DraftKings CEO Jason Robbins is projecting that in 2-3 years the company will generate more revenue from sports betting than its daily fantasy sports (DFS) business, dependent upon “how quickly the states (the other +/- 25 states expected to pass legislation legalizing sports betting) roll it out”. Once it does happen though, Robbins believes it becomes feasible for the company to grow revenue by 5-10x. Interestingly, the excitement created from the pending legalization in those +/- 25 states has created a “halo effect” in new DFS sign-ups; sports bettors with the urge to wager but no existing legal outlet to do so.
Howie Long-Short: Just 5 states will have legalized sports betting when the NFL season kicks off on Sunday September 9th and the company currently only operates in NJ, so it’s unreasonable to expect sports betting revenues would surpass DFS in the short-term. Longer-term, I would suspect that would be the case and increasing revenue by 5-10x sounds feasible, when you consider the company only generated $192 million in ’17. Robbins also isn’t content just pursuing “the traditional sportsbook stuff”, he wants to capture the underground gambling business (think: survivor pools, Super Bowl squares, March Madness brackets). There’s a lot of money to be made there, just 3% of the $10 billion bet on March Madness is said to be done legally.
There’s one point Robbins made that I don’t agree with. It’s his belief once 30+ states have legalized sports betting, DraftKings’ U.S. sports betting business would hold a $10 billion valuation; I wouldn’t think so. While U.S. gaming companies can trade upwards of +/- 13x EBITDA, DraftKings would still need to generate $770 million in earnings on $1.6 billion in revenue. That’s probably not going to happen considering the company managed to lose $92 million on $160 million in ‘16 revenue and they’ll need to continue to spend to acquire customers as they roll into new markets.
Fan Marino: DraftKings only offers mobile and online products in New Jersey, but that won’t be the case when sports betting gets legalized within the state of New York. The company has partnered with del Lago Resort and Casino (Waterloo, NY) and intends on opening a DraftKings branded sports book on site; the pact also enables the company to launch mobile and online products within the state. Oddly, the State of New York is expected to include an integrity fee (a fifth of a percent) for the pro sports leagues within the bill they’ll put forth in ’19; none of the 4 states currently offering sports betting cut the leagues in.
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