DraftKings, analysts share confidence
Alan Ellingson, Chief Financial Officer of DraftKings, and his investor-relations team were the guests of Jefferies Equity Research on February 25. Their discussion covered a wide range of topics.
Jefferies analyst David Katz said DraftKings “continues to express confidence in its business and the market in a range of potential scenarios around these current issues. We come away confident in our stance.”
The sports betting giant saw wiggle room with regard to New Jersey Gov. Phil Murphy’s newly proposed 25% tax on both igaming and online sports betting. Executives said they expected Murphy’s pitch to be negotiable and that the Garden State is well aware that it taxes online gambling at a fraction of what New York does, a competitive advantage.
Noting that New Jersey was the first igaming state, Katz argued, “It did a thorough review on the optimal tax rate for state revenue before legalizing and the increase will likely be more moderate. Most importantly, our impression is that the largest operators can mitigate most or all of the increase to retain margins.”
Tax increases in general were a threat that DraftKings execs minimized. They feel that new states coming online will more than make up for heavier hits in the pocketbook in legacy states.
“Many states continue to face budget shortfalls, and the legalization of igaming appears to be one of the obvious considerations,” Katz explained. “Finally, the proliferation of untaxed sweepstakes gaming is building as a driver of igaming legalization discussions.”
On another front, DraftKings is emphasizing proposition bets over single- or multi-game parlays, although the latter two have higher holds. Even with smaller bets on average, Katz wrote, prop bets considerably increase handle. They’re also deemed less volatile than other types of wager.
DraftKings, penned Katz, “sees this as a key differentiator for its product, as it has invested in the least downtime during live games.” It has also adapted its interface to enable bettors to watch live games through the DraftKings app.
Jackpocket, DraftKings’s lottery arm, “punches above its weight,” but recently got twisted in Texas. There, both Gov. Greg Abbott and Lt. Gov. Dan Patrick have called for a crackdown on lottery-courier services. But DraftKings remained upbeat.
So far, reported Katz, Jackpocket has been exceeding expectations, particularly in terms of luring lottery players over to igaming and online sports wagering. It’s also available in a number of states (such as Texas) where online sports betting is prohibited, Katz noted.
He added, “It’s a good counter-seasonal asset in that players continue to play even in the sports offseason, and it should also benefit from the recent change to Mega Millions,” despite an April 150% increase in Mega Millions tickets to US$5 apiece. The cross-selling would be easier still, Katz contended, Jackpocket fully folded into the DraftKings mobile application.
That would allow easier up-selling of products and cross-pollination of players. “Ultimately, we come away expecting at least solid returns on the acquisition,” Katz summarized.
David McKee is an award-winning journalist who has three decades of experience covering the gaming industry.
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