DraftKings Posts Q2 Loss, But Is Optimistic For Second Half

DraftKings Posts Q2 Loss, But Is Optimistic For Second Half

DraftKings ended the second quarter with $1.2 billion in cash and no debt, giving it flexibility in the second half of 2020 to enter new markets and invest in new technology and products.

But the gaming company on Friday reported a quarterly loss of $161.4 million ($0.55 per share), compared to a loss of $28.11 million ($0.15 per share). Wall Street had expected a loss of about $0.19 in the second quarter of 2020. DraftKings shares were down in early trading Friday on the earnings report.

Revenue in the second quarter was $71 million compared to $57 million in the second quarter last year, according to a news release.

CEO and cofounder Jason Robins said “DraftKings is well-positioned to build upon the growth of the online sports betting and iGaming market in the U.S.”

In the second quarter, DraftKings closed its merger with SBTech and Diamond Eagle and went public, and launched sports betting in Colorado and iGaming in New Jersey.

Early in the question portion of the more than hour-long earnings call on Friday, Robins was asked about the IRS memo that came to light Thursday saying daily fantasy sports should pay the same excise tax as sports betting.

Robins said the memo is non-binding, adding that the company believes the memo is "deeply flawed in its analysis." He said he believes the company’s position is the correct one based on arguments that it’s a game of skill in federal and state cases and legislation.

Focusing On The Second Half

The company said it is working on entering Virginia and Tennessee for sports betting and Michigan for sports betting and iGaming. Those states have passed legislation and are setting up sports betting and iGaming operations, with hopes of going live before the end of the year. Tennessee, which has been criticized for its regulations, including a controversial hold cap, reportedly has had interest from at least three gaming companies and it appears DraftKings is one of them.

DraftKings introduced FY 2020 pro forma revenue guidance of $500 million to $540 million, a year-over-year revenue increase of 22% to 37% in the second half as long as MLB, NHL and NBA continue their seasons and the NFL gets underway as expected.

“The momentum we saw in June accelerated with the return of MLB, the NBA, and the NHL in late July and early August, and, as a result, we are seeing revenue growth in the first part of Q3,” Robins said on the earnings call.

Other items that gave the company an optimistic view of the third quarter and second half of the year:

  • DraftKings went live in Illinois on Aug. 5, though not with the online registration that was allowed in June and July by executive order from the governor. Bettors have to travel to DraftKings at Casino Queen Sportsbook, which is across the Mississippi River from St. Louis, about 300 miles from Chicago.
  • The first retail DraftKings sportsbook in New Hampshire at The Brook casino in Seabrook on Aug. 12. Enhanced safety and sanitization protocols were in place for the opening of the new sportsbook at The Brook, according to a news release. DraftKings, The Brook and the New Hampshire Lottery called it it the “first of its kind for the state.” New Hampshire law legalized online and mobile sports betting and allows for 10 retail sportsbook locations in the state.
  • On July 28, the PGA Tour announced DraftKings as its first “official betting operator,” expanding their partnership agreement. “In golf, prior to this year, our top event of all time was the 2019 US Open. Since the restart of the PGA Tour, 6 PGA Tour events and The Match II have topped that major,” Robins said Friday.
  • On July 23, DraftKings and Kambi announced that they were ending their partnership by the end of September 2021 as DraftKings moves to a platform powered by SBTech by the end of the third quarter next year.
  • On July 16, West Virginia became the third state to offer DraftKings online casino, joining New Jersey and Pennsylvania. DraftKings has a partnership with Hollywood Casino at Charles Town to make its online casino product available for download.

Cautious Over Fall College Sports

DraftKings did not include college sports in its third-quarter guidance because of the uncertainty surrounding the coronavirus pandemic. The Big 10 and Pac 12 have already pushed their fall sports seasons, including football, back to the spring. Other major conferences are considering it.

But the company also said “at this time it does not anticipate an impact to its long-term plans due to COVID-19.

On the earnings call, Robins said college football is its fifth-largest sport in terms of sports betting. The NFL is No. 1. He also realizes that potentially different approaches by different conferences could have an effect regionally, with the loss of the Big 10 affecting its Midwest markets.

He said that although there is enough of a demand for other sports, the company thought it was prudent to not include it in the second-half guidance, but adding that the company is optimistic that pro sports will continue to be played on schedule.

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