DraftKings CEO Appears Bullish at Conference, Says Some Pro Bettors Still Offshore Action

Posted on: June 6, 2022, 11:43h. 

Last updated on: June 6, 2022, 12:21h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In comments made today at the Goldman Sachs Travel and Leisure Conference, DraftKings (NASDAQ:DKNG) Chairman and CEO Jason Robins waxed bullish on his company’s trajectory and the broader sports wagering industry. But he cautioned some big sports bettors continue wagering offshore.

During a fireside chat with Goldman Sachs gaming and leisure analyst Stephen Grambling, Robins acknowledges the regulated sports wagering industry rapidly morphed from a focus on total addressable market (TAM) to emphasizing profitability.

Now it’s all about profitability. So I think that’s caused the overall kind of industry to focus more on it,” said the DraftKings boss. “What works for us well there is, we haven’t really changed our playbook and we think our playbook actually thrives in this type of environment. We’ve stayed disciplined even when there were some, I would say, undisciplined behaviors happening with competitors.”

Some analysts and investors aren’t shy about criticizing what appears to be an increasingly lengthy time line to profitability for DraftKings. In some cases, the expectation is that the sportsbook operator won’t turn positive on an earnings before interest, taxes, depreciation and amortization (EBITDA) basis until 2024 or 2025. That’s a contributing factor in the stock shedding three-quarters of its value over the past year.

Robins touched on customer acquisition costs (CAC) — a widely followed industry metric — noting that the longer DraftKings operates in a particular state, the more those costs decline. He adds some related efficiencies could accrue via the recently completed acquisition of Golden Nugget Online Gaming (GNOG).

Related to customer acquisition, regulated online sportsbook operators, including DratKings, have been widely derided by professional bettors for limiting or rejecting their action. However, Robins is optimistic DraftKings can make inroads with those bettors.

“The propensity to switch to legal market, some have, but a lot haven’t. And I think that’s going to continue to happen over time. So some of the biggest bettors are still pushing their action offshore,” he said.

Market Comments, GNOG Update

As the most mature sports betting market in the US, excluding Nevada, New Jersey is a bellwether for operators. Some are already profitable there, and it’s widely viewed as the state against which newer entrants to the live and legal sports betting fray are measured against.

Along those lines, Robins points out that some newer states are ramping more rapidly than expected,  and internet casinos remains a key growth-driver.

“Arizona is always the great example we give, that just really surprised us in how quickly it ramped, and how fast the adult penetration was developing,” he mentioned at the Goldman conference. “Another thing I think that’s been pleasantly surprising to us has been the continued growth, even well into the iGaming market in New Jersey. In 2020, New Jersey grew triple-digits.”

The DraftKings chief executive tells Goldman’s Grambling GNOG’s customer base is older, features more women, and has more slots players.

“So that’s really, I think, going to allow us to increase our focus on broadening to the entire iGaming market, as opposed to maybe the 50% that we were reaching well and then doing just okay with the other 50%,” adds Robins.

As for new jurisdictions joining the sports wagering party, Robins highlights Maryland, Ohio, and Puerto Rico, noting Ohio is likely to go live next January.

Surprisingly Optimistic About California, Texas

With the addition of Maryland, Ohio, and Puerto Rico, regulated sports wagering would be available to 46% of US adults — an arguably impressive percentage when considering mobile betting isn’t permitted in California, Texas, and Florida.

Robins acknowledges the importance of California, which is home to 12.5% of the US population. Add that to the aforementioned 46%, and that’s 58.5%, putting DraftKings closer to its goal of sports wagering being available to 65% of US adults. DraftKings is part of a coalition of commercial operators, with a November ballot initiative that will be mulled by California voters.

The group is competing against a tribal plan that would stave off mobile wagering for several years, and force bettors to drive to tribal casinos or a handful of racetracks to place wagers. The DraftKings leader is constructive on what could happen in the largest state.

“I think if we’re able to pass in November, we could potentially be looking at a 2023 launch, hopefully ahead of NFL for California,” he said. “Really great bill, too. The tax rate, everything is set in a very reasonable way, because you can actually write the whole piece of legislation on the ballot, which is nice.”

As for Texas, Robins believes legislators will, at the very least, consider sports wagering in the next session. There, the issue doesn’t revolve around the outcome of the upcoming governor’s race, as Republican incumbent Gov. Greg Abbott and Democratic challenger Robert O’Rourke have signaled support for regulated sports wagering.

Rather, advancing sports wagering in Texas likely requires Lt. Gov. Dan Patrick (R-TX) softening his stance on the matter or being defeated in November, and the latter doesn’t appear likely.