DraftKings Reports $74M Loss In Q1 Earnings Call As Stock Continues To Rise

Posted on May 15, 2020

DraftKings does not expect its future plans to be impacted by the coronavirus shut down as long as sports return by 2021, CEO Jason Robins said.

Robins’ comments came on the company’s first earnings call as a public company after merging with platform provider SBTech. The combined companies reported $113.4 million in revenue and a net loss of $74 million, or 22 cents per share. Those numbers didn’t rattle investors, though, as the stock was up more than 10% as of 11 a.m. EST.

The loss, detailed in the company’s financial filing, doesn’t come as a surprise. DraftKings operated in five new jurisdictions this first quarter compared to last year, which means significantly more sales and marketing expenses.

The cost of revenue for just DraftKings jumped 101.4% to $43.4 million during the quarter for that reason. Half of the increase came from taxes and revenue sharing agreements in the new markets. The other half was primarily platform costs, which will eventually decline when DraftKings migrates to the SBTech platform.

The combined companies had $496.3 million in cash and cash equivalents at the end of the quarter. With major marketing spending ramped down because of fewer sports, DraftKings can limit its cash burn to $15 million to $20 million per month without major sports.

DraftKings limited on coronavirus impact details

DraftKings’ filings and Robins’ comments were limited on what exactly the company has experienced since the coronavirus pandemic shut down major sports beginning March 11.

The one real specific the company did give was the pre-shutdown growth rates for both companies. Through March 10, DraftKings’ net revenue was up 60% but ended the quarter up 30% instead.

SBTech, meanwhile, was up 19% but closed out the quarter up 3%.

Robins offered few specifics on what DraftKings saw in its iGaming business since sports shut down, but pointed to New Jersey’s recently reported figures.

IGaming revenue jumped 23.4% over March’s then-record to $80 million in April. Resorts Digital, DraftKings’ NJ partner, saw iGaming revenue jump 125.8% to $16.1 million.

May has been consistent with April, so far, Robins said. And, the DraftKings Sportsbook launch in Colorado and iGaming launch in Pennsylvania have been in line with or better than what was expected.

DraftKings’ plans could even accelerate

With major sports back by the end of this year, Robins said, long-term plans may accelerate.

That’s because there appears to be momentum for states considering legislation for sports betting and iGaming, he said. There are 14 states currently looking at sports betting legislation.

Many states will have to confront budget deficits, he added.

DraftKings remains focused on entering new states at the earliest opportunity. It’s interested in the upcoming launches in Illinois, Michigan, Tennessee and Virginia. Tennessee online sports betting should be the first of those to launch.

There are some opportunities to get cheaper media exposure right now. But that’s counterbalanced by the lack of sporting events, Robins said.

Simulated Madden here to stay?

Robins said the process following the major sports shutdown has been all about testing products and seeing what’s working.

Along with betting on esports, which he said has done “really strong volume” compared to traditional esports volume, simulated Madden games with free-to-play fantasy competitions have been popular.

DraftKings now runs 10 to 12 Madden simulations on its busiest days. Those simulations could be a way to extend the NFL season throughout the year and keep those NFL-only bettors active, he added.

“There is a group that just loves the NFL and can’t get enough of the NFL, Robins said. “So, I think if you can find a way to give them that NFL experience more year-round, there’s something there.”

DFS important for customer acquisition

The daily fantasy sports business remains the top acquisition channel for DraftKings, Robins said.

It’s crucial to keep those users active and acquire efficiently from the DFS platform. DraftKings has strong data on those customers, so it’s easy to cross-sell once sports betting and/or iGaming is legalized in their jurisdiction, he added.

DraftKings had 720,000 monthly unique paying customers in the first quarter across DFS, sportsbook and casino. That’s up 16.3% from last year.

The paying customers are spending more, too. The average revenue per monthly unique payers rose 10.8% to $41.

SBTech integration focused on ‘high quality’

It could be mid to late 2021, or even later before DraftKings is integrated with all SBTech technology, like in-play betting.

“Right now, we’re still in the early stages of planning around integration and migration,” he said. “Really, the goal for us is to make sure we have a high-quality migration and putting that above, really, speed is the approach that we’re taking.”

The progress has been “solid, so far,” Robins added.

SBTech has paid out €1.3 million in remediation costs related to the cyberattack that took it and its partners offline in late March.

SBTech was well on track for positive EBITDA in the quarter before the shutdown and those cyberattack payments but ended with a loss of €851,000.

One positive for SBTech through the shutdown is the return of some European soccer leagues. Those account for nearly two-thirds of SBTech’s business, Robins said. For DraftKings, the leagues are meaningful, but not significant.

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Matthew Waters

Matthew Waters is a reporter covering legal sports betting and the gambling industry. Previous stops include Fantini Research and various freelance jobs covering professional and amateur sports in Delaware and the Philadelphia area.

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