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DraftKings CEO Jason Robins has revealed some of the major operational benefits enjoyed by the biggest operators in US online sports betting.

Robins – who co-founded DraftKings in 2012 – was interviewed live on stage at JP Morgan’s Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas last week.

DraftKings is the second biggest operator in US online sports betting, occupying approximately 27% market share by gross gaming revenue (GGR). FanDuel is the leader with nearly 49%, according to the latest data from Eilers & Krejcik Gaming.

Consolidation to continue

“Our goal is to be the number one player, but also to be the most efficient, most profitable player as well,” Robins told the team at JP Morgan. “I think we can accomplish both of those and it means we need to beat everybody.”

DraftKings has a long way to go to dismount FanDuel, but with a combined three quarters (76%) of the market, there are obvious benefits of scale for both companies.

Outside of BetMGM (11%) and Caesars Sportsbook (5%), more than 60 of the remaining US challenger brands are scrapping for a meagre GGR share of between 0.5% and 2%.

“I think it’s going to continue to get harder [for smaller operators] because there is a real scale advantage to this business,” said Robins. “There are also real capital constraints for a lot of these companies right now.”

Robins used new state launches as an example, particularly in the case of Massachusetts, where competitors including bet365 and PointsBet withdrew their applications. Bookies, at least outside of FanDuel and DraftKings, are having to be far more selective.

“You saw that several of them didn’t even choose to enter some of the new states, so there are real trade-offs that are having to be made right now,” said Robins. “They’re sacrificing growth and competitiveness over the long-term.”

A national name

As well as gaining revenue from first-mover advantage in new states, Robins said additional advantages include having a national brand presence from marketing activity.

This national brand cut-through is allowing DraftKings to operate on a quicker timeline to profitability, or a “condensed profit ramp” as one JP Morgan analyst put it.

In the state of Ohio, which went live on 1 January 2023, DraftKings is guiding to state-specific profit by the end of the year.

“Whereas previously that would be two to three years to generate positive contribution profit, we’re now seeing that happening in Q4 of this year, so first year of launch,” said Robins.

Robins expects a similar situation to unfold in DraftKings’ domestic state of Massachusetts, which launched online sports betting on Friday 10 March.

When asked to elaborate on the accelerated timeline, Robins again talked up the advantage of DraftKings’ strength in national, cross-state marketing.

“These are customers that all NFL season have seen our advertising through our national ads,” said Robins. “That was not true a year or two ago.”

“The more data we get to understand behavioural patterns and improve our models, the faster we get at identifying sharp bettors that we need to limit or bonus hunters that aren’t going to create real long-term value.”

“We have talked for a while about reaching this inflection point at 30% to 35% of the US population where it would make sense to shift into more of a national footprint due to the price of offline advertising.

“That started to really happen in this past NFL season. By the time Ohio launched, they had seen these ads for months,” he added.

As a result, DraftKings was able to prioritise lower-cost digital marketing channels ahead of more costly above-the-line advertising initiatives.

“The pump was primed, the funnel was built and we were just seeing far better conversion and response on the lower end of the funnel, with digital ad conversion stuff,” said Robins.

The CEO said DraftKings’ acquisition cost per customer (CAC) had “plummeted” in new states because the lower-cost channels were converting so strongly.

“I really do think a lot of that was just because of that first big year of national advertising coming off of NFL season,” he added.

Shutting down sharps

Massachusetts was also the company’s 21st state launch, which has allowed DraftKings to “optimise the playbook” due to its experience in the market since 2018.

Robins said DraftKings has now worked out how to reach valuable customers quicker.

Finally, JP Morgan asked how DraftKings was able to retain more profitable customers ahead of those sports bettors that simply shop around for the best deals and prove more costly.

Robins said this was thanks to superior data, which is another benefit of more scale.

“The more data we get to understand behavioural patterns and improve our models, the faster we get at identifying sharp bettors that we need to limit or bonus hunters that aren’t going to create real long-term value and just want to hop around and take bonuses.

“We’re more quickly getting to a point where we can identify those people and we can take the appropriate steps afterwards,” he added.

DraftKings’ sales and marketing costs increased by 24% year-on-year in Q4 to $345.4m.

This saw full-year 2022 sales and marketing costs come in at $1.19bn, 21% higher than full-year 2021. Revenue over the same period soared by 73% to $2.24bn.

DraftKings said the escalation in marketing costs was primarily driven by a $134m increase in advertising spend to acquire users, alongside rising compensation and technology costs associated with analysing, developing and deploying those advertising campaigns.

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