Deutsche Bank analyst skeptical of DraftKings’ projections
Deutsche Bank analyst Carlo Santarelli has been a longtime skeptic of DraftKings’ business model and he continued to be so in an April 11 investor note. Allowing that unfavorable hold was a factor dampening the company’s first-quarter results, he added that “fixating on hold, and simply moving on, is a bit disingenuous.”
Santarelli continued that DraftKings’ fourth-quarter commentary last year projected 35% growth, resulting in revenues between US$6.3 billion and US$6.6 billion in 2025. He described himself as “skeptical, as to the fundamental setup, and these items extend beyond simply OSB hold.”
A trifecta of factors pushed Santarelli’s cash flow guidance lower. These were low hold, lower handle and a reduction in igaming revenue. He kept a US$36 per share target on the stock, which was trading at US$33.50 at the time of his report, and rated it “Hold.”
Santarelli conceded that DraftKings’ fourth-quarter igaming revenue had been “very strong,” increasing 21% despite no additional states legalizing the sport. He also expected a US$90 million revenue boost this year from Jackpocket, DraftKings’ lottery-courier service — down from US$120 million because of Jackpocket’s sudden exit from Texas.
To make DraftKings’ numbers add up, Santarelli contended, online sports betting would have to increase by 40%, atop an anticipated 25% boost to igaming.
The analyst explained, “OSB net revenue was up 38% in 2024, with weaker hold to blame, but we are also cognizant of the fact that 2024 saw some benefits from launches in North Carolina, Vermont and Washington, D.C., as well as the benefits from 2023 launches which lapped large promotional expenditures and ramped healthily, on a net basis in 2024, in Ohio and Massachusetts.”
According to Santarelli, DraftKings is assuming a tightening in hold from 9.4% to 11%, engendering 17% growth of revenue even if handle does not increase. Also increasing will be promotions, up to 3.8% of handle, although they will represent a smaller share of gross gaming revenue (down 1.6%).
Santarelli deemed 25% igaming growth reachable, although he allowed that it would be difficult. Although 2024 had one additional day and a significant Michigan jackpot, putting the 2025 growth rate closer to 22%, Santarelli believed 25% was “potentially close.”
However, he did not believe that competition would ease up, nor would promotional activity. “While it is entirely possible the surge in promotions relates to peers within the license holder disclosure, there is little evidence, other than anecdotal, to suggest a softening promo environment,” Santarelli wrote.
Turning to sports betting, Santarelli observed that the first quarter was one in a succession of tough trimesters. Going forward, “one has to understand, even if game outcomes are normal, what [DraftKings] is trying to do is very hard.”
January hold was 11% and February saw 13% hold. But March had proven adverse, Santarelli wrote, and he thought that hold would be closer to 6 or 7%. As such, quarterly hold would come in between 9.5% and 10%, challenging DraftKings’ math.
“We think the Hold dynamic has been dramatically overplayed and has truly served as a distraction within the investment community,” the Deutsche Bank analyst warned. “ At the end of the day, this is the business, it is not a random number generator in a slot machine with a fixed hold, nor is it a deck of cards with a fixed house edge in every hand that is dealt.”
Santarelli predicted that hold (and luck) would swing back and forth, “more often to the downside.” He pointed as evidence to five of DraftKings’ past six quarters.
DraftKings also was challenged with regards to the growth in money wagered. In order for it to hit 35% revenue acceleration this year, 17% handle increases were Santarelli’s target number.
In 2025, handle has grown 13% for all operators. Said Santarelli, “the growth isn’t exactly what one would want, with New York amongst the best performing markets, given the high tax rate,” while Michigan and New Jersey have underperformed.
He cited a “saturated” Super Bowl and fewer NHL games as headwinds but argued that “the sluggish hold trends have gone on for too long to excuse away at this point. Further, we expect March handle trends to look a lot like February, due in part to the anniversary of North Carolina in March.”
Santarelli concluded by projecting 13% handle growth for the first quarter and indeed through June. This, he said, would compel DraftKings to play catch-up in the second half of 2025 to reach its desired 17% revenue surge.
