DraftKings Optimistic About Opportunities In Kentucky, Florida, Nevada

August 6, 2023
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With the company also exploring opportunities in Nevada, the sooner-than-expected launch of legal sports betting in Kentucky has not prevented DraftKings from reporting a significant increase in profitability this upcoming football season.

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With the company also exploring opportunities in Nevada, the sooner-than-expected launch of legal sports betting in Kentucky has not prevented DraftKings from reporting a significant increase in profitability this upcoming football season.

DraftKings is already live in Kentucky with its horseracing app, but the company confirmed Friday (August 4) that it plans to launch an online sports-betting app in the state as soon as mobile wagering begins next month, pending regulatory approvals.

“We are very excited that Kentucky’s Horse Racing Commission recently set a target launch date of September 28, 2023, for online sports betting, which is sooner than we previously anticipated,” CFO Jason Park told analysts during the company's second quarter earnings call.

Park said DraftKings is expecting $20m in additional revenue from Kentucky for the rest of the year. However, he said that would come with an expected loss of $30m to 2023's adjusted EBITDA.

The Boston-based company raised its guidance for the year, and now projects total revenue of up to $3.54bn. In May, the company projected annual revenue of up to $3.24bn.

DraftKings also forecast a narrower loss for the year, and now expects an adjusted annual loss of $190m to $220m before interest, taxes, depreciation and amortization. The company had previously predicted an EBITDA loss of $290m to $340m.

dk revenues vs sales

The company said it expects to report a fourth-quarter profit of up to $175m at an EBITDA level on revenue of $1.2bn.

“The bulk of the growth is going to come from the states that we launched from 2018 to 2021,” Park said.

“We are starting to get some real good contributions from the 2022 states as well, but the degree to which we are still seeing growth in our older states is very significant.”

Park emphasized that being able to get most of the growth from more established markets “makes a very big impact on the overall business.”

In terms of Kentucky, Park highlighted how the launch this year had not prevented the company from reporting improved profitability for the remainder of 2023.

“That shows not only can we fund our state launches due to revenue from old states and the cost efficiencies we are finding, we can do that and continue to see upside beyond that, which is a great story from years past where we’ve always has to increase the loss… every time we add a new state.”

Jason Robins, CEO and co-founder, agreed, telling analysts that while DraftKings was also preparing to launch in Vermont and North Carolina, “right now we feel like Kentucky is going to provide a great opportunity for us.”

Governor Andy Beshear, a Democrat, signed the emergency regulations on July 10 that will allow retail betting operations to launch on September 7, with mobile wagering set for September 28.

Elsewhere, Robins said DraftKings was “obviously disappointed” to see that Ohio raised the state tax rate from 10 percent of gross sports wagering revenue to a 20 percent tax rate. According to the state budget estimates, the change is projected to bring in an additional $100m to $135m in annual tax revenue to the state.

“I think most state governments understand that if you start taxing too high, you kind of defeat the purpose because it makes it really impossible for the legal, regulated operators to compete with the illegal offshore operates that are not paying taxes (or) following regulations.”

But Robins added that he was optimistic that states are going to keep taxes at reasonable level.

On another front, Barry Jonas, an analyst with Truist Securities, asked Robins if he sees a pathway for DraftKings to compete in Florida after a federal appeals court recently ruled that the Seminole Tribe can resume online sports betting under a 2021 gaming compact.

“It’s too early to talk about what the impact is,” Robins said. “I’m optimistic there will be a pathway there because I think people in Florida want great products and so I do think that will get figured out but right now… it’s really hard to say.”

“It really at this point, a little murky and I think we’ll know a lot more in the coming months,” he added.

Robins was also asked Friday about a potential launch of DraftKings in Nevada, the largest U.S. sports-betting market where the company does not currently operate.

As things stand, DraftKings occupies a 90,000-square-foot space in Las Vegas for its sports-trading operations. However, the operator is not authorized to take bets in Nevada, while its competitor FanDuel has a branded retail sportsbook at The Fremont in downtown Las Vegas, which is owned by Boyd Gaming.

Both DraftKings and FanDuel withdrew their fantasy-sports products from Nevada in 2015, when gaming regulators decided that daily fantasy was a form of sports betting and companies had to be licensed as sports betting providers.

“We are definitely interested,” Robins said. “Nevada is obviously an important state for gaming. There is a robust sports-betting market there. [But] it’s in-person registration, so I would temper any expectations for the possible contribution from there.”

Robins added that it is “definitely something we are exploring.”

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