In case anyone were in doubt, DraftKings has no designs on being a low-margin sportsbook.
Speaking at a Goldman Sachs investor conference on Monday, DraftKings CEO Jason Robins said sportsbooks should target a higher hold over time.
Answering a question about the ideal win-rate for the industry, Robins replied, “As the market matures, the win rate should go up.”
Slow road to higher hold
The CEO further explained:
“In an earlier stage environment, it is not the worst thing to in the world to give people a couple of extra winning experiences, rather than trying to maximize how much margin we’re taking. So it’s an area of focus. But very deliberately. We’re not looking to take money from people by forcing them into bets they don’t want.”
So how does a sportsbook improve its win rate? Robins echoed previous comments where he said DraftKings did not want bettors that are trying to win.
Too sharp to play?
Robins said Monday:
“We’re trying to get smart in eliminating the sharp action or limiting it at least. Then trying to make sure we have a high parlay mix because people do like that.
“That is something we’ve been focusing on a lot since we migrated [onto the SBTech platform]. It’s only been eight or nine months, but the parlay percentage of bet mix goes up each month.”
DraftKings also historically has trailed FanDuel in hold rate, in part because of the success of FanDuel’s Same Game Parlays.
DraftKings has prior experience
The tactic of increasing margins is not a new one for DraftKings. In fact, the company did the same thing in daily fantasy.
As Robins put it: “In DFS, our margins got substantially higher as the market matured because we just decided to make them higher. You can do that.
“The tricky part is how you do that at the right time, in the right way, without degrading the customer experience.”
Know your audience
Robins, of course, was tailoring his comments to his audience: investors and a market that has dinged DraftKings stock because of negative profit margins. However, Robins has angered players before with his comments about the type of customers DraftKings is seeking.
At a similar investor summit in November last year, Robins said: “This is an entertainment activity. People who are doing this for profit are not the players we want.”
Robins later walked those comments back and admitted he could have “chosen his words a little better.”
Counter from a competitor
Interestingly enough, Rush Street Interactive CEO Richard Schwartz laid out an argument for lower hold rate earlier in the same conference, albeit on the online casino side.
Schwartz said RSI chose a deliberate strategy of making odds more favorable for players:
“In a land-based industry, casinos try to lower the return to player over time. If you’re on the Strip for example, you get worse odds than the local casinos where people play more often.
“But online is a hyper-local community. People play often. So we set a strategy of making the odds favorable for players. Because it’s about retention of the players, and making sure they have a long experience playing with you. You don’t want to burn out a customer. You want them to be with you for five years rather than two months.”
Of course BetRivers is no stranger to limiting players on the sports betting side.
What else did we learn from Robins chat?
Robins was asked about DraftKings’ ability to retain top tech talent given the tightening labor market, falling share price, and some questions about its level of stock-based compensation (SBC.)
Robins agreed it was “definitely something we are paying attention to.” He said the company was trying not to raise its total SBC, but instead direct it more efficiently.
“We’ve had a real push towards differentiation,” Robins said. “Making sure compensation is going towards top performers and getting more aggressive with bottom performers. Making sure the people skating by as B players, that’s not enough any more.
“That doesn’t mean mass layoffs, but it might mean we pay them less than the market. And if someone else recruits them away, we’re going to be OK with that because we’re going to focus on retaining our top people.”
One goal for DraftKings
Robins said staff were not worried about the multiple attached to the company, but growing the business beneath the multiple.
“Everyone understands it needs to be a profit multiple, not a revenue multiple,” Robins said. “So we’re able to say to the team, if you do this and drive these numbers we can get back to that [valuation.]”
DraftKings stock was last up 2% on Monday to $13.