recently been striving to show investors they can turn profits consistently. And, according to the company’s latest report, those profits are coming, albeit on an adjusted EBITDA basis.
“We believe the quarterly upside and above-Street guidance support our thesis in digital that leading operators, notably DKNG, are pivoting from investment spending to profits through product advancement,” Jefferies analyst David Katz wrote in a note to clients on Thursday. “In short, we believe this transition has considerable room to evolve. Thus, we expect a positive reaction in the shares.”
Online sports betting has now legally launched in Maine via Caesars and DraftKings, which are partnered with the state's Native American tribes: pic.twitter.com/q9H57nZOVo
— Geoff Zochodne (@GeoffZochodne) November 3, 2023
Shares of DraftKings did indeed increase in value following the release of its third-quarter financials and were up more than 7% as of Friday morning, trading at a price north of $31 each.
DraftKings is offering online sports betting in 23 states, including Kentucky and Maine, which launched mobile wagering on Friday. DraftKings recently announced a partnership with the state’s Passamaquoddy Tribe for access. The company also hopes to launch in North Carolina, Puerto Rico, and Vermont in the future.
“[DraftKings] has put together one of the best earnings surprise histories in the online space, only missing sales estimates once as a public company,” JMP Securities analyst Jordan Bender wrote in a note to clients on Friday. “DKNG has now improved market share in four consecutive quarters, stemming from the overall improvement in its iGaming and sports betting offering.”
