DraftKings Inc. (DKNG) Earnings Call Transcript & Summary

Okay. Great. So let's shift into product a little bit. It's always interesting to me in the early days of some of these industries, and I think we're in early days here, that a lot of competitors, and it's not always clear to outside or sort of like what are the lines -- the critical lines of competition. And I think one of them for you think back to the search engine wars, like one of them for you, I think, is certainly product and just how engaging the product is. And so I just want to get your thoughts on your core OSB product. What is your philosophy around the key features or the critical service levels you need to kind of maintain your leadership? Is it UI? Is it loyalty programs? Is it the different bet types? Or just how do you think about that? And how do you track engagement so that you feel confident that you understand what you need to do on the product side?

Well, I think all of the above what you just said are very important. We talk about a few concepts, and we've been very vocal that we think the product and technology is the winning formula here. This is a customer that has very high LTV, the best products will not only retain them better, but will also generate incremental play and wallet share. And we don't believe it's wallet share from other competitors. It's their entire digital -- their entire entertainment wallet. So we think we're competing against going out to dinner and going to the movies every bit as much as we are against others that are in our direct industry. So really think it starts with that. A couple of the concepts we talk about. We talk about depth and breadth, having a deep product experience where users that want to bet on all sorts of types of sports and in-game bets and profit. They have everything they're looking for, so they have no reason to go elsewhere. The fastest way to lose a customer is they want to bet on something, you don't have it. So we learned that in the daily fantasy days, and it was an important lesson that we took into our approach to online Sportsbook. And then breadth having a wide variety of products. So we recently launched an NFT marketplace, which I think a lot of people were surprised that because it's not a traditional gaming product. And yesterday, it was the first day, and it was absolutely amazing. I mean the results blew away my expectations. We released several Tom Brady packs, and they sold out in minutes, and we have so much great feedback from customers. And I think that's an example of something that we think maybe isn't just about the revenue opportunity so maybe we think there's a big revenue opportunity there. But also, it's a great way to bring new customers on to the platform, a great way to get marketing efficiencies because what happens is, these athletes, they're getting a piece of the NFT purchase. And so they're out there promoting it on their social media feeds and driving people to our platform, which is a great way to enhance paid marketing efforts that we're doing and get a lot of organic traffic coming in as well. So we talked about having a broad array of products. So similar to the depth comment, if there's something that people want, we have it, and we have things that others don't have that will attract people and retain people better than our competition.

I mean to hear to -- listen to you kind of talk about the NFT marketplace and some of the benefits to athletes that really strikes me that there's a whole sort of reengineering of the sports ecosystem to be in line with mobile and digital and crypto and millennial, and there is a lot of opportunity there for you to kind of use OSB as sort of a Trojan Horse in the industry. So that's going to be exciting to watch. Just on that, how do you think about segmenting your user base between super engaged players that might bet a lot and less engaged players that might not bet as much. How do you think about segmenting that experience to those different groups? And how do you manage that?

Well, there's a few elements to it. We definitely use segmentation, and we look at different ways to cut it by sport affinity. We cut it by frequency, by what types of products they're playing. But the other thing is, in today's world with data science and AI, you can get totally personalized. What used to be segment-based approaches have really evolved the top tech companies to personalized, individual level approaches, driven by data science and machine learning. And it was not possible many years ago because everything was done manually, and that's why segmentation was such a more common approach. But what we've tried to do is invest heavily in data science and machine learning so that each individual customer has a number of different variables and that the machines are constantly testing things and getting smarter, learning what to showcase, how to merchandise things, what time of day to send push notifications to people. All sorts of things are being driven by automated platforms that our data science engineers are building, and we're very excited about that. We think we're still at the early stages, but we also feel like we're pretty far ahead of a lot of our competition there because we've been investing in this for 5, 6 years now.

Just on the sort of product technology front, you made a big and long awaited announcement last week that you have successfully migrated over to the SBTech platform. You said 11 or 12 states have been migrated. You're rolling out Same Game Parlays as an initial kind of product, I guess, on that platform. Just talk about that, some of the other benefits that this technology migration is going to offer you and maybe the pace of product innovation we should expect to see?

Well, very excited. It was the largest technology project we've ever undertaken. So really just so proud of the team, and I think a real testament to our product engineering team. I think they -- even though it's an all-consuming project, they still continue to roll out new states, launch new products, add features, all of those things while they were working on the migration. So I'm just so proud of them because I think a lot of teams might have said, look, this is all we can focus on right now, and we did other things as well. That said, it was a very all-consuming project of 15 months, took a ton of bandwidth. So I think we can expect to see an accelerated pace of innovation and new things now that we're past that. That took so much energy and so much bandwidth that now we can completely deploy to playing offense. And you mentioned Same Game Parlays. There were a few competitive gaps that we felt we had to fix. That was the biggest one by far. I think that really was the number -- it wasn't even close. It was the #1 thing our customers said, why don't you have it? We want it. So very excited. We've added that. And now we can really focus on playing offense and going after things that others don't have and hopefully, innovating faster than everybody else in the market.

Any high-level thoughts -- I mean, your ARPU or the amount of betting activity from each player has been expanding quite a bit. And I think some of that comes from iGaming, but some of it come -- a lot of it comes from disengagement with the sports products. Just any thoughts on how much you think this new technology setup can impact engagement? And any thoughts about which sports might see the biggest impact from the SBTech migration?

Well, I think really all sports will see a big impact, particularly the U.S.-focused sports that I think didn't have as well-developed an offering on these third-party platforms because if you remember, the U.K. has obviously had online sports betting for decades now and lots of other parts of Europe have been the focus. So most of these platforms, whether it's a third-party B2B platform or whether it's the platforms like [ end pans ] or flutters that were built overseas, have been really focused on European sports, such as soccer and tennis. And the offering has been pretty good that we have for those through our partner, Kambi. But we feel like the U.S.-focused sports are still very much at the nascent stages of technology and product innovation, and so there is a lot to do there. And the other cool thing, I think, is that the U.S. sports, just by the nature of how they're structured, I think are even more right to innovate on in-game betting. For example, soccer, really doesn't have stoppages. And most of the big U.S. sports like NFL, baseball, et cetera, have clear stoppages in play, which give an opportunity for customers to make in-game bets in ways that maybe aren't as easy, I should say, in sports like soccer. So we think even though in-game betting is roughly 3/4 of online Sportsbook revenue in the U.K., it could potentially be even higher here over the long term. And it's all going to come down to product innovation and in-game is a big part of where we're focusing. Another thing we've been doing, which isn't necessarily enabled by our new Sportsbook -- our newly migrated to Sportsbook technology, but something that we feel is very important is working on social features. We started launching social features a couple of months ago. We've seen great engagement. We monitor daily active users using those features, and we've seen that rise continuously, and we're looking forward to really seeing that continue to rise over the coming years. And I think that just adds another level of stickiness, another level of engagement. It introduces people to new products and new bet types by their friends talking about them. So we're pretty excited about that as well.

Awesome. I want to jump ahead. As I look at the clock here, I want to jump ahead to sort of marketing. And talk -- just talk about your philosophy on market. Your Investor Day earlier this year, you laid out a philosophy of spending heavily on player promotions in the early stages of launching in new state and then seeing that spend moderate over time. Does this imply that when you go into new states initially, some of that marketing spend can appear to an outsider to kind of be uneconomic? And just how do you kind of think about your philosophy around marketing as you enter new states?

Well, everything we do is based on data and everything we do is based on being economic. We have payback periods that we seek. And there's really 2 levels of unit here. There's the customer. You acquire a customer at a certain CAC and then they pay back in a certain period and generate a certain amount of LTV over the lifetime. And then there's the state where we invest early into a state. It takes generally 2 to 3 years before that new state is profitable. We've said, obviously, it will vary a little bit by state, but we think that will be right around the average for most states. And so far, that playbook has been working. We showed at our Investor Day that some of our earliest cohorts paid back actually faster than we were hoping for. So that was great. And then we've also seen our state that's been past that 2-year period, New Jersey in just its second full year, got to profitability, and we expect to kick off even more cash flow this year. So we think that, that's the right way to look at it. Everything is based on data, everything is economic. We're being cautious with our LTV models, knowing that this is an early industry and anyone saying, they're basing things on 4-, 5-year paybacks when you're 2, 3 years into an industry, is making some assumptions that we're not comfortable yet making. But as we get more and more data, we'll sharpen our models up, and I think it will make it that much more precise how we're able to optimize at a very deep and granular level, how we're making our marketing investments.

I want to take a question from the audience. By far, the most popular one on here is about the Genius Sports announcement. So can you maybe just talk about that? What it means for you? And how it how it integrates with some of your other data kind of supply deals? Just maybe what the Genius Sports agreement does for you?

Well, we're very happy and very pleased with that agreement and with them as a partner. We have a lot of great data providers, Sport Radar, Genius Sports, others. And Genius obviously has the official NFL feeds that was important for us to get. And we were able to strike a deal that we are very happy with, and it is very consistent with what we've shared as our long-term margin projections. So I know a lot of people were worried that, that might end up being more expensive, and while we're not disclosing details, I will say that it was right in line with where we expected it to be and very consistent with the margin projections that we've shown for quite some time well before Genius did their NFL deal. We also got some other great things out of it, such as their betbuilder, the Same Game Parlays. I think contrary to what a lot of people may think, all the major companies use third parties or Same Game Parlays, we use betbuilder from Genius, so does MGM. FanDuel uses Swish Analytics. So really, a lot of what the power of having your own technology platform is, yes, you can create your own trading, you can put your own things in, but you can also choose what you integrate. It was not possible for us to integrate that into our product before because it's a back-end integration that would have had to have gone through Kambi. So I think similar to the iGaming world, it's going to be a mix of things that we create directly in third-party content and third-party technology. There is just such a long tail of bets and things and different sports that people want to make similar to iGaming, where there's a long tail of casino games that people want to play. And what we try to do is take the things that we think are differentiated and focus on doing those things, things that we couldn't get through third parties that we know our competition won't be able to have and really focus our resources there. And then overtime, we also focus on trying to take the things the largest revenue generators for us and bringing them in-house for cost savings purposes. So those are kind of the 2 different vectors that we work down. But I think really at the start, it's more about differentiating since it's a battle for market share, battle for new customers, for customer retention right now. So we think the value of having a differentiated product is really high, and we know we can optimize for the other things over the long term, and that's very similar to how we approach daily fantasy sports. There was a land grab in the beginning. Our margins weren't great, and then over time, we optimize them to be really high. And I think we're going to take a very similar approach in the online sports betting and iGaming markets.

Great. Jason Robins, thank you so much. We're going to leave it there. Can't thank you enough for being here. Congrats on all the success, and we'll talk to you soon.

Thank you. Thanks for having me.