The Maryland State Lottery & Gaming Control Agency approved a license application from DraftKings to operate a retail sportsbook at Timonium Racetrack.
DraftKings, which will operate the sportsbook in conjunction with Crown Maryland Gaming, received a Sports Wagering Facility Operator License after a recommendation from the Maryland Lottery Managing Director of Regulatory Oversight. The retail sportsbook will be branded under DraftKings and located under the grandstands at the racing facility, which is adjacent to the county fairgrounds.
Maryland is expected to launch online sports betting later in 2022. Sports betting within licensed casinos is currently permitted. DraftKings has also been approved for a Mobile Sports Betting Operator license.
The company has an agreement for 10 years to share the cost of renovating the Timonium Racetrack to house a sports wagering facility, under which DraftKings will have exclusive naming rights and handle marketing and staffing.
Questions arose during the commission hearing about DraftKings’ financial status, with one MLGCA commissioner expressing concerns over the losses the company has incurred in other states.
“You’ve lost 3 billion,” said committee chair E. Randolph Marriner. “In industry news reports, you’re quoted [as saying] that you are excited that you are only going to lose $800 million this year.”
But DraftKings is like most sports betting operators in the United States: unprofitable as the industry grows.
DraftKings Financial Performance ‘Consistently Poor’
The seven-person commission approved the DraftKings license request by a vote of 6-0, with one abstention. The vote came after a brief discussion of the economic challenges of the sports betting industry in its nascent stages.
According to a commission findings report delivered by John Mooney, Maryland Lottery Managing Director of Regulatory Oversight, DraftKings’ prior financial performance in other states “was consistently poor.” Mooney explained that expenses associated with marketing have resulted in net losses for the company. He added that the costs are typical each time the company enters a new market.
“As a result of this poor operating performance,” Mooney said in his report, “[DraftKings] has had to operate on issuance of promissory notes. The forecast is for negative cash flows for the foreseeable future.”
The report promoted commission member Harold E. Hodges to express his worries, especially after Mooney recommended the license be approved based on agency guidelines.
“Even though [DraftKings] meets four out of the five criteria for licenses,” Hodges said, “its financial operations is bad. It’s a dog public stock.”
“I see it as a poor decision on our part for Maryland. It has shown poor financial decisions.”
Hodges was the one abstention in the final vote on the proposed Sports Wagering Facility Operator License for DraftKings.
“The company has a significant amount of borrowing capacity. There are no overwhelming reasons to believe the company is not suitable for licensing,” Mooney pointed out.
According to the report provided by Mooney, several analysts are estimating profitability for DraftKings, which is a public company, by 2024. Committee chair Marriner added that DraftKings “has $1.5 billion on cash on hand.”
“The state is not really in jeopardy,” Mooney said.
Joe DeCristofaro, DraftKings Inc. VP of Investor Relations, outlined the reality of the sports betting industry’s financial landscape.
“As you build scale, you incur losses as you build the business,” DeCristofaro told the commission via teleconference. “Q4 of 2023 is a reasonable timetable to see us turn profitable. The online gaming industry is a new business showing potential for growth.
“Acquiring the customer is the most expensive part of the business. When you have more existing players than new players, you start to turn a profit.”
“The model is customer acquisition at pretty much all costs,” Mooney added.
In other states where mobile sports betting has launched, the scramble for consumers (and market share) has been frenzied. Companies like DraftKings and its competitors spend millions acquiring new customers by offering bonuses and special offers upon registration, often in the form of free bets.
DraftKings Inc. was incorporated in Delaware in 2011 and primarily functioned as a daily fantasy sports company for many years. In August 2018 the company debuted its first mobile sportsbook. It now operates online and/or retail sportsbooks in 18 states.
Headquartered in Boston, in May 2019 DraftKings made its first public offering of stock, which generated $400 million.
Also in Maryland Sports Betting News
In other news from the public meeting of the MLGCA, it was announced officially that Century Casinos has acquired the operations of Rocky Gap Casino in Maryland. The commission advised that they will have questions about that sale once it is completed.
Mooney also revealed that the Maryland State Lottery “has no plans to accept Bitcoin” as payment in the near future.