DraftKings executives say the company's updated state launch playbook utilized in Ohio and Massachusetts has made a significant difference in reaching a larger portion of the population sooner than in other states.
In earlier years, operators came out of the gate firing when new states launched with a marketing blitz, but the blitz was more sustained over a period of several months or even years.
In more recent launches, most notably in Ohio, operators have come out with massive spending in the early weeks of a launch before tapering off much sooner.
“I think we've very much optimized our go-to-market,” CEO Jason Robins told analysts and investors on Friday (May 5). “I think we've had a lot of time to really optimize that and feel very good about our new state playbook.”
The company has boosted the percentage of a state’s adult population acquired within a month of launch from 1.1 percent in 2020 and 2021 to 3.4 percent in 2022 and 2023, DraftKings said in its quarterly earnings presentation.
“A lot of that probably was at least in part the result of a switch to national advertising which made it more that these states that in the past maybe for a new state launch hadn't seen as much of the advertising during an NFL season,” Robins said.
“Ohio and Maryland and Massachusetts saw our national advertising all year, all NFL season long.”
That shift to national advertising, Robins said, has helped contribute to a 27 percent year-on-year decline in customer acquisition cost despite continuing to grow its number of customers.
Robins added that another factor in DraftKings' favor is the momentum throughout the industry with more states online.
“People travel to different states,” he said. “They have friends playing, so I think that's helped with faster ramp.”
DraftKings reported a strong first quarter of 2023, with revenue growth of 84 percent year-on-year. The company also increased its 2023 projected revenue guidance by $100m, with Robins adding that the company expects to be around the break-even point in adjusted EBITDA in the second quarter this year.
Chad Beynon, an analyst with Macquarie Capital, said it was apparent that the companies with a strong brand, tech and scale are winning the race in terms of U.S. sports betting overall.
“Structurally improving hold continues to benefit DraftKings and competitor FanDuel, who both continue to lead the market in terms of product, in-play and parlay wagers,” Beynon wrote in a research note.
Despite the strong quarter, however, DraftKings' closest competitor FanDuel continues to grow even stronger as well, while BetMGM, another major competitor, continues its strong performance on the iGaming side, as market share continues to be largely consolidated among the top three operators.
“We assume that there's always going to be a very competitive market and we don't assume we've won anything or that we have anything that we can bank on yet, and I think that keeps a lot of the edge and the competitive drive with the company,” Robins said.
“No doubt having a big competitor in FanDuel also is helpful. It gives us somebody on the online sports betting side to feel like we can chase down.
“I think having that competitive landscape is helpful in keeping our employees focused on who we need to beat.”
However, UK consultancy firm Regulus Partners pointed out that some of the success of DraftKings, among others, can be attributed in part toward the luck of a strong hold for the quarter more than a sign of strategic success.
“The seasonality of U.S. sports means that a good first quarter and fourth quarter is vital to overall performance,” Regulus wrote in a note.
“However, for DraftKings and others ‘good’ cannot not just mean reaching the barbed wire of EBITDA break-even; it needs to mean double digit cash flow profitability to make up for the lean content months and the inevitable bad luck months.”
Additional takeaways from Friday’s conference call include DraftKings confirming it horseracing betting app—DK Horse—in collaboration with Churchill Downs is live in 15 states. The company also said it had $1.1bn of cash at the end of the quarter with no plans for an equity raise.
DraftKings is live for sports betting in 21 states, or 44 percent of the population, and live in five iGaming states, which represents 11 percent of the population.
“With signs of underlying maturity in early adopting states and little progress on online gaming, the U.S. online sector needs to deliver an awful lot more structural improvements to get out of its self-dug hole, in our view,” Regulus wrote.