High Hold, Other State Factors Gave DraftKings a Boost in Q4
For all the technological wizardry, data-driven decision-making and promotional creativity that his company has developed and employs, DraftKings CEO Jason Robins credited a simple bottom-line reason for why his online gambling and daily fantasy company outperformed Wall Street expectations in the fourth quarter of 2020.
During an earnings call Friday, DraftKings reported revenue of $322 million, an increase of 146% compared to $131 million during the same period in 2019. Some analysts were expecting DraftKings’ earnings to come in at a range of $230 million to $233 million.
After giving pro forma effect to the business combination with SB Tech and Diamond Eagle Acquisition Corp., in April 2020 (as if it had occurred Jan. 1, 2019), revenue grew 98% compared to the 2019 fourth quarter. DraftKings still showed a fourth-quarter loss of 24 cents adjusted earnings per share, but that was far better than Wall Street’s estimate on losses.
To be sure, Robins was complimentary of his company’s expertise, enterprise and aggressiveness. But he also noted that a slew of things happened at the end of 2020 that were beyond DraftKings’ control, and they almost all worked to the company’s favor. Much of it was associated with the COVID-19 pandemic.
“Assumptions that we made … literally all broke our way, and obviously, that’s not going to happen all the time,” Robbins said. “That included things like the pro sports calendar being played with no rescheduling into the next year. We thought the NFL, there was a possibility that certain games might get moved. That didn’t happen. We also saw that all college sports were played. The biggest one was hold came in higher. Obviously, that’s something that can swing either way.”
For instance, in the year’s third calendar/financial quarter as the NFL season began, the betting public did well. But it turned in the fourth calendar/financial quarter as the bookmakers came roaring back.
“That was the biggest factor — that hold came in higher than expected,” Robins said.
In addition to the revenue out-performance in the fourth quarter, DraftKings’ revenue guidance for 2021 has a projected ceiling of $1 billion. The previous guidance range was $750 million to $850 million. The more recent range is $900 million to $1 billion.
The look back at the fourth quarter helps foreshadow what may be ahead.
Illinois & Tennessee were Key Factors
Robins ticked off a list of factors. In Illinois, the governor issued an executive order, because of pandemic concerns, that lifted the requirement that bettors register at a physical sportsbook. Instead, they were allowed to do it online.
“Obviously, that isn’t something that’s within our control so we weren’t counting on it. That was continued not just through the rest of (2020) but through the Super Bowl and hopefully, it will get extended again,” Robins said.
And then there was Tennessee, which launched sports betting on Nov. 1, 2020.
“Tennessee was definitely a big factor,” the DraftKings CEO said. “Tennessee, before it launched, we didn’t know, but it turned out to be one of the strongest starts of any state, so that was great to see.”
Michigan, which flipped the switch on online sports betting along with iGaming in January 2021, illustrated the advantage of having multiple products available to customers once they land on a gaming site.
“We’re cross-selling over 50% of our sports betting customers into iGaming and it’s a very important product,” Robins said. “I believe probably a larger market. … Certainly we saw that in Michigan. We’re seeing that, albeit a different life-cycle timeline, in New Jersey (which has had online sports betting since 2018).”
Live in Michigan & Virginia
Along with Michigan — which has online sports betting live, online casino gaming live and online poker approved — Virginia launched online sports wagering only earlier this year. DraftKings is in both Michigan and Virginia, and is now live with mobile sports betting in 12 states, more than any other sports betting company in the U.S. Those states together represent 25% of the U.S. population.
Robins is both optimistic and realistic about future prospects, pointing out that the pandemic has created factors no one could control, and that its influence will be felt even as it, hopefully, abates.
“It's hard to say what will happen at the end of this year when people start going out to concerts and traveling,” he said. “I think it’s hard for us, even now, to quantify what the impact on Q4 or even Q3 was … I am personally convinced we had a lot of great optimizations, things that we figured out on the product and marketing front that led to over-performance so it wasn’t entirely (the pandemic).
“But I’m sure a big chunk of it was just this moment in time, and that’s why we were so aggressive on the customer acquisition front. Once you get the data in and you see it, we’re very flexible in pressing the gas quickly. And if it’s not, we’ll go the other way.”
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