Illustration: Sarah Grillo/Axios
Investors seem to be asking for the over/under on when an online sportsbook can start making money. DraftKings today reported fourth quarter results and laid out a long-term vision for profitability, but investors balked — sending shares down more than 21%.
Why it matters: Online sports betting is a huge and growing market, but competition is fierce. And every time new revenue opportunities open up — like additional states legalizing sports gambling — companies are prepared to spend big for new customers, in the form of advertising and promotions.
The big picture: DraftKings sees a two- to three-year path to profitability each time it launches in a new state, executives said on the company’s conference call today.
- That means that with every launch, like in New York and Louisiana last month, it assumes that for at least two years it'll invest more money than it expects to generate in the state.
- Sportsbooks have been spending heavily on promotions to lure new customers. For example, Caesars recently ran a promotion when it launched in New York matching new customers' first deposit up to $3,000.
- DraftKings currently operates a sportsbook in only 17 states, so there is plenty more room to grow.
Context: DraftKings said that as of today, 10 states are either already contributing to profits, or are on track to this year.
- It said it would have booked an adjusted profit by the end of this year if it hadn’t launched in New York and Louisiana — which pushed back its timeline for profitability to the end of 2023.
- That forecast takes into account expectations for the legalization of sports betting in more states over the next two years.
Yes, but: DraftKings and its competitors aren’t the first companies to chase revenue before profit — and there's no doubt its expansion is generating sales.
- In the fourth quarter, before its launch in New York and Louisiana, DraftKings grew revenue 47% from the prior year, to $473 million.
- It also raised revenue guidance for the next full year to between $1.85 billion and $2 billion, compared to the $1.29 billion it generated last year.
New York's launch was particularly eventful.
- When it launched on January 8, it acquired 100,000 first time paid bettors in less than a day.
- It took 170 days in neighboring New Jersey.
The bottom line: Don't expect the promotions to stop anytime soon. Online sportsbooks know they need to spend for your business.