DraftKings CEO Jason Robins expressed optimism about the potential for smaller sports betting operators to carve out a sustainable niche in the competitive US market, even as consolidation rises.
Speaking during the fourth annual Craig-Hallum Online Gaming Conference, Robins highlighted a path forward for smaller players, despite DraftKings and FanDuel commanding a combined market share of roughly 77%. His comments come as several sportsbooks have exited the US due to high costs and stiff competition, despite the market far outpacing initial growth estimates.
“I think you’re going to see more consolidation to the top in shares, but I also think that a lot of companies as this market continues to evolve that are losing money now will figure out how to survive at smaller levels of scale,” Robins said. “You’re at a disadvantage for sure, but as long as you’re profitable, you can continue to keep going.”
DraftKings, FanDuel tougher to catch
Despite the clear consolidation of market share at the top, Robins acknowledged that smaller operators could still carve out a space, albeit not a big one. However, the bar to compete meaningfully with DraftKings and FanDuel is already on a trajectory out of reach as the leading operators capitalize on their scale to reinvest heavily in the things that have given them their advantage, Robins said.
In 2024, Betway, Sports Illustrated, and Unibet exited the market, while SuperBook and WynnBet pulled out of multiple states. That came after PointsBet sold its US business to Fanatics and myriad similar exits from the likes of Fox and Fubo TV.
“We’ve seen now multiple waves of competitors. No one has been able yet to make a dent in the top two of the market. So, I don’t think that it’s likely that you’re going to see that,” Robins said.
“And it seems like most investors, even though they ask about it, get it, it used to be, now it feels like a check-the-box question versus a real question of how are eight different companies going to have 10% to 20% share. But we also don’t take anything for granted.”
In a recent interview with LSR, BetMGM CEO Adam Greenblatt called setting specific market share goals less important than ensuring the total market keeps growing. That contrasts with Penn Entertainment’s ambitious goal to secure 20% of the market by 2027 following its pivot to ESPN Bet. Despite Penn’s sizable investment, selling Barstool Sports for $1 after paying over half a billion for it and paying an extra $2 billion for ESPN’s name, the company has struggled to move beyond its current 4% to 7% share.
Meanwhile, the growing potential of the US sports betting market presents opportunities for operators across the spectrum. FanDuel’s parent company, Flutter, recently raised its estimate for the market’s size to $63 billion by 2027 — double its initial projections. Robins suggested that this larger pie creates some breathing room for smaller players to find niches, even as DraftKings and FanDuel fortify their positions.
Lessons from the DraftKings playbook
Robins pointed to DraftKings’ journey toward profitability as a roadmap for smaller operators. The company reported its first profitable quarter earlier this year after drastically reducing its reliance on costly promotions.
“At some point, companies will say, ‘Look, this is where I’m at,’ and I think the smart ones will realize that if they are going to gain share, you have to do it over time,” he said.
DraftKings achieved this milestone in part by increasing its hold rate, the percentage of money wagered that it retains as revenue. Since 2020, DraftKings has grown its old rate to 9% from 6% and is targeting 10.5% for 2024. Most of the growth is driven by a growing mix of parlays and same-game parlay, higher-margin bets, which now account for nearly half of US wagers, according to a recent Morgan Stanley survey.
The long haul to improve product
While DraftKings benefited from its early position as a leader in daily fantasy sports, Robins acknowledged that it started at a disadvantage in technology.
“Initially, we were behind on product and technology, and it wasn’t until we acquired SB Tech and ultimately put a lot of work into it over the last several years that we felt like we were in a premier place in the market in terms of product and technology capabilities.”
“I think the one thing we’ve proven is this come just grab a bunch out of the gates just isn’t gonna work. It’s never proven effective, and I think that’s something that the smarter companies will realize over time. You’ve got to kind of grind out and build a product and try to build it over time.”
Following DraftKings’ example, other companies have abandoned third-party technology in favor of building out their own propriety platforms. However, these investments cost significant time and resources.
BetMGM, for example, has just now recently integrated major components of Angstrom Sports into its platform, over a year after acquiring the tech company for $265.4 million, which by industry standards was ahead of schedule. Penn spent $27.5 million in early termination and transition costs to move off Kambi and integrate technology from theScore, which it bought for $2 billion in 2021. Former Disney and ESPN CTO Aaron LaBerge was recently appointed to further Penn’s integration process.
Mitigating high taxes
Robins also addressed the financial pressures posed by high state tax rates, which DraftKings recently sought to counter with a controversial surcharge on winning bets. The company quickly abandoned the plan after backlash and competitor FanDuel’s decision not to follow suit and has opted to reduce promotions and drive higher margin bets instead.
When asked about the topic, Robins kept the focus on education and did not address the short-lived fee idea. He called for greater dialogue with lawmakers, arguing that unreasonably high tax rates could undermine the legal market’s ability to compete with illegal operators.
“Hopefully, as we continue to educate, we will see more discipline among states as they’re setting tax rates,” Robins said. “I think they just have to understand that we’re competing within an illegal market that pays no taxes and puts no money into things like responsible gaming and following regulations. So, in order for us to be [able] to do that, we have to have reasonable tax rates.”
