• Home
  • News
  • Technology
  • DraftKings boosts annual product spend by 50% to compete with FanDuel and BetMGM
igamingnext photo
DraftKings CEO Jason Robins believes the company is ready to outperform its US rivals in the product and technology department after increasing annual investment in this area by 50%.

The operator’s stock slumped after reporting its Q4 and full-year financial results last week, where product and tech costs amounted to $253.7m in 2021, up from $186.2m in 2020.

This investment saw DraftKings launch a new in-play offering and front-end user interface for its Flash Bet product during Q4, as well as parlay and same-game parlay insurance capabilities, where bettors can still win, even if one or more legs lose.

Same-game parlays were also wheeled out on college basketball and NHL matches to expand the offering beyond the NFL, NBA and college football, while the operator’s new loyalty programme – Dynasty Rewards – went live in November.

“I think if you take a step back and look at the competitive picture, we’ve always said that we believe that product is where you win,” Robins told analysts during a Q4 webcast.

“Our strategy was to really pull forward a lot of the product and technology hiring that we needed to do. As we go forward, I think you should expect to see a meaningful slowdown in fixed costs, because for us, it was about trying to pull forward and achieve a higher level of scale, maybe a little ahead of where the revenue is,” he added.

DraftKings more than doubled annual revenue to $1.3bn in 2021 but reported an operational loss of $1.56bn as sales and marketing costs skyrocketed by 98% to $981.5m.

Reflecting investor sentiment, the analyst team at Macquarie said DraftKings had always been a long-term growth story, but that the path to profitability looks longer than expected, with the firm guiding to 2022 EBITDA losses of up to $925m.

DraftKings is competing for US market share as one of the “big three”, alongside overall market leader FanDuel, which is owned by Flutter Entertainment, and iGaming market leader BetMGM, which is a joint venture operation backed by both Entain and MGM Resorts.

Robins insists the 2021 product and technology investment should see DraftKings eat up ground on its two main rivals in key states.

“We were in a position where our top two competitors had thousands of engineers from more mature markets in Europe that they’ve built a team around for many, many years,” he said.

“We felt like product and technology was going to be the most important thing for winning long term – we had to be on a more level playing field with those we were competing with.”

DraftKings’ Q4 report said it had endeavoured to own in-house technology for all critical components of the product chain, alongside some third-party solutions and new technologies, including data science and machine learning, which would eventually combine to optimise conversion and efficiency.

Robins said the international diversity and European heritage of its major rivals could also work to DraftKings’ advantage.

“We feel like we’re actually out competing our top rivals right now, but in order to get there, we had to staff up on the product and technology side,” he said.

“We still have fewer engineers than some of our top competitors, but I think we’ve been able to ship products and rapidly evolve our products faster than anyone else in the market, and that is partly due to our focus on the US.

“We don’t have to use some of those engineers to focus on products overseas and I think that’s been very helpful.

“I think we feel like now we’re in a position where we can moderate fixed cost growth and allow the revenue scale and the contribution profit from states to kick in and drive improvements to the bottom line, starting later this year and certainly into 2023,” he added.

Regulus Partners analyst Paul Leyland agrees with Robins that product will eventually win out in the US, but that conclusion comes with multiple caveats.

“In our view, product and service will win out in the US, but it is far from clear who will gain a sufficient product and service advantage and how sustainable it will be,” he wrote in a research note to investors.

“Plenty of companies have thrown considerable sums of money at this question and failed, since it is more about having the right skills in the right combination, senior management applying common-sense, high quality project management, deep local knowledge, and luck.

“Until the winners of sustainable product and service advantage reveal themselves, outspending individual competitors does not seem to be moving the overall dial, making it a worse than nil-sum game,” he added.

DraftKings’ share price fell by 21% to $17.29 per share at close on Friday 18 February, extending a year-long dip in which the stock has shed a massive 70% of its value.

Similar posts