DraftKings Inc. (DKNG) Earnings Call Transcript & Summary

Great. Good afternoon, everybody, and welcome back. For those of you who didn't join in the morning session, I'm Shaun Kelley, the U.S. gaming and lodging research analyst at Bank of America. And thanks again for joining our second annual online sports betting digital gaming event here. So I don't think DraftKings really needs much in the way of introduction. It's pretty much synonymous with sports betting and online gaming at this point. But I hope as -- but for those of you who don't know, the company was publicly listed back in April of 2020, now has a market capitalization of $8 billion, with nearly $1.3 billion in 2021 revenue. It is projected to reach over $2 billion in 2022 revenue, implying growth of a pretty stellar 50%. DraftKings is live in 17 OSB states, representing 36% of U.S. population and live in 5 iGaming states accounting for about 11% of the U.S. population. DraftKings recently achieved OSB handle market share of about 32% in the fourth quarter in its active states, while iGaming GGR share was around 20%. So we are joined today by Jason Park. He joined DraftKings back in June of 2019 as Chief Financial Officer. Prior to that, Jason was an operating partner at Bain Capital for 10 years and worked at McKinsey & Company for 8 years before that. So Jason, welcome. I'm really glad to have you kick things off with us this afternoon.

Hello, everyone, and thank you, Shaun, for hosting us.

So Jason, before we kind of get -- roll up our sleeves and get deep, I'd love just to start with a little bit of a kind of high level. And if I was going to get an introduction question, I think it would go something like this. If we just take a step back and in your own words, what do you think is either the most exciting thing that you're looking out at for 2022 for DraftKings? Or what do you think is the most underappreciated? You go down either path and choose your own adventure to start.

Great question. I mean I think, I get excited by just operating and driving the playbook into all of our states. We've got -- we launched a great batch of states last year that are going fantastic. We've got a batch that have legalized and are pending launch, and we're spooling up to get ready, whether that be Ontario, Puerto Rico, Ohio, Maryland. And you never know exactly when the state regulators are going to wave the green flag, but we're gearing up for those and then just continued advancement on our product and tech road map. We don't want to tip our hand too much about some of the fun and exciting things that we'll be launching this year. But we'll be hitting all those milestones this year. So really just sticking to the plan and continuing to grind away.

Continued execution. So a year ago, we spent a lot of time framing things like market structure, revenue, market share. And this year, I think part of our goal out into today and certainly in this conversation is go a bit deeper on the operating side of the business as well. And so obviously, marketing is a critical component of both what you do and where you're just at in your broader investment curve. One of the biggest things that I took out of your Investor Day, which obviously was only just a week ago, was really this changing shape of the customer acquisition curve. So if we could start there, could you just take us a little more deeply because I think this is a pretty important transition or change that you're outlining? So what is the player behavior today? Why is that changing the curve of DraftKings spend? Sort of what are the implications here?

Yes. It's -- I'm so glad we're starting with that because that was definitely sort of a top point we want to get across. If you rewind the tape to when we went public and we did that initial Investor Day, we laid out that New Jersey prototype. And we said, "This is how we expect New Jersey to look over 3 or 4 years." And we've learned a lot. So what we called out in the Investor Day is a simple message, which is that we are acquiring more customers faster when a state launches these days than a state that launched in the '18, '19 and even 2020 period. So we disclosed that in the first 6 months of Arizona, we acquired 3.5% of the population versus New Jersey, we acquired 1.3%. And that's really meaningful because -- and I felt that was really important to share that with investors because that New Jersey prototype didn't apply anymore. And I think that if somebody had looked at our financials in the Q3, Q4 period without knowing that 3.5% and 1.3% metric, you might have thought that our CACs had gone up. But in fact, what you're seeing is because so many more people are yearning to join this product category, you're actually acquiring more efficiently. It's just that you're acquiring a heck of a lot more people in those early months or quarters of a state. So by default, your total quantum of sales and marketing dollars are going up because there are so many more players who are joining, though on a per customer basis, you're actually acquiring more efficiently. And that's a pretty big change.

I think it's really important. So then, help us think about the kind of logical progression on how this happens. If we go deeper down this curve, right, getting more people into the funnel earlier, what happens with the spend as that curve then progresses? And why wouldn't it actually start to shrink the -- sort of the shape of that curve as I'm spending those dollars here? Do I exit in the same trajectory? Or do I exit a bit faster from that investment period?

Either could occur. I think it is very reasonable to assume that you could actually snap out of the investment period faster. We didn't go so far as to commit to that because I want to see a few more quarters because the flip side, Shaun, is that the TAM is actually just a heck of a lot bigger. So the question is, did you just pull forward a bunch of acquisitions so you didn't have to stimulate the market nearly enough because the residence of these newly legal states are just, like I said, yearning to join. Or do you actually think that the total number of people within a state is bigger, in which case you wouldn't -- you would continue to invest to acquire for a longer period of time. But if that's not the case, then I think it is reasonable to assume that what you said would happen, which is you actually snapped to positive contribution profit faster.

And I want to spend as much time on the revenue side, but the third variable here would seemingly be or you're taking more market share. Something you're doing is arguably working, right? But I think as we look through what came out through the Investor Day, a lot of the raise in the TAM seem to be more about just more productivity, like higher win per adults. That baseline of New Jersey, which certainly outstripped our expectations, likely also outstripping yours. I don't think you even had any incremental growth from here from that baseline. But can you talk about those 2 variables? How can you be sort of confident it's one versus the other? It may not matter because your TAM as DraftKings is arguably bigger either way.

Yes. I mean I think there's a lot in that, but that's right. What we are seeing is we utilize this GGR per adult metric to extrapolate our TAM. And that number is absolutely strong, which is the core reason why we could empirically say that the likely TAM at 100% legalization would be bigger. And it's notable that we did not change this year our assumed legalization rate, 65 and 30 for OSB and iGaming. And we maintained our OSB sort of long-term market share, which we are operating within that range today, square, like right there.

So TAM, is it also fair to say that then, I mean, at the end of the day, LTVs are larger, too? Or because you may just -- or is it more customers, right? Is the -- do you think it's a combination of the both? Because I think it matters a lot for the CAC LTV formula if it's -- we have more people or is each individual person just spending more on the platform.

I think it could be a bit of both. We're certainly seeing great LTV trends within existing states as well as in new states versus -- the early period of new states versus the early period of states that we launched a few years ago. So I think -- and it's hard to unpack, but I think we're doing a lot on LTV because LTV is a function ultimately of handle per customer, hold rate and then your promotional intensity and then retention, retention. We led with a lot of retention disclosure because we're really proud of it. We think we're differential on the retention rate. So I think it's a combination of all those factors.

So let's kind of like go back to the broader, let's call it, market environment here. We've actually seen some, what I'd call either high-profile market exits or course corrections in the competitive landscape in the last 6 to 9 months. So what's the impact that this has, broadly speaking, in terms of either changing the broader CAC environment you can go out and acquire into? Are you seeing that actually start to rationalize? And what do you do? Do your formula stay the same? So that means you just lean in and try and take more share? Or how do you react in that environment?

Yes, it's a great question. We get asked that a lot with those notable exactly how -- you said it perfectly, some type of departure or throwing in the towel. And it's worth noting, we don't really run our business on market share targets or anything like that. It's all about the per customer economic profile. So we acquire customers and we are willing to spend a certain amount to acquire each customer such that the gross profit that, that customer generates is bigger than what we spent to acquire them over a 2- to 3-year period. So how has the recent announcements of people exiting the industry impacted that equation? It really hasn't. It hasn't -- we didn't really feel the impact in Q3, Q4 of some notable players announcing big spending changes. I think we have a differential methodology of going to market, and our marketing methods to find highly productive marketing channels. So we didn't really feel it then. And some of the bigger announcements of late probably haven't trickled through the market yet, but we're not really feeling anything on the back end of those departures either.

So then, Jason, if you think about the customer side, you say each -- we're spending up to a certain level for that customer, is that formula personalized? I mean, are there things you can see in their behavior pretty rapidly to be like this person? Is it average bet size? Can you just help us unpack that? Because this is pretty sophisticated. I think it's a lot more sophisticated than maybe a generalized audience appreciate. So how quickly can you kind of identify that? And how much are you segmenting it?

Yes. I do think it's quite sophisticated and it's probably a topic for later, but people ask about, well, what's your variable marketing and your fixed marketing. And a lot of our fixed marketing are these capabilities that are highly personalized individual profiles of -- individual LTV profiles. So the way the sausage actually gets made every day here at DraftKings is that when a new player joins our B2C platform, we actually have an initial view on their LTV out of the gate. And that initial view is going to be dependent on a variety of data points that we can gather quickly, whether that be their initial deposit size, their form of initial deposit, whether that be a platinum Amex or an ACH or some other factors. We absolutely look at their first bet type and bet size. And we have enough data and history now to actually pretty fairly estimate what the profile of this player will look like over the next month, quarter, year, 3 years. And then for sure, we're continuing to update that on a player by player level. So we watch like a hawk, going back to Arizona, day-over-day retention rates, week-over-week retention rates. Week-over-week average bet size changes. So it's highly personalized, I would say. And that flows through to promotional plans on an individual basis as well, where we can identify the full spectrum of players that -- player types and determine the appropriate level of promotional investment or reinvestment we can provide, and that goes all the way down to a player level.

Is it that simple? Is there -- do you have broad segmentation, meaning like, "oh, Shaun, we've got 85 different customer segments?" Or are you like "No, Shaun, we've got 2 million uniques and we've got 2 million customers?" Just give us -- give the audience because I think this is pretty important recently, I think that's the difference in the biggest platforms and some smaller ones in terms of how sophisticated you might actually be on this.

No, I think it's very sophisticated. It's very consistent with other mobile tech companies who can really graduate well past 85 segments and really run your business on a highly individualized personalized business. Of course, we do for the right types of questions we're answering, segment, if you will. But when it comes down to the brass tacks of optimizing and managing LTVs, it's all on an individual basis.

So you alluded to this and now I kind of want to go a little deeper on the sort of fixed marketing component versus this variable. Can you maybe just broadly help us define those 2 buckets? And then put that -- put those 2 in perspective relative to what you call external marketing versus non? So can you just help us with the kind of the definitional cadence and then we'll kind of go down the path of each?

Yes. And sorry if I bore anybody in the audience, but it is an important one. So what I would do is I would take our sales and marketing on an adjusted EBITDA basis and just understand that within that are -- is going to be what we refer to internally and externally -- I said that external marketing, which colloquially is advertising, and that is what we use to think about CAC. And so if you just want to take sales and marketing and say, okay, within that is external marketing and then fixed sales and marketing, and the external marketing is anything that's advertising.

That includes, to be very -- to kind of break it down, national ads, performance marketing, anything your digital channels. What about sponsorships because it gets into a little bit of a greater, maybe have a longer-term contractual commitment with a team or a league? Where do you kind of draw the line on something like that?

Yes. So anything that's advertising. So the things you mentioned and to the extent that we do a team deal and that part of the team deal includes advertising, that's absolutely in the advertising or external marketing portion. The fixed marketing really is, Shaun, people and capabilities. So it's about the bodies that work on marketing, the bodies who are doing the personalization analytics who -- there's quite a bit of data science and analytic capability that I would call fixed -- fixed sales and marketing. There's some marketing technology that we utilize to optimize both the acquisition side as well as the LTV side, that would be fixed marketing. Those are the big components of fixed.

And Jason, you gave a couple of parameters around this. I want to go into like actual dollar numbers. But percentages-wise, correct me if I'm wrong, I think the amount for fixed in '22 of the marketing front overall, was something like -- well, I think the amount for external was low 70s, which would then get you into kind of, let's call it, high 20s or 30% for fixed. We have the right ballpark there?

That's correct.

And how does that fixed then change over time? Will these be capabilities that you will slowly but methodically invest into. I think we're talking on pointing towards a leverage point more in '23 and beyond. So once you're there with your capabilities in '22, what would be a growth rate that people should think about that we grow in line with the business? Do we grow substantially faster? Help us kind of give those parameters around that.

Exactly. We have -- I have said multiple times that our fixed cost will meaningfully slow down starting in 2023. So that would include our fixed sales and marketing that we just referred to, all the people and the analytic capabilities, the individualized promotion teams, the product and technology organization, the G&A organization. Those are all our fixed costs and you're going to see a meaningful slowdown. The way I would think about it is, I think you can get a feel for what those total fixed costs are in 2022 based on our EBITDA guidance. And in our Investor Day, we disclosed our viewpoint that, that would grow to $1.1 billion in the sort of long-term EBITDA bridge that we provided, and that you can back into an implied growth rate from 2022 to there, which is going to be meaningfully slower than what it was from '19 to '20 and from '20 to '21 and from '21 to the implied '22.

So then kind of like -- maybe the last area on this and then we'll kind of change maybe and talk about promotions for a second. But as we think about this investment, what do these capabilities get you up to? I mean, I think the math would suggest that the fixed marketing component alone will be in the couple of hundred million dollar range. So this is a really big capability. Does this put you best in class? Does it put you on par with the other top -- kind of top 3 operators? Could you help us get a sense of that scale relative to both, either within the industry where it may be harder to break out or maybe to a different platform? You're a super sharp guy and you undoubtedly benchmark lots of other platform and marketplace businesses. So just help people think about what the parameters are for that, that what this capability will enable you to drive.

Yes. I think when we invested into our fixed costs starting in '18 and '19, we're largely in line with what our '20 and our '21 and our forecasted 2022 spend is largely in line with what we had envisioned a few years ago, and it really is quite a bottoms-up capability-driven view of what our organizational requirements will be. I'd like to think that this will put us in a fantastic position relative to what we want to achieve for the next few years and always hard to say exactly what's the competition, but I'd like to think that the DraftKings way of doing things is a little bit better, a little bit more efficient. So I like a lot what these investments that we've made and what we'll continue to make through 2022. I like a lot on the position that, that will put us in competitively.

So then maybe kind of shifting gear, but the sort of last basket of, let's call it, the customer acquisition puzzle, I think it actually sits in promotion, right? And there's this gap that I think investors becoming increasingly understanding of, which is between gross gaming revenue, net gaming revenue and that there's a real material expense line item there. So I think, over time, you've talked about that getting into the low 20s. But what -- help us think through what does it take to do that in terms of be it product mix between OSB and iGaming. What are some of the kind of key parameters to get there and where are you on that path right now? Are we further than you want to be or closer? Does this follow the same J curve as marketing? I know there's a lot there, but I'll stop.

No, no. I think it is a super important part of the business. We have said low 20% is where -- and that we will end up at maturity or at any point in time and at any state. Here's the right way to think about it. And well, I'll say one more thing. We are well on the way of achieving that. If you look at our more mature states, we are seeing that promotion -- the requirement to be promotional decrease over time. And it's actually pretty -- it makes sense because what happens is that the retention, the driver of retention, the driver of a healthy customer LTV shifts away from promotions over time and is much more fundamental about their overall customer experience, notably their satisfaction with the product. And so to put it simply, you market to acquire and products in the tech is what retains. So you don't -- you just don't need to be as promotional for somebody who's been with you for 2 or 3 years and has shown strong enjoyment of the product category. You just don't need to be as promotional as long as you're giving them differential enjoyment through a products and tech experience. I would also say that -- so we are seeing good progress. I'd say, upfront acquisition of the types of players that we think will retain well is important -- is really important. I think we're a differential. We go into acquisition mode not just thinking about get as many people as you want. It's about getting as many of the right type of people that you want that are -- that we know enough from our DFS days that are going to represent those likely highly sticky customer profiles. And then it's just customer centricity all around. Product and tech is for sure the biggest part of what will drive happy customers and, therefore, retain and revenue -- higher revenue per player growth of your existing customer base. But it all -- it goes all the way down to our customer support center and how we emphasize that every interaction with a customer over chat matters, right? Those are lasting impressions of the DraftKings brand, and you treat every customer with respect. And that matters, Shaun, in these early days of the industry, where our customer support center gets questions about can you teach me about how this in-game bet works. And we will absolutely invest that 2, 3, 4, 5 minutes to educate people. And I think that, that just builds that loyalty and that DraftKings is their app of choice.

Sad to say, I might actually need some of that support from time to -- I might put it to the test. So sort of the perfect segue into the next, let's call it, category area I wanted to talk about, which is actually product attack, right? So this area, you're also making, I think, a large investment into as we look out to '22. So let's start with what we already know. When you look at product initiatives that have been successful over the last 6 to 12 months, what comes to the forefront of your mind? What's -- what are the products that have both resonated with customers and really started to set you apart? Because we can see the market share alone pretty much demonstrates that you remain top resonance with customers in the vertical. So what's working right now and then we'll -- and then in a moment, I'm going to ask you what obviously we're trying to invest in.

Yes. And maybe I'll just wrap it all up in 1 bucket because I think the thematic spread across the past and the future. I mean, first off -- and we should probably cut it from OSB and iGaming. On the OSB side, memories are short, right? We just completed our vertical integration of our bet engine in Q2, Q3, early Q3 of last year. That was a herculean effort that occupied the majority of our engineering time to ensure that we had a high-quality migration that brought real improvement to the customer experience versus the rented bet engine that we were using. And we're really proud of that accomplishment in 2021 to have done that really quite seamlessly ahead of schedule, on time, on budget and then right after vertically integrating, bringing things like same-game parlays and player props and bringing real innovation to the customer that we could never have done if we were just renting our bet engine. And the whole thesis behind vertically integrating is that you control your destiny on what you can bring to the player. So really 2021, huge year. I think I would hope people sort of acknowledge the engineering capabilities of this organization. Paul Liberman, Co-Founder, Global President of Products and Tech, that was his baby from the day that we closed the business combination through the completion of the migration. And it was just -- it was a real celebratory moment for DraftKings and I think bodes well for everything that's going to come down the pipe. Continuing with OSB, I think we're going to see throughout the rest of this year and over the next few years just more of the same, which is we are going to listen to the customer, and we are going to -- I think we're done closing gaps and just really accelerate past competition on the product side. We don't like to tip our hand too much about what we have in the pipe, but we did talk about the social functionality, which I don't think anybody else is really doing and we think could have real CAC and LTV benefits. On the CAC side, why not use Shaun Kelley's Rolodex to acquire people that look a lot like our -- better friends with our loyal players? On the LTV side, that ability to chat and flex on your good and bad bets, and we're excited about social. So that's one that we do share that we'll make -- we'll continue to make great improvements on in 2022. And then I'd probably just talk thematically, there's always UI searchability improvements that, at any given time, we probably have 5 tests in market and we're watching player behavior on how they're reacting better to certain layouts. And then we -- once we know those micro improvements, we roll it out. There is a bucket of things that, that you or players will never see, things on the back end like that acceptance rate and the duration of live markets being open. So the -- that's a little bit of flavor on what you'll -- we've done and what you'll see on the OSB side. Again, trying not to tip our hand too much, but we are focused on OSB and iGaming. That is where that fixed cost investment in product and tech is going. And I think now that we're vertically integrated, we are really set up to just listen to the customer and bring them things that they want and bring them things that they don't know that they want yet.

So we know about the product type. But help us think -- because they -- help us sort of put a macro thought around the dollars here. So from a financial perspective, what do you think this entails? And sort of the same leverage point question I just asked about fixed marketing. I think this also -- in this product and tech vertical is a bit of a step function year. What's going to enable you to leverage that? And how should that grow over the medium and the long term?

Yes, same. The way I would think about the 2022 growth I'd probably think about that growth rate being fairly similar across fixed sales and marketing, product and tech and G&A. And then in terms of '22 and beyond, same thing, a very significant decline in the growth rate because once you've achieved that level of product and technology people capabilities, that team can just sort of churn out new things every year.

And Jason, just like as a platform, right, one thing that's sort of interesting is we've got people that are competing in this vertical that are bringing in technology from a number of different spheres, right? So I've got Flutter, which owns it FanDuel partially today, but largely outright in terms of control. I've got Entain or BetMGM, we're taking access some capabilities from Entain, which obviously has got -- and owns their capabilities, right? How does DraftKings stack up relative to those platforms that may have those capabilities? Do you think you have to invest -- make these investments a little later or more dramatically in the case -- because you are that stand-alone, you are that pure play, and they've got that they could tap into? Or do you think this thrusts you like, no, Shaun, we're there and this thrusts us actually into a league by ourselves. Just help us stand by that.

Exactly. I think those are -- the 3 of us are sort of 80% of the market today, and they have had a long history of online gaming globally, and we had to play catch up, which is why our fixed costs grew like they did from '19 through '21 and why we'll continue to invest through 2022. Like I said, I really think that coming out of 2022, we're going to be really nicely set up relative to those folks who are vertically integrated. And I like DraftKings' chances of out-innovating them with that cost structure and people investment that we'll have by the end of this year.

So if I extrapolate that logic -- as I'm just going to play the thought experiment out a little further, right? Why and I'm not in pretty on the spot, so definitely just kind of like help me out here, why does it not imply that sort of on a same footing or on a same revenue basis those platforms would be a bit more efficient in DraftKings? I mean putting it in layman's terms, why wouldn't they have slightly higher margins than what you might have in a similar equivalent amount of revenue? Is that logical or not? And what would be the offset for DraftKings if that's not the case? Because that would seemingly be I was extrapolating what we just talked about. To me, that would be pretty logical.

Yes. It's not a bad way to think about it. I mean, ultimately -- there's a few thoughts that come to my head, Shaun. I haven't thought about it that way, so I'm doing this real time. I think number one, ultimately, country-specific EBITDA margins matter. And so to the extent that 1 of those 2 folks are -- you're thinking about their enterprise-wide versus the country-specific, I think we'd be at parity with any one of their countries. I think the U.S. focus matters on a similar vein, just the ability to think about the U.S. consumer with the U.S. sports and the U.S. fan base and being just more focused and in tune with this market is the benefit as well. Those are just a couple of thoughts that come to my head.

So thank you for sort of engaging on it. So one of the kind of other area of product I'd love to go on in is casino. So when I look back at the last 2 Investor Days, I think one of the big step functions we've seen, I think a year ago, it was boom, TAM is actually meaningfully larger in OSB than I'd say. And I think it was that again this year, but then we added in actually higher market share for DraftKings. So 2-parter. One, can you just remind everybody what you kind of did on your market share increase there? What's kind of driving that? Just performance you're seeing in the Markets Day? Because I don't think that included GNOG. And then number two, I want to ask about Golden Nugget.

Yes. Well, I'd say a bunch on iGaming, just going back to product and what we've accomplished and where we're going with that. If you rewind to the beginning of 2021, when -- on the OSB side, we were still renting our bet engine. At that moment, our iGaming vertical stack was actually more advanced than our OSB a year ago because we were renting our OSB, but iGaming was completely in-house, our iGaming aggregator. We had already gone to market with several homegrown from our DraftKings studio developed games. And I think that we just had more time now with our iGaming product portfolio, and we're continuing to develop in-house versions of standard casino games as well as bringing real innovation and offer games that nobody else has on the iGaming side. That's what I really attribute our iGaming market share gains, too. I just think that we have more modern gains with more modern technology behind it. And we talk about Rocket a lot and we talk about Rocket a lot for a reason, which is -- it's pretty fun and it's very innovative, and it's performing extremely well. And I think, going forward, you'll see more of that. You'll see us develop more in-house games. You'll see us bring to market more in-house games that are innovative and unique to DraftKings. And so we're excited and we'll just continue to do more of what we've been doing on the iGaming side.

Is there an in-house game studio or -- just help us dig a layer deeper on the development side of that. You have developers and engineers that are just specifically tied into this. Do you partner with third-party studios because to make sure that those are exclusive. How are you getting access to that content?

We have a DraftKings games studio, which would be within our products and tech org, and that's all part of the fixed cost growth that we've experienced and we'll continue to experience through 2022. And I think coming out of 2022, they'll be at a great spot just to churn off new titles forever, really.

And then like I said, the other piece I want to take this down was what's Gold Nugget going to open up to you in terms of sort of whether it's a different customer demographic or maybe sort of this idea of multi-brand re-hosted Super Group earlier, right? They have the Betway brand they operate under 4 OSB. But they actually have portfolio of almost 20 different casino brands. I think one thing they've realized is there are a lot of genres in casino. So what's the plan behind keeping the Golden Nugget environment? I mean at the end of the day, a front-end skin probably costs very little in terms of like just the look and feel. So what's kind of the go-to-market with Golden Nugget after acquisition? And then what does it bring to you in terms of kind of synergy or difference as it relates to the capability?

Yes, yes. So great question. I'm super excited and closing is imminent. Maybe start with thesis. So thesis was DraftKings has -- we've done incredibly well with iGaming. The go-to-market motion on iGaming continues to be primarily OSB and OSB into iGaming -- on to OSB and then OSB into iGaming in the 5 states where we're live with iGaming. So our existing iGaming product -- player profiles awfully submerge on OSB player profile, which is younger, more male, more table game-oriented versus slot machine-oriented. And just with that, we've done incredibly well, as you mentioned in the intro, essentially 20% market share, up against folks who had been live for 7 or 8 years in New Jersey. So the thesis behind Golden Nugget, the main thesis was a recognition that there was at least one other major demographic segment of iGaming customers who were not sports players. So we talk about sports first and casino first and that the DraftKings brand just doesn't resonate with that casino first customer nearly as much, and Golden Nugget does, and we looked at multiple opportunities. We looked at building our own casino first brand and we got very excited about the Golden Nugget brand and not to mention all the commercial relationships we have with Landry's and Fertitta Empire. So that's the core of the thesis. When you get into how it will work and where the synergies come from, we will very likely maintain the Golden Nugget brand for the reason that I just cited, which is that, that's a brand that resonates with a different demographic that we don't have today. And then the synergies that we've outlined, $300 million of EBITDA at maturity, so consistent with our long-term EBITDA bridge, comes from a combination of marketing efficiency and increased market share from Golden Nugget. There's a meaningful gross margin synergy, back to my comment, that we are vertically integrated, both on the OSB side and iGaming, so that ability to get the cost of goods sold synergy out of Golden Nugget. And then there's a little bit of G&A synergy as well. So that's all -- that's the game play for Golden Nugget.

No. I mean it's super exciting. And in terms of the product itself, on Golden Nugget, they were pretty early on the embrace of live -- I think like some of the live dealer and some of those capabilities. I believe they even have some of that in-house. So are those things that you can utilize? Do you think you already do some of those well but again, it's just that different customer base? Like how much can you learn from them on the actual product suite?

I think the live dealer part of their product suite is super exciting to us. That -- anything that we do there would fall into that, bring certain gains in-house. And more to come on exactly what we'll do, but we absolutely view their live dealer know-how capabilities as an important part of this acquisition.

Great. And then maybe sort of one more big picture, but there's several other areas that DraftKings is either experimenting with or moving into. I think the 2 or 3 that stand out, we talked about social a little bit and how you could kind of fit that into the portfolio. So maybe we'll leave that one out. But marketplace and rewards are 2 that we also now are kind of going down. So if we think about marketplace for just a minute, maybe you can do the quick layman's pitch for the non-initiated on what it is or what it does. But specifically, how -- I'm interested in the economics of the business, like how big of a, let's call it, like a market do you need to create? One thing I struggle with a little bit is somebody who's sort of interested in crypto, but a total newbie would be -- it's a closed platform. And if you have a thought about opening it up, what would the pros/cons be of that? If I'm buying an NFT, but I can't take it with me, how do I reconcile that idea?

Yes. So I'd say a few things as it pertains to DraftKings marketplace and the way we think about it as DraftKings marketplace is the fourth vertical, if you will, so DFS, OSB iGaming and then we have the DraftKings marketplace now that we launched in August of 2021. And then the first product category within the marketplace was NFTs. So in the short term, we've talked about $70 million-ish in 2022 of revenue coming from our marketplace. Actually, let me back up, Shaun. I would say this. We went through a very rigorous process to think about what else, what would, what could and should our fourth vertical be. And we realized through that process that crypto and NFTs were something that our players were already engaging with and would turn to DraftKings forward. That's how we arrive at this as our fourth vertical, and that's important for our investors to know that this wasn't -- this was a systematic process to arrive at this point. And there were other good ideas, but this really emerge as the clear winner, the marketplace and NFTs within -- on the marketplace. We've talked about $70 million this year. What you guys know already is that we have the relationship with Autograph, which brings amazing proprietary exclusive NFTs from Tiger and Gronk and Brady and that's a great destination. They're just super attractive and a great draw on to our B2C platform. We're seeing great cross-sell once we get them on through the marketplace and getting them into OSB and iGaming and DFS. So that's all part of the flywheel that we talk about as the fourth vertical. The economics are very good in terms of the percentage of the gross merchandise value and the flow-through to EBITDA. Very small investment in marketing and fixed costs around people to manage that. So absolutely think that this would be something that would be profitable out of the gate, not like OSB, which is you've got to invest in a state and then it turns profitable 2 or 3 years later. Marketplace is something that we would expect to be breakeven or profitable out of the gates. And then we -- and I think -- well, then there's the NFLPA deal. And what I'd say there is I think the thesis here is that NFT is going to have utility, so not just the collectible portion but the ability to utilize your NFT to play a game. So maybe to put it really simply, what if you had a daily fantasy sports game contest where in order to put a player in your lineup, you actually needed to own the NFT to put that player in the lineup. So that may be a good way to do it -- a good way to think about it. Also I'll say this when it was explained to me -- I'm going to embarrass myself. But when it was explained to me, they said, think about Pokemon, where the trading card -- the card in itself has value. But once you have the card, you can actually play the game as well. So that may be an easy way for folks to think about it, too.

It's very interesting. I think I dove into the -- yes, Pokemon card might have traded for like $57,000 today. So I saw that in one of my feeds. So hey, maybe there's a lot of economic value in Pokemon, too. All right. Well, we like the 3 or 4 remaining minutes that we have, I'd love to just kind of dig into maybe like the last piece here is sort of the bigger picture, financial or strategic outlook. I think -- you've been pretty clear on this, but this focus on, I think, 2 areas. One is the movement to profitability and your time line around that. And the way I want to ask this question, Jason, is just really to help us think about the parameters that would either put you ahead of schedule. And any chances or opportunity to maybe surprise a little early? Like what would have to change in DraftKings model to be ahead of schedule on, let's call it, the 4Q '23 and hopefully very close to floating with full year '24. And then alternatively, what would push out that goal post but be arguably worth it to you from a, let's call it, an investment or a CAC opportunity perspective?

Yes. I mean if there was -- the big takeaway from our Investor Day and hopefully the discussion today is that we haven't changed our business model at all. I mean the entire business model is acquire customers for an amount where the 2 -- the gross profit that, that customer generates over 2 to 3 years offsets the acquisition cost. And then, by the way, you've got this lifetime of gross profit generation exacerbated by amazing customer and revenue retention rates. And if we do that, then the states turn profitable after 2 to 3 years. That's the bedrock of the business model. The -- so to answer your question, what would accelerate it. I think the first one is something that we started the conversation with, which is, okay, Arizona, you're acquiring 3.5% of the population in the first 2 quarters versus New Jersey 1.3%. So does that create a snap into profitability at a state level faster? It very well could -- potentially could unless the TAM is just meaningfully bigger than we thought. And even then, it probably still does. So I think that's something we need to see more information as Arizona goes through its first full year, and we continue to monitor newer states. So I think that, that's a real potential shortener, if you will, but we got to see more information to have real conviction on how these states will play out. And I'm avoiding the major one, which is just legalization trends. If you actually look back to 2018 when the Supreme Court overturned, it's actually fairly consistent, call it, 10% a year, legalized and launching for OSB. And if that -- if that looks like 20% or if that looks like 5% in 2023, then yes. Like the profit -- the enterprise profitability profile looks different depending on what the legalization scenario looks like, which is why I encourage people to model our business on sort of an annual cohort with a percentage of population that legalizes assumption, then you can dial whatever you believe about legalization and the pace and then sort of see the different inflection points for the enterprise.

Great. And then Yes. The very last one and sort of the natural outgrowth of this as the self-funding component of this, right? I think you've been super clear, but just for the audience or for the reason to repeat it. With the road map as laid out, it doesn't seem like there's any concern whatsoever that there would need to be incremental funding for DraftKings to execute the plan and the business model, as you have laid out, including the 4 pillars of products that you're going into and including the big fixed cost investments that you're making in '22? Is it accurate? Feel free to refine that.

We are very well capitalized. We -- under any realistic legalization scenario, we are very well capitalized.

I think that's sort of a perfect and definitive place to leave it. So Jason, again, I can't thank you enough for doing this with us. It's a big privilege. We look forward to hearing a lot more about what DraftKings has in store. As we move through March Madness, I imagine there's not going to be a shortage of great advertising, great things to hear about the whole vertical, and it's an important time. So thanks again, and until next time.

All right. Thank you, Shaun.