DraftKings CFO Jason Park must have made investors happy with his comments at the Susquehanna Gambling & Tech Ecosystem Forum last week.
Park discussed multiple positives for DraftKings, including its same-game parlay push for NFL betting, still finding customers in mature states, and even how to get a read on the company’s third-quarter results.
The DKNG stock performed well after his 11 am chat, closing up 4.34% at $16.36. The stock finished north of that price early this week.
Parks provides DraftKings ‘decoder ring’ for third quarter
There are three full weeks of NFL football in the third quarter. That can shape how the overall quarter looks given the slow sports calendars over July and August.
Park touched on this formula on the August call but broke it down a bit more specifically at Wednesday’s talk, calling it a “secret decoder ring” for the investing audience. He said to focus on the five games with the widest moneyline spreads.
If the underdog loses all five games, that would be a pretty tough week for DraftKings. Those underdogs winning one or two is expected. Winning three or more would be a “pretty good week” for the book, he said.
He expects about $1 billion in handle over those three weeks of games. The lowest hold for an NFL week was -10% last year, he said.
No ceiling on customers in maturing states
DraftKings started the shift from regionally focused marketing to national marketing at the end of the fourth quarter last year. Park praised the company’s marketing team for running tests last year to ensure it would still acquire customers at its desired rate, at a lower cost per acquisition.
Park also noted the company is still seeing strong customer growth in older states like Pennsylvania and New Jersey, which he said is a positive for the total addressable market:
“Even in our most mature states, we’re still seeing really healthy user growth, which tells us that we haven’t found the ceiling in even a four-year-old state, which is really encouraging from a TAM perspective.”
DraftKings gaining from maturity
National marketing and the shift from customer acquisition to customer retention both cost less than when a state is in launch mode, Park added. That will help about 10 states turn contribution profit-positive this year, he said.
“As customer cohorts in states mature, the required promotional reinvestment to keep that customer engaged really dissipates,” Park said. “And we are seeing that very much happen in our more mature states which is great.
“It’s hard for our investors to see it because underneath the covers of our gross margin rate is a variety of states as early as a Kansas, which is not even one week old to a New Jersey that’s four years old.”
There is also a more rational promotional environment this year, Park said. He attributes that to “certain operators changing how they’ve done it.”
Some ops slowing, others step on gas
There are two paths taking shape at the top of the US sports betting world: ease off the marketing gas or continue to advertise and grab market share while it is profitable.
MGM CEO Bill Hornbuckle said on the company’s second-quarter earnings call that BetMGM is still lowering marketing costs as the company gets “smarter and smarter and smarter” about the business. Caesars also confirmed it was slashing its ad spend during its second-quarter earnings call.
FanDuel, on the other hand, noted earlier this year it is happy to continue to add new customers where the rates make sense.
DraftKings pushing improved parlays
DraftKings noted on its August earnings call that the number of bets that are parlays jumped 17 percentage points compared to the prior year. That, in turn, helps boost hold.
Park noted that the brand was not on its own in-house engine 13 months ago, so this upcoming NFL season could see big gains for parlays considering improvements made over that time.
“The way we brought to market our merchandised in-game parlays really resonated,” Park said.
