How DraftKings Can Make the Most of Its GNOG Link-Up
In Part 1 of this instalment of our DraftKings/GNOG series, we explored how much of a statement could be made after the former acquired the online gambling asset of Fertitta Entertainment's Golden Nugget.
This has no doubt left many in the industry wondering about the implications that this may have and thrown up many questions about the impact that this could have in the US market.
There is no doubt that DraftKings made a number of mistakes in 2021, resulting in the loss of market share in several key states, with the likes of FanDuel and BetMGM overtaking them in certain niches.
In this piece, we go further into depth about how the acquisition of GNOG could help to propel it back to the top in a market that is becoming increasingly competitive.
DraftKings Stock Price to Eventually Surge?
Since the beginning of the year, the company has lost almost half of its value, despite still having a market capitalization of approximately $21 billion. There have been many different theories posed for the decline in stock price - certainly, the failed takeover of Entain will have had something to do with that, contributing to a lack of confidence in the company's strategy.
However, it is also believed that a drop in registrations in the fourth quarter has also had something to do with this, perhaps due to being outfoxed by competitors when it comes to product differentiation, more favourable promotions and even marketing.
The US investment firm Jefferies has its own reasons for the firm's performance over the last few months, even making predictions as to what might happen in the future.
We expect DKNG to make thoughtful but aggressive decisions," a Jefferies statement revealed. "We believe the business has and should continue to grow in North America, and GNOG (Golden Nugget Online) should provide a valuable engine in iGaming. We believe the prevailing bear case in the market that DKNG is heading toward a funding crunch is least likely, and Mgt. could either provide more specific guidance to this end or prove it out over the longer term. Either would result in the stock achieving significant upside from present levels.
Regarding the firm's potential to be effective in California, the statement also referred to the potential that Texas and Florida may have when it comes to iGaming - two other populous states that are yet to pass legislation.
DKNG should have sufficient funding to execute on CA, which lies reasonably ahead," a Jefferies analyst commented. "FL is possible as well, which could present a minor funding challenge, while TX is somewhat less relevant and unlikely to occur in the next two years by our research. It is also possible that DKNG could manage its burn rate lower with more marketing efficiency as the company reaches critical mass or alter its playbook to invest in a more disciplined manner.
Tweak in Strategy Can Lead to Renewed Confidence
An aggressive marketing approach from DraftKings, especially in new markets such as New York, has seen the firm fail to recoup a significant return on investment (ROI), particularly in the short term, which may mean patience becomes a key.
Interestingly, Fertitta also believes that in the long term, the stock price will increase considerably as developments in the industry and the implementation of DraftKings' plans over the next few years materialize.
"I look at DraftKings as a long-term hold," Fertitta said. "I will be one of the largest shareholders of DraftKings. It is a tech company. You have to remember that. It is technology. You're going to look up in a few years, and it will be like Amazon or Tesla or one of these other tech stocks, and it will be $50 or $100.
When they turn the corner like all tech companies and become profitable, they become really profitable. I saw that for myself running GNOG."
He continued: "I wanted only stock. I wanted to ride this thing all the way up with these guys. This is the best management team in the space."
Despite disappointing financial results at the end of the fourth quarter, there appeared to be a revival in the first quarter of 2022, with $417 million in revenue being generated - an increase of 34 percent from the prior-year period, which posted $312 million.
Jason Park, DraftKings' chief financial officer, said, "We are pleased with our strong revenue and Adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] performance in the first quarter, driven by healthy underlying customer behavior and our ability to capture efficiencies. Therefore, we are increasing the midpoint of our fiscal year 2022 revenue guidance by $50 million and improving the midpoint of our fiscal year 2022 Adjusted EBITDA guidance by $75 million."
Although there are many conflicting arguments as to what direction the DraftKings stock price may go in, there are, of course, many different variables, while investor confidence may also have a major effect.
If Fertitta is right about his predictions regarding how high the stock price might rise, this could well indicate that there is more potential activity and developments to come from DraftKings that may have a significant effect.
He will no doubt be confident about the technological capabilities that Golden Nugget Online Gaming can have for DraftKings, and of course, his willingness to stay on as a board member may also provide many clues as to why this happened.
Immediate Priorities for DraftKings
As quickly as possible, there will need to be decisive action from DraftKings about what it does next, both from an operational and growth perspective, identifying how and where to implement this and creating contingency plans for different eventualities.
It seems almost too obvious that Fertitta will play a major part in this - even perhaps relishing the task to do so and while Jason Robins still retains majority control as CEO, there will need to be substantial harmony in the boardroom and a willingness to cooperate and even compromise.
Reviewing the reasons why there wasn't an immediate return on lucrative marketing spending last year will be fundamental to moving forward and making sure that it avoids a repeat of this mistake.
Whether it was down to using the wrong marketing channels or methods or perhaps the promotions not being creative enough, a deep dive will be needed, and someone of Fertitta's experience, combined with the new channels that he brings with him, can help to recoup some of last year's spend.
After DraftKings opened a sportsbook in Louisiana, the company integrated the majority of Golden Nugget's online casino products, which can act as an effective test case as to how the market responds to this. In turn, the firm will be able to use this data to make at least some vague predictions for how this may work in other states.
Over the next few years, top operator companies in their respective markets, such as DraftKings, are likely to become the cornerstone for consumers, connecting the media, entertainment and technology industries, with there being an attractive iGaming crossover for multiple industries.
This will especially be the case in the US; while already, we have started to see signs of this, indeed, the likes of Fox agreeing a number of content distribution deals with online operators as a way of being able to leverage their brand.
Clawing back market share in certain key states from FanDuel will also have been identified as a priority for DraftKings; Michigan is definitely one that is there for the taking, especially considering that this market has only been open for a little over one year. Corporate sponsorships will almost certainly be high on the agenda, and firming up relationships with more sports franchises in order to facilitate an increase in awareness is likely going to factor in.
Last year, it was announced that the sports betting operator would be the official partner of the NFL, in addition to its fantasy sports deal being extended - news that was greeted with enthusiasm by both parties.
"We're thrilled to renew our relationship with DraftKings as the NFL's exclusive Daily Fantasy Sports Partner and expand it by adding them as an Official Sports Betting Partner," said Renie Anderson, Chief Revenue Officer and Executive Vice President of NFL Partnerships, said at the time.
For several years, DraftKings has helped find new and different ways to engage NFL fans, and we expect that to increase with the evolution of legalized sports betting.
Meanwhile, Robins explained why this was such an important deal for the brand, adding: "The way fans consume sports years from now will look drastically different, and it will be due in part to forward-thinking collaborations like our expanded relationship with the NFL today as an Official Sports Betting Partner and the exclusive Daily Fantasy Sports Partner."
Is There a Limit to What DraftKings Can Achieve?
If, as both Fertitta and Robins predict, the stock price will rise again and hit previously unchartered heights, then this indicates that in terms of potential, the company can go far and, now with the Golden Nugget online division having been added to its asset portfolio, this could perhaps influence growth at a substantial rate.
What goes without saying is that the board will hope for a better return on investment from its advertising spend and getting smarter with this is only going to help in the long term. What is perhaps concerning for the company is that competitors have already perhaps found ways in which they can make sure they are able to target customers that will convert better, using data and analytics to create marketing campaigns that are conducive to their tastes.
Certainly, an operator like Bally's, with all of its technology in place aided by its acquisition of UK online gambling firm, Gamesys, will be looking to capitalize on this, which means that DraftKings will need to use all of its experience and knowledge to make sure they are in a position to respond by taking over some online casinos UK.
Robins is going to play a major part in the future growth of DraftKings, and his single-minded approach to transforming the company into the largest online sports betting brand in the world and, in his words, "the hub of all betting" is a testament to his ambition.
Esports is one area that Robins has taken the company into over the last couple of years, indicating that this is a niche that can be explored further:
We saw people who had been playing eSports and many other offerings continue to play those [even with the return of pro sports], so it seemed to be incremental,
ESports has been a huge story for us the last several months. The growth we saw there was tiny before, behind traditional sports. Now it's our biggest. That's a category that I think we were waiting to see explode. It's a great product where people can watch the stream alongside playing the daily fantasy, so it's a different feel … especially for people without cable, you can do it with an app.
No aspect of betting or gambling is likely to slip through the net where Robins is concerned - his luminary approach found a loophole for sports betting when founding his company, allowing customers to make bets on fantasy sports - at the time proving to be a masterstroke.
He also revealed the story behind his start and how this has helped to shape the business that we see today: I had worked for almost a decade in corporate America, middle management jobs. My two co-founders - the same. We've worked together. Capital One, Matt (Kalish), and I worked at, and then all three of us worked together at a company that was called Vistaprint, now called Cimpress. We always had this entrepreneurial pull but never had good timing. I graduated college shortly after the bubble burst. When I was thinking about leaving Capital One, Matt and I discussed doing a start-up, and it was about mid-2008 at that point, so you can figure out how that went.
Finally, the next time around, it was early 2010, we started having the bug again and talking about it. This time, the timing was right. The only thing is we didn't have an idea. So we spent about six, 12 months just going out for drinks and dinner, batting around ideas. One day, Matt sat me down and said, "Hey, I think I got it," and he told me the basic idea of DraftKings. It took me about two or three minutes to process, and I was like, "This seems really good."
He continued: "I went home, and I thought about it, and I was just excited all night. The next day, it came in, and I said all three of us had to meet up after work. So we did, and that night, we decided this was the one we were going to go for. From there, it's just like a lot of really working nights and weekends. We'll go after work at about seven o'clock to Paul. He had a spare bedroom in his Watertown, Massachusetts house. We'd go there and work 'till about 1:00, 2:00 in the morning. At weekends, we'd wake up around 5:30, 6:00 and do the same thing, work all day."
Finally, we had enough of a prototype. We don't have any customers or anything yet, but we did have a general plan, an idea of what we are doing that we said".
Like all businesses that bootstrap, there comes a time when the founders need to back themselves financially, or at least attempt to raise investment, something which quickly began to occur to Robins: "Look, it might be time to put a little money.", he said at the time.
We decided to put some money in ourselves, and we said, "Well, we might as well get a lawyer." We said, ''All right." So we got a lawyer, mostly just a form of corporation. He starts pushing us, "You've got to go raise venture capital." At the time, there were others that were pursuing a similar idea. We weren't the only ones. We realized we probably did go, and you need to go raise venture capital. We set out to do that, got told no, probably about 50+ times for a guy named Ryan Moore at Accomplice Ventures put some money in, followed by Peter Blacklow, Boston Seed, and a few others, and we put together a $1.4 million seed round. That was the beginning of the business.
To come from where the company has to where it is, you would be forgiven for thinking it echoes the "true American dream", where anyone can come from nothing and make it. For Robins, though, especially when thinking about the next 10 years, the sky probably is not the limit, and Fertitta is joining for the ride.