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DraftKings will enter the burgeoning U.S. online lottery courier business after it announced a deal to acquire Jackpocket, less than two weeks after the company entered the New Jersey online casino market.
The Boston-based gaming and sports-betting operator said Thursday (February 15) it will acquire Jackpocket for a total consideration of $750m, with approximately 55 percent of the purchase in cash and 45 percent payable in DraftKing’s Class A common stock.
In a statement, DraftKings said what made Jackpocket an attractive acquisition was its proprietary and highly scalable technology, a strong brand, and its management team.
Jackpocket offers its lottery courier platform in 16 states, Puerto Rico and the District of Columbia. The New York-based company secured $120m in Series D funding in 2021 that allowed it to expand into New Jersey's iGaming market while entering new markets for its core courier business.
Lottery courier operations are expressly regulated in New Jersey and New York but prohibited in three states, according to recent research published by Vixio GamblingCompliance. Jackpocket and rival courier operators such as Jackpot.com and Mido Lotto operate in other states where laws and regulations do not expressly address online courier services.
Jackpocket became the first registered lottery courier service in the U.S. in 2019 when New Jersey authorized the market.
The proposed transaction will enable DraftKings to access the U.S. lottery market, as well as allow cross-sell opportunities to its sportsbook and iGaming products from among Jackpocket's registered users who pay a convenience fee when they deposit funds that Jackpocket uses to purchase physical lottery tickets on their behalf.
“This transaction will create significant value for DraftKings not only by giving our customers another differentiated product to enjoy but also by improving our overall marketing efficiency similar to how our daily fantasy sports database created an advantage for DraftKings in [online sports betting] and iGaming,” said Jason Robins, CEO of DraftKings.
DraftKings said it expects the deal to drive $260m to $340m of incremental revenue in fiscal year 2026, assuming no additional online sports betting or iGaming legalization in the U.S. Jackpocket reported $78m in revenue and had 1.8m paying customers and 700,000 monthly unique payers in fiscal year 2023.
The acquisition gets DraftKings into the $100bn U.S. lottery industry, which is projected to grow at a 5 percent compound annual growth rate (CAGR) through fiscal year 2028, according to a company fourth-quarter earnings presentation released on Thursday.
“DraftKings’ broad footprint and exceptional mobile products present an opportunity to meaningfully expand the digital lottery vertical, and we could not be more excited to come together with DraftKings,” Peter Sullivan, CEO of Jackpocket, said in a statement.
The merger and proposed transaction have been approved by the boards of directors of each of DraftKings and Jackpocket, as well as by Jackpocket’s stockholders. The deal is subject to state regulatory approvals and is expected to close by the second half of 2024.
DraftKings Posts Q4 Loss, Revenue Surges
As DraftKings announced its acquisition of Jackpocket, it simultaneously posted a loss in the fourth quarter despite revenue increasing 44 percent over the same period last year. Analysts had expected earnings per share of 8 cents in the fourth quarter on revenue of $1.24bn.
For the quarter, DraftKings reported revenue of $1.23bn, compared with $855m during the same period in 2022.
The company did raise its fiscal year 2024 revenue guidance to a range of $4.65bn to $4.90bn, which equates to year-over-year growth of 27 percent to 34 percent. DraftKings also raised its profit guidance for this year to $410m.
In November, the company projected 2024 revenue of $4.5bn to $4.8bn and adjusted EBITDA of $350m to $450m.
In a letter to DraftKings shareholders, Robins said that DraftKings was “still in the early innings of the U.S. online gaming industry, and there is still [market] share that can be gained through continued innovation and operational excellence.”
Robins noted that DraftKings was facing stiffer competition from other companies in the industry.
“We have faced waves of new competition consistently over the years, and in the past, we have been able to drive growth and gain share while simultaneously becoming more efficient,” wrote Robins, adding that DraftKings does not “take any of our recent success for granted.”
Shares of DraftKings were down 20 cents, or 0.45 percent, to $44.10 in after-hours trading. DraftKings has scheduled a conference call to discuss the Jackpocket acquisition, its fourth quarter and 2023 earnings for Friday at 8:30am EST.
