Smaller operators will continue to be squeezed out of US sports betting as the market matures, DraftKings CFO Jason Park speculated last week.
“I think the competitive dynamic and the market structure will continue to rationalize,” Park said. “… perhaps some of those small single-digit market share players, more of them continue to throw in the towel.”
A US market for the strong
Park contended investors “misunderstood” the market structure and how strong the leading operators’ position is. FanDuel and DraftKings alone account for more than 60% of the market versus “a long tail of single-digit market share operators.”
Park expects that long tail to drop away, meaning DraftKings market share is “very defendable, with upside,” the CFO said.
Among states that report by brand, DraftKings Sportsbook has a 26% share of betting handle in CY2022. That is second to FanDuel, which has 36%.
Consolidation is already happening
Smaller sports betting operators like Churchill Downs are exiting the US sports betting market altogether. Larger players like Wynn, PointsBet and Caesars also cut back on their market spend.
Even heavyweight BetMGM is pulling back spend in New York because of concerns about profitability in the state.
Park was also asked about recent comments from Caesars that its market share had not yet been hurt by the spending pullback.
“I think the proof will be in the pudding,” Park said. “Let’s see how that pans out. … I think we have to keep an eye on whether other sportsbooks are able to retain players as well [as DraftKings.]”
Two sides to every story
Of course there is some pushback to the idea of a US sports betting oligopoly. Playtech CEO Mor Weizer said last year that a third of the market would be powered by third-party suppliers.
No cash crunch for DraftKings
In the same vein, the exec dismissed the idea DraftKings might have to raise cash again before it can turn profitable.
Jefferies noted last week this so-called “funding crunch” was factored into the current stock price. However, Park downplayed those concerns:
“I fully understand this is top of mind. And if I was not deep in the name and I looked at $2.11 billion [on the balance sheet] at the beginning of this year with -$875 million EBITDA guide, which is now an -$800 million EBITDA guide and a few things that sit between EBITDA and free cash flow, like capitalized software, you might say ‘well, gosh, that feels tight.’”
Parke said the company modeled various scenarios and was “highly confident” it had sufficient liquidity to flip profitable.
California dreamin’ for DraftKings
Park said that was the case even if California legalized sports betting.
On that front, Park was “cautiously optimistic” about voters supporting legal CA sports betting in November. California would instantly become the largest betting market in the US, though the online initiative supported by sportsbooks faces heavy tribal opposition.
DraftKings stock was last up 3% on Monday to $13.50.