DraftKings is set to offer sports event contracts “in many states” in the “coming months,” the company revealed Thursday.
In an investor letter alongside its third-quarter results, DraftKings CEO Jason Robins said for the first time that the company planned to offer sports on its new prediction market platform.
The message comes after DraftKings last month announced it had acquired Railbird, a prediction market that is registered with the Commodity Futures Trading Commission (CFTC) but has not gone live yet. Alongside the acquisition, DraftKings said it would offer a new vertical called DraftKings Predictions, though at the time it did not say whether it would offer sports.
In the Thursday letter, DraftKings described the launch of DraftKings Predictions as “pending licensure.” While Railbird already has CFTC approval, DraftKings is still awaiting approval from the National Futures Association to be a futures commission merchant (FCM). In addition, Railbird may need to submit new rules documents and self-certify markets. These steps may be delayed by the government shutdown.
Robins’ letter to investors reiterates his stance that prediction markets will not eat into the market share of sports betting in states where both exist, but he wrote that he views the product as an “incremental opportunity.” At G2E last month, Robins said he “just [doesn’t] see a world” where prediction markets outcompete sports betting where both are legal.
“We have experienced numerous waves of competition in recent years, mostly from well capitalized companies that have built or acquired strong sports betting product offerings, and those have had minimal impact on DraftKings’ revenue trajectory,” Robins wrote. “By comparison, Predictions is structurally limited, lacking the depth and breadth of a sports betting offering. There are also numerous data points from around the globe that validate that Predictions, in sports, is relatively small and largely incremental relative to traditional sports betting.
“In actuality, we see Predictions as a significant incremental opportunity. We are excited about our pending launch of DraftKings Predictions and its potential to expand our total addressable market. In the coming months, we expect DraftKings Predictions to enter many states with sports event contracts, unlocking a new customer base and revenue stream.”
Prediction rise to affect betting legalization?
Robins also added that he hoped that the rise sports event contracts would encourage more states to legalize sports betting.
“Nearly half the country’s population remains without access to legal online sports betting, but there are several other companies offering federally regulated Predictions in all 50 states. As growth in Predictions continues, this may also motivate more states to legalize online sports betting and iGaming with reasonable regulation and taxation.”
Rival FanDuel is also set to get involved with prediction markets, having partnered with CME Group, but has not yet made a clear statement about whether it will offer sports event contracts. Last month, FanDuel CEO Amy Howe told InGame that FanDuel would have the “flexibility to pivot” on sports event contracts, but that its steps in that space would depend on the “regulatory environment.”
Most other major sportsbooks have also avoided taking such a clear step into the world of sports event contracts. Daily fantasy business Underdog, though, is already offering sports contracts via a partnership with Crypto.com.
Only in non-sportsbook states
The DraftKings Predictions product will only be live in states where DraftKings is not already a licensed sportsbook, Robins said, in an attempt to balance the company’s prediction market goals with protection of its licenses. Regulators in Arizona, Ohio, Illinois, New York, and Michigan have warned sportsbook licensees about getting involved with prediction markets.
“We will be thoughtful in how we launch DraftKings Predictions and do so in a way that is respectful of other stakeholders,” Robins wrote. “As such, we plan to focus on the states where we do not offer Sportsbook, which also is where we believe the vast majority of the financial opportunity exists.”
Some regulators have told licensees that even offering prediction markets in another state or partnering with a company that offers them in another state could make a company unsuitable for a sportsbook license – even if they don’t offer the contracts in the state in which they hold a sportsbook license. However, it appears that DraftKings is willing to take that risk for now.
Robins says, ‘We will win’
Robins added that DraftKings is well-placed to “win” with prediction markets. He said the company would deploy its database and its media partnerships – including its new deal with ESPN, signed Thursday – to boost its prediction market offering.
“We will pursue this opportunity, we will compete, and we will win,” he said. “For the same reasons that we have been successful competing in the sports betting industry, we expect to succeed here. Our capabilities are superior when it comes to customer acquisition, product development, regulatory compliance, responsible engagement, and the many other critical factors it will take to win in the space.
“Our database will be a strong competitive advantage. Add in our new agreements with ESPN and NBCUniversal, and DraftKings will have an even stronger presence across the sports landscape in the years ahead.”
However, he added that the business was not planning to spend a large amount of money investing in prediction markets.
“We will be measured in our investment level, understanding that gross profit payback periods need to be shorter relative to our more established product lines, where we have more predictability around what customers we acquire will be worth over time,” he wrote.
DraftKings Q3 results
The announcement came alongside third-quarter results in which DraftKings was hit by “customer-friendly” sports results. Revenue rose year-on-year, but by a modest 4% to $1.14 billion.
In terms of adjusted earnings before interest, tax, depreciation, and amortization (EBITDA), the company made a loss of $126.5 million, more than double the adjusted EBITDA loss a year earlier.
DraftKings downgraded its full-year expectations for both revenue and adjusted EBITDA. It now expects revenue to fall between $6 billion and $6.2 billion, and adjusted EBITDA to be between $450 million and $550 million.
“This is the most bullish I have ever felt about our future,” Robins wrote. “Underlying growth in the business is accelerating and we are excited to launch DraftKings Predictions in the coming months, which we view as a significant incremental opportunity.”
