DraftKings: SBTech acquisition flips our largest cost on its head

DraftKings SBTECH cost
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DraftKing’s acquisition of European sportsbook supplier SBTech will turn one of the firm’s largest overheads into an international “profit centre” says CEO Jason Robins – while giving the firm unparalleled scope to tailor the betting experience towards US sports and fans.

 

DraftKings’ three-way merger with SBTech and acquisition company Diamond Eagle may be financially modest compared to other headline tie-ups of recent years – but its long-term ambitions as a leader in US gaming are top of the range.

Briefing investors on the $3.3bn company’s prospects post-merger and public listing this year – CEO Jason Robins said he sees no reason why the market share DraftKings’ has achieved in New Jersey can’t be replicated elsewhere.

The firm’s flagship daily fantasy product currently dominates 60 percent of the $500m market- but the sector is growing at a “low clip rate,” said Robins. Conversely online sports betting and igaming “should be explosive,” – the degree of which will depend on “how many states legalise and how quickly.”

Assuming 100 percent access to both products, Robins estimates a $40-$60bn digital gambling market nationwide.

In a year and half since launching in New Jersey, DraftKings has held onto almost a third of the online sports betting market against 15 competitors – and has even gained points since the last flurry of market entrants this NFL season. When it launched igaming verticals in a six-year-old and saturated market (23 competitors last year) “there was no reason to think we were going to come out of the gates roaring,” said Robins.

Today it is second in the market for online casino, with a 15 percent market share. “Also we have spent nothing on marketing,” he added. “We have literally relied entirely on cross sell to existing database and integrations to our existing platform to build share. “It’s given me a lot of confidence that with the product we’ve built with the analytics and all that goes into it, we can repeat that regardless of when and where.”

DraftKings, like FanDuel, has benefitted from early starts in the US, able to leverage their household DFS brands and vast customer bases, which are already “identified with winning money on sports” – and of course come with “tremendous amounts of data.” “Not only do we know what sports they like, what teams they like, what players they like, we have saved credit cards for them, we know what times of day they log in, we know the best times of day to send them push messages, when to email them that’s most likely to get opens and clicks,” said Robins.

“This is helpful for our existing customers, but is also extraordinarily transferable for the model were building to help bring on and cross sell new customers.”

Robins says DraftKings’ tech and analytics can predict with accuracy what the next year’s spend of a new customer will look like, how likely they are to try a given product and which offer and presentation will entice them to do so. The one thing DraftKings has not been able to fully control until now is its betting markets: hence the acquisition of SBTech.

While many of the new US sportsbooks, developed since PASPA was repealed, get their odds, trading and risk management services supplied by European provides, the relative lack of volume in the US means more attention and innovation is naturally given to European sports.

“There’s incredibly robust in-game betting for tennis – you can bet on every point in tennis – but you can’t effectively bet on every pitch of baseball or every shot of golf,” Robins lamented.

“That will come. But in the next few years there will be a period of time where the US is not large enough yet to compete with European volume, and have the resources of these companies wholly dedicated to us. This is what we gain by having SBTech.”

Not only does having SBTech working in-house enable DraftKings to innovate a betting experience tailored to US sports and punters, with US-specific in-play markets – synergies will stack up year-on-year as the company enters new markets and scales up.

“Kambi charge us a revenue share for each bet. As you grow you can negotiate that share down, but it’s not a fixed cost, so as you scale up that becomes quite meaningful,” he said.

Moreover, while other firms may have their own in-house trading teams, this is still a “cost-centre” for them; where engineers, traders and others have to be employed. In contrast, as SBTech supplies other sportsbooks (and increasingly US lotteries) this division is actually a “profit centre” for DraftKings.

“It flips what is one of our largest costs and biggest unit economic disadvantages on its head and turns it into a competitive advantage,” Robins quipped. “We believe in the out years, as this gets to scale in the US, synergies from this acquisition will become $100m annually. So it’s a really attractive


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