DraftKings lost half its stock price since March. Yet it still has a valuation of $11.5 billion. Until recently, the company seemed to be making the right moves. Pivoting from daily fantasy sports with cash rewards to sports betting and now into online casinos. Through 2020 and the beginning of 2021, it was smooth sailing, according to the Boston Globe.
To mix metaphors, it’s been downhill sledding since. The company, led by CEO Jason Robins, has not made any money. To compete in a crowded market with little differentiation, they had to spend to convince customers to go with them. Fraud accusations have attracted securities regulators.
Potential wealth created false expectations, which didn’t help, said Josh Walker, co-founder, and president at the Sports Innovation Lab in Cambridge.
In June, Hindenburg Research shorted DraftKings stock and accused the company of buying a Bulgarian gaming software company that refused to accept gambling restrictions in Asia. In August, the company discovered the Securities and Exchange Commission was investigating. DraftKings said the SEC is not suggesting wrongdoing.
In September, Entain revealed DraftKings interest in a $22 billion takeover. Analysts found the attempt puzzling. DraftKings dropped its pitch. Part of the problem was that Entain had a 50-50 partnership with MGM on online sites.
“This happens in every tech sector,” he said.
DraftKings isn’t alone in bad news. Penn National Gaming’s stock had fallen 60 percent and Flutter Entertainment, which owns FanDuel, has seen its stock tumble 41 percent.
Come March 2021, Robins laid out a strategy to dominate the future market of online gambling. The company could bring in 10 times more revenue and reach positive cash flow of $2 billion if sports betting was legal for 67 percent of the U.S. and Canadian residents and one-third for online casino games.
In an interview with the Globe last month, Robins picked tech titan Apple as a role model for his company.
“Apple is a great example of … great focus on product, great focus on the customer,” Robins said in the Boston office. “It’s about serving the customer in a way that’s superior to other places. That’s how you grow a huge customer base. … It’s how you drive loyalty. It’s how you build a brand.”
For now, DraftKings, FanDuel and BetMGM are shelling out billions to attract gamblers with an onslaught of TV ads, mobile ads, or any kind of ads they can buy, not to mention exclusive deals with teams. DraftKings spent $703 million in the first nine months of the year on marketing.
The latest smackdown revolved around third quarter earnings in November. Revenues of $213 million were lower than anticipated while $314 million in losses, was higher.
A lack of upsets in the NFL cost the company about $25 million as bettors wagered on favorites
And yet the company’s opportunity ahead is still huge.
As for the future, Robins believes two or three companies will carve up the market; think Uber and Lyft.
“Being able to build a meaningful presence state by state isn’t easy and there’s only a handful of companies that will be able to keep up with that pace,” Robins said.
But analyst Edward Engel at Roth Capital Partners in New York said that major casino owners might have something to say about that.
“Shareholders aren’t going to let DraftKings lose hundreds of millions a quarter indefinitely,” Engel said. “Eventually they will have to pull back, and the big thing people are missing is that these brick-and-mortar casino operators with their online apps aren’t going anywhere.”
