It’s good to be almost king of the mountain. That was the message DraftKings CEO Jason Robins imparted in his interview at JP Morgan’s Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas in March.
DraftKings, co-founded by Robins in 2012, ranks second in the U.S. online sports betting field. At 27 percent of the market share by gross gaming revenue, it trails leader FanDuel, which sits atop the mountain with almost 50 percent according to Eilers & Krejcik Gaming.
“Our goal is to be the number one player, but also to be the most efficient, most profitable player as well,” Robins told the team at JP Morgan. “I think we can accomplish both of those and it means we need to beat everybody.”
As far as DraftKings has to look up at the frontrunner, that’s almost how far number three, BetMGM, at 11 percent, has to climb to reach DraftKings.
“I think it’s going to continue to get harder [for smaller operators] because there is a real scale advantage to this business,” said Robins. “There are also real capital constraints for a lot of these companies right now.”
He cited PointsBet and bet365 who both pulled out of Massachusetts. “They’re sacrificing growth and competitiveness over the long-term.”
DraftKings has also developed a national brand which speeds its push to profitability. Robins anticipated a profit in Ohio in the fourth quarter.
“Whereas previously that would have taken two to three years to generate positive contribution profit, we’re now seeing that happening in Q4 of this year, the first year of launch,” Robins said at the conference.
He expects comparable conditions in Massachusetts, which just launched online sports betting on March 10.
“These are customers that have seen our advertising through our national ads,” said Robins. “That was not true a year or two ago. The more data we get to understand behavioral patterns and improve our models, the faster we get at identifying sharp bettors that we need to limit or bonus hunters that aren’t going to create real long-term value.”
DraftKings talked about reaching 35 percent of the U.S. population, a point where it would make sense to go national with its focus.
“The pump was primed, the funnel was built, and we were just seeing far better conversion and response on the lower end of the funnel, with digital ad conversion stuff,” Robins said.
Acquisition cost per customer “plummeted” in new states like Ohio because the lower-cost channels were converting so strongly.
“I really do think a lot of that was just because of that first big year of national advertising coming off of the NFL season,” he said.
Massachusetts was DraftKings’ 21st state, which has enabled the company to “optimize the playbook” due to its experience. Robins said DraftKings has now worked out how to reach valuable customers quicker.
Robins said possessing superior data gave DraftKings another boost.
“We’re more quickly getting to a point where we can identify those people and we can take the appropriate steps afterwards,” he said.
DraftKings’ sales and marketing costs increased 24 percent year-on-year in Q4 to $345.4 million. Full-year 2022 sales and marketing costs come in at $1.19 billion or up 21 percent over full year 2021. Revenue rocketed 73 percent to $2.24 billion.
Then there’s California. Guess it’s only fitting that the most expensive proposition fight ever on a California ballot last November still stings, dampening any chance of seeing sports betting approved any time soon.
And when it does, it will take a meeting of the minds between sportsbook operators and tribes.
Robins said in a recent interview with Legal Sports Report that legalizing California sports betting may not happen in the next state legislative cycle.
“The fact is, if someone wants to spend that much in opposition, it makes it tough. So until we figure out a way to work that out, I don’t think it’s a 2024 thing. But I’d say as of now, there’s really just too much tribal opposition to imagine us getting anything done. I think there’s potentially a compromise to be done there, but we haven’t necessarily found it yet.”
There’s gotta be a deal worked out, or else we’re just going to be in a stalemate there for at least another cycle or two, Robins said.
Robins couldn’t believe their proposition—27—received only 18 percent of the vote. The tribes are not surprised.
“The reality may be that we beat them so badly in 2022 that they may not even pursue an effort in 2024,” tribal attorney Scott Crowell, who represents the Rincon Band of Luiseno Indians, told LSR. “But if that happens, expect them to be back in 2026.”
The tribes are mulling around one idea in which commercial sportsbook operators take the role of tech providers in a B2B model where the tribes, operators and state would each receive a third of the cut.
“They have to understand that if they want a role going forward, they need to approach the tribes from the idea of how we offer our experience and back-of-the-house skills to the tribes for tribally operated online sports betting,” Crowell said.
