In its investor day call Thursday, DraftKings shared long-term plans to have gross gaming revenue of $6.7-$9.5 billion when the North American market reaches maturity. Additionally, the company plans to be profitable from operations in 2022, with the caveat of there being no new state launches.
This is an optimistic view on the situation after the company’s earnings call last month, where it reported a negative adjusted EBITDA of $676 million for 2021. While DraftKings is beginning to see positive contribution profits from states launched between 2018 and 2020, the gains are offset by launches in new states in 2021 and 2022. The driving factor for these losses has been the spend on promotions to capture new bettors.
The investor day call served as an opportunity for the company’s leadership to further justify the spend on promotions.
DraftKings Plans for Profitability Despite Advertising
Since the repeal of the Professional and Amateur Sports Protection Act (PASPA) in May 2018, 33 states have legalized sports betting in some capacity. This represents around 44% of the U.S. population. DraftKings estimates that when the market reaches maturity, online sports betting will generate $26 billion a year and igaming will generate $48 billion.
Currently, DraftKings has around a 36% market share in the states where it is live for online sports betting and 11% for states where it is live for igaming.
The company’s goal is to maintain or grow this level of market share over the coming years as new states go live. According to leadership, the best way to achieve this is to continue investing in marketing at the same level. The investor day report lays out how “increased marketing spend [is] due to an unprecedented number of new players at a historically lower cost per acquired player.”
To demonstrate the lower cost per acquisition, the company pointed to the launch in Arizona. DraftKings acquired around 3.5% of Arizona’s adult population for online sports betting in the first two quarters after launch. This smashes the company’s previous record set in New Jersey, where it managed to capture around 1.3% of the adult population in the first two quarters.
So while the company bleeds cash to acquire customers during state launches, the strategy is working at scale. Per customer, the cost is lower. Additionally, the company plans to retain customers after acquisition. On average, DraftKings is able to retain 80% of its customers every year and 120% of its revenue. This means that even though there are some customers who don’t use the app after the first year, they wager more.
DraftKings Other Plans For Profitability
DraftKings is paying attention to new markets in Ohio, Maryland, Puerto Rico, and Ontario. While the company plans to hold around only 10-20% market share in Canada, which is notably less than in the states, DraftKings hopes to see $400-$800 million in gross gaming revenue when the market reaches maturity.
The leadership still did not comment on the differences in Ontario’s promotional laws, which would prevent the company from providing discounts and pay-to-play opportunities. It remains to see how DraftKings will go about claiming market share in the province without these levers.
Meanwhile, the company has joined much of the corporate world in protest of Russia’s invasion of Ukraine by no longer accepting bets on games and event held in Russia and Belarus, including the Kontinental Hockey League (KHL). The KHL is currently running its playoffs after a pause for the Beijing Olympics.
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