It’s no secret that the DraftKings Q2 report turned heads this week, primarily due to the fact that the operator finally reported profitability, declaring a quarterly net income of $63.8m.
Albeit, DraftKings’ stock fell immediately after the report’s release, as the brand still reported a loss from operations, while some analysts expected more revenue-wise. Shares have gone on to fall a further 11.7% and, at the time of writing, sit at $31.33.
Nevertheless, Jason Robins, CEO, and Alan Ellingson, recently appointed CFO, addressed shareholders and later fielded questions.
Illinois surcharge
The topic of customer acquisitions was one of two notable topics discussed between DraftKings and shareholders – the other being the surcharge rate.
This is due to the Illinois Governor signing a 40% sports betting tax into law in early June, making it the second-highest state for gross gaming revenue (GGR) tax behind New York, which currently has a rate of 51%.
Robins and Ellingson seemed confident, though, explaining that an “overperformance between customer acquisition and Jackpocket should offset the Illinois tax issue.”
To tackle this, DraftKings will pass the tax surcharge onto its customers in Illinois, New York, Pennsylvania and Vermont. The surcharge will be integrated into betting slips and will only apply to winning bets.
When asked about this, the two believed that “over the long term, players appreciate transparency” and this is necessary in order “for us to be competitive with the illegal market.” Some of the shareholders questioned whether this was to create attention around the issue and possibly pressure regulators to lower the charges through customer dissatisfaction, but DraftKings denied this.
US over LatAm
The topic of Latin America was also brought up, which they shut down fairly fast: “We would probably not do it organically, we would probably do it through M&A.” However, Robins clarified that this isn’t something that DraftKings is interested in right now, as the teams are dedicated entirely to North America: “Focus, focus, focus! Let’s win the US online gaming opportunity.”
As for its strategy, especially as its high marketing costs have been a major factor of its financial resorts, DraftKings explained that “we don’t react competitively, we make decisions based on our three-year payback rule” as well as data on customers.
“The fish are biting”
Robins and Ellingson were keen on this, saying “there’s a ton of momentum in the industry right now” and “a lot of the buzz around the NFL season,” emphasising that “you’ve gotta fish when the fish are biting.”
“The good news for us is that the vast majority of our marketing spend is flexible… it’s easy for us to make adjustments”, Robins and Ellingson said. “If we see any changes we’ll adjust our spend and adjust our approach.”
As for existing customers, they explained that “over time, you see a decline in [player] quality”. According to the team at DraftKings, “you’re going to get your strongest players within the first few years of state launch” and “the players you get a few years in are weaker than the players you get day one.”
