DraftKings Slides on Forecast, Debuts Gaming Tax Surcharge

02.08.2024 23:33

PYMNTS.com

The sports gaming industry is at a crossroads, with technological innovation, regulatory changes, and consumer habits all combining to drive rapid evolution.

And all three of those themes were central to executive commentary during DraftKings’ second-quarter 2024 earnings call Friday (Aug. 2).

“We very efficiently acquired many more new customers than we expected and saw continued healthy existing customer engagement in the second quarter,” DraftKings Chief Executive Officer and Co-founder Jason Robins said.

Still, the company significantly reduced its adjusted EBITDA forecast and missed certain Wall Street targets, sending its stock down double digits after reporting.

DraftKings revised its fiscal year 2024 Adjusted EBITDA guidance down to $340 million to $420 million, from the range of $460 million to $540 million it gave last quarter, citing the impact of the Illinois tax increase, higher new customer promotions due to outperformance in customer acquisition, the inclusion of Jackpocket and the launch of the Sportsbook product in Washington, D.C. as reasons.

The misses that contributed to the stock’s decline are indicative of the context of broader market challenges and the inherent volatility of the sports gaming sector.

For the second quarter, DraftKings reported revenue of $1,104 million, an increase of $230 million, or 26%, compared to $875 million during the same period in 2023. The company’s materials stated the revenue bump primarily came from continued healthy customer engagement, efficient acquisition of new customers, expansion of its Sportsbook product offering into new jurisdictions, higher structural sportsbook hold percentage and the impact of the acquisition of Jackpocket Inc., which closed on May 22.

“We will continue to capitalize on the healthy customer acquisition environment for the rest of 2024 which positions us to achieve $900 million to $1.0 billion of Adjusted EBITDA in 2025. Additionally, we plan to implement a gaming tax surcharge in high tax states that have multiple mobile sports betting operators on January 1, 2025 which could drive Adjusted EBITDA upside on an annual basis,” CEO Robins said.

Unlocking the Customer Acquisition Environment

DraftKings’ new online sports betting (OSB) and iGaming customers increased nearly 80% for the second quarter compared to the same time last year, while customer acquisition cost declined over 40% year over year.

“We are not seeing an increase in the existing player cost,” executives said during the call’s Q&A session, noting that “more customer acquisition investment … just means bigger numbers longer term over the following years … the market is growing quickly.”

The company cited particular strength in iGaming, which also benefited from the completion of the Golden Nugget Online Gaming migration to the DrafKings platform.

“We invested more into promotional reinvestment in the second quarter than we initially expected due to very strong customer acquisition,” said executives.

DraftKings also announced it was implementing a gaming tax surcharge in certain high-tax states beginning Jan. 1, 2025.

“We now must consider the prospect that some states may choose to tax the industry at a rate that is in excess of what we can absorb while still generating a reasonable profit margin and remaining competitive against the pervasive illegal market that pays no taxes at all,” the company said about the surcharge.

The gaming tax surcharge will only apply to winning bets and will be treated as a separate transaction when paying out customer winnings. The add-on charge will be identified in the bet slip.

PYMNT Intelligence in “Generation Instant: Gamers and Winnings,” a report PYMNTS Intelligence created in collaboration with Ingo Payments, found that although 8 in 10 gamers prefer immediate access to their winnings, less than half of gamers now have access to instant payouts.

More recently, PYMNTS covered how DraftKings announced on Tuesday (July 30) that it was closing down its three-year-old non-fungible token (NFT) marketplace, along with Reignmakers, a fantasy sports game based around NFTs, due to “recent legal developments.”

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