DraftKings Inc. says it had an unusually successful start to the National Football League’s regular season, as the operator of online sports betting sites reported “atypically high hold rates” for the first batch of pro-football games.
Boston-based DraftKings reported on Friday that it generated revenue of $502 million for the three months that ended September 30, up 136% from a year earlier.
Revenue for the company’s business-to-consumer segment shot up 161% for the third quarter, to $493 million. This, DraftKings said, was “primarily due to robust customer acquisition and retention, the successful launches of its Sportsbook and iGaming products in additional jurisdictions since the third quarter of 2021, atypically high hold rates largely from NFL wagering and reduced promotional intensity.”
DraftKings’ chief financial officer, Jason Park, called it “an operator-friendly quarter,” which included wins from three of the biggest underdogs in Week 1 of the NFL season.
“In addition, several Sunday night, Monday night, and Thursday night football games fell in our favor,” Park added. “These games tend to attract higher handle per game relative to other NFL games, and isolating just these 11 primetime games in the third quarter, our hold rate was greater than 10%.”
DraftKings' Q3 results have got that dog in them*
— Geoff Zochodne (@GeoffZochodne) November 4, 2022
*NFL underdogs covering the spread so often this year, and especially in primetime games, helped drive up the company's revenue for the three months ended September 30https://t.co/KQBzw3JCR8 pic.twitter.com/ACNkVODNtR
Other operators have reported similarly successful starts to the NFL season, as Covers’ numbers show underdogs were 69-52-3 against the spread as of Friday morning, following another cover on Thursday night by the Houston Texans against the Philadelphia Eagles. The betting public is known for favoring favorites, which would account for some of their losses so far this year.
However, DraftKings also noted that it “continued to expand the content offering and functionality” of its online sportsbook during the third quarter, including some features that generally have higher win rates for operators, namely parlays. Players lose parlays more often than they do single bets.
“Differentiated content launched for the 2022 NFL season included head-to-head matchups, a number of new multi-player prop and player flash markets, and full-time and anytime squares for every game of the season,” DraftKings said in its third-quarter press release. “DraftKings also added new functionality such as early payout for moneyline wagers, quick parlay and quick same game parlay, as well as the ability for users to combine multiple same game parlays.”
You got to hold on
DraftKings’ chief executive officer, Jason Robins, said the percentage of the company’s total wagering that was parlayed rose 5% year-over-year in the third quarter. The CEO added that DraftKings’ new partnership with Amazon for Thursday Night Football has helped with marketing those parlays.
“It's definitely improved hold rate,” Robins said of the increased parlay mix. “And I think we should continue to see improvement. We feel like there's a lot of tailwind there.”
DraftKings is just one of several operators that have begun leaning more heavily on parlays to boost their financial results. That is especially true as bookmakers and their shareholders have grown more concerned about profitability, and higher-margin parlays combined with lower spending on free bets and other promotions have helped in describing a path to positive earnings.
Consistent profitability remains a year or so away for DraftKings as a whole. The company reported on Friday that it took a $450.5 million loss for the three months that ended September 30, which was an improvement over the $545-million hit it took for the third quarter of 2021.
DraftKings has now lost more than $1.1 billion through the first nine months of 2022. Robins also said their current multi-year plan suggests they will break even in 2024 when going by adjusted earnings. That was apparently not to investors' liking, as shares of DraftKings were shellacked on Friday, falling by more than 27% to less than $12 apiece as of around 2:30 p.m. ET.
California-style cost avoidance
The legalization of sports betting in a big state such as California could create some additional costs, though. Fortunately — or unfortunately, depending on your position — it looks like the ballot measure that would bring legal online sports betting to California will lose next week, leaving the biggest state-level market in the U.S. unavailable to DraftKings and other operators that backed the initiative.
Robins noted that their cash investment in the California effort was around $17 million this year, but that the taps are now closed and that the company has discontinued any further spending on the campaign.
Although it still has upcoming costs associated with the launch of online sports betting in Maryland, and legal sports betting in Ohio and Massachusetts, DraftKings improved both its revenue and adjusted earnings guidance for the remainder of 2022.
Furthermore, the company forecast that its fiscal year 2023 revenue would be within the range of $2.8 billion to $3 billion, which could be 30% or higher than in 2022 depending on the final tally. The company is also forecasting an adjusted EBITDA loss of between $575 million and $475 million next year.
DraftKings is now live with mobile sports betting in 18 states representing around 37% of the U.S. population, which follows the latest launch in Kansas in September.
“Four of the U.S. jurisdictions where DraftKings has the potential opportunity to operate via a market access agreement or direct license – Maryland, Puerto Rico, Ohio, and Massachusetts – have authorized mobile sports betting,” the company added in its release. “These four jurisdictions represent approximately 8% of the U.S. population and, pending licensure and regulatory approvals, would bring the percentage of the U.S. population where DraftKings expects to offer legalized mobile sports betting to approximately 45%.”
