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DraftKings CEO Jason Robins stressed the $750m acquisition of Jackpocket was a strategic move to help the company win the U.S. online gaming market but should not be seen as the start of a rash of deals.
“We are going to be super disciplined on mergers and acquisitions,” Robins told analysts during a conference call on Friday (February 16) to discuss the company’s fourth quarter and 2023 earnings. “I don’t think you will see us go on this rush of buying companies left and right.”
Robins insisted that DraftKings did a “ton of diligence” before agreeing to acquire lottery courier service Jackpocket.
“We underwrote it very carefully, with very conservative assumptions,” Robins said. “We feel like it has high potential to be a real homerun. I think you are going to see us be super disciplined … and take the capital that we are accumulating and create shareholder value.”
The deal to acquire Jackpocket gives DraftKings access to the U.S. lottery market, while also increasing the lifetime value of its online sports betting and online gaming, or iGaming, customers through cross-sell opportunities.
Chad Beynon, an analyst with Macquarie Capital, noted that the deal also brings with it player database and marketing benefits. DraftKings management said they expect the deal to drive $260m to $340m of incremental revenues and $60m to $100m of EBITDA in 2026, assuming no new state legalization.
“We do assume some more lottery states to launch,” Robbins said of its market assumptions for Jackpocket's future growth. “It’s a lot more seamless to launch a lottery state. You don’t need to go through the legislative process. It’s really more going and working with the state.”
Robins told analysts he thinks Jackpocket will be similar to DraftKings’ daily fantasy sports offerings.
“It’s not something that is going to drive top-line growth,” Robins said, “That’s really the OSB [online sports betting] and iGaming. It’s more a vehicle to be able to continue to acquire customers and engage customers that we don’t have yet.”
Robins stressed that there is a “natural overlap” between DraftKings and Jackpocket customers.
“I think there’s an opportunity to market more effectively to customers in their database who still may be playing OSB and iGaming, but with our competitors.”
Robins said as time goes on, “if you, like us, believe that more and more states will continue to launch iGaming, it will be the gift that keeps on giving.”
“New York is a huge state for them,” Robins told analysts. “I think New York could do iGaming in the next year or two, so that’s another big opportunity. I think the best is yet to come and … this is an asset we believe will just continue to increase in value.”
Robins was asked by analysts if he saw any progress on the state level beyond New York in getting iGaming legislation passed.
“There are a few states that are gaining momentum, and it will be hard to say that we will get at least one or two this year,” Robins said. “If I had to guess some of the states, I’m hearing there is movement in Maryland. A dark horse is Illinois.”
Robins attributed the slow growth in iGaming legalization to some states wanting to do online sports betting first and seeing how that ramps up, while over the last four or five years states have enjoyed budget surpluses thanks to federal money that was pumped in due to the coronavirus pandemic, but some of those surpluses are no longer there.
Jackpocket became the first registered lottery courier service in the U.S. in 2019 when New Jersey authorized the market. The company operates in both New Jersey and New York, the only two states where lottery courier operations are expressly regulated.
Robins was asked to explain the risks to Jackpocket in the broader courier model, and how he sees the potential of more states legalizing iLottery over time, which could remove the need for service fees on the part of players who could instead buy tickets directly from the lottery's platform.
“I think the real question is what can Jackpocket contribute to the overall lottery ecosystem and regardless of how it evolves, I think their products and customers are going to have a role to play,” Robins said. “It increases the lottery market. It increases sales, so it should be a no-brainer for the vast majority of lotteries.”
Robins said he believes Jackpocket is very well positioned regardless of whether states authorize iLottery programs.
“This is something, I think, could be a real tailwind for them depending on how it falls,” he added. “But whether it continues to be the current model or whether it changes, I think Jackpocket is extremely well positioned and is a unique asset.”
He also reminded analysts on Friday’s conference call that iLottery typically requires legislative action within a state, whereas Jackpocket and courier services have been able to expand into new states through approval from a lottery commission.
“So, while I think [iLottery expansion] could happen, it is going to be a much slower burn,” Robins said.
Earlier this month, DraftKings also signed a multi-year partnership with Barstool Sports, after the media brand separated from Penn Entertainment last year.
Robins did not release any details Friday about the new partnership but said he was “thrilled” to be working with founder Dave Portnoy’s company again.
“It’s a partner that we know very well and have all kinds of data on, so we felt really good,” he said. “We believe it’ll be a strong performer for us.”
