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- DraftKings CEO Jason Robins spoke with Insider on the heels of the company’s Q1 earnings report.
- He explained how marketing spending levels are shifting across the industry after exploding in 2021.
- He also shared how social gaming, NFTs, and M&A fit into the company’s strategy.
Marketing spending in the US sports-betting industry is getting a reality check.
DraftKings, one of the top sports-betting platforms in the US by market share, reported $321.5 million in sales and marketing costs during Q1, up 40% year over year as the company expanded into new states. But it was less than analysts expected during a quarter that contained marquee betting events including the Super Bowl and March Madness.
The company told investors that changes to its marketing strategy helped DraftKings get more bang for its buck during the quarter, including shifting from local to national ad buys as its footprint grew.
It comes as competitors including Bally’s, Caesars Entertainment, and Wynn Resorts have pulled back on or revisited their marketing plans as spending levels became untenable across the industry.
“We are really seeing a big change,” said DraftKings CEO Jason Robins, speaking with Insider on the heels of the company’s Q1 earnings report. “There has been a realization amongst some competition that some of the tactics being used and the spend levels were not actually going to create long-term value. They were in fact doing the opposite … What I would describe as a less rational market, perhaps last NFL season, has quickly rationalized.”
DraftKings on Friday raised its full-year forecast for both revenue and adjusted EBITDA, a measure of profitability, following better than expected Q1 results.
But the market overall has soured in recent months on DraftKings and other online sports-betting stocks, after propelling them to sky-high valuations in 2021. Shares of DraftKings are trading at around $13, down roughly 80% from their 2021 highs.
Wall Street largely shifted focus from user growth to a path to profitability, as increasing competition in sports betting fueled concerns that platforms were spending their way to the top of the US market and could see the bottom fall out beneath them.
Investors also grew concerned that inflationary pressures could curb consumer demand for sports betting — something Robins told investors on Friday he’d seen no signs of. The company ended Q1 with 2 million monthly customers, up 29% from a year ago.
“That coupled with a market backdrop where there’s a natural risk-off mentality I think is really the cocktail that’s affecting us in particular right now,” Robins told Insider.
He added: “We have just begun to lay out what we’re focusing on in terms of cost efficiency. So that is something that investors are starting to get a little bit more insight into even though those are efforts that have been underway for a little bit of time at DraftKings.”
Social is one of DraftKings’ top priorities this year
DraftKings is also investing in areas like social and NFTs to help keep its customer base engaged, which it thinks could reduce churn and make its customers more valuable in the long run.
Social, in particular, is big focus area for DraftKings in 2022.
It launched in April a feature that allows customers to form “betting groups,” where members can share their bets. Fantasy sports players on the platform can also create betting groups with the members of their existing leagues, in an effort to cross-sell sports betting to fantasy players and allow them to wager with friends.
DraftKings said during its investor day in March that it’ll be releasing more social features through the year, including integrating user-generated video.
A team run by DraftKings’ senior vice president of product Jordan Mendell is building social features that can be integrated across the company’s products, including fantasy sports, sports betting, and online gaming. That’s different than how other parts of the company are structured. Each group within the organization typically owns their own product and feature sets. But social is foundational, Robins said.
“This is something that does cross over everything,” Robins said. “We’ve had good success having a small team that’s been dedicated here and they’ve made tremendous progress and have a really exciting roadmap for the rest of the year.”
DraftKings, which has been bullish on NFTs and launched a marketplace last year, is also doubling down on “utility-based NFTs” (those that offer access to perks), even as industry-wide sales of NFTs decline. It has a deal with the NFL Players Association to create NFT-based fantasy games, for example.
“Most of the people who are purchasing NFTs on our platform are people that came from other products and are using other products on our platform,” Robins said. “It’s a natural place to create utility. We know they’re using those products, so we know if we create value for them there, it will make it more attractive.”
DraftKings was also active on the M&A front in 2021, snapping up sports-wagering news network VSIN, Tel Aviv-based software firm Blue Ribbon, and Golden Nugget Online Gaming to help it expand in online casino gaming.
This year, it’s focusing more on organic growth. But it’s still open to dealmaking, Robins said.
“I think that there’s certain types of things that could be interesting, including potentially more consolidation plays,” Robins said.