[toc]DraftKings CEO Jason Robins at least hinted at the idea that his daily fantasy sports company could eventually take a look at being a part of a future legal sports betting market in the US.
DraftKings and the future of sports betting?
Robins was attending the Web Summit in Portugal; you can see an interview with him here. At the summit, DraftKings announced that it would be providing live streaming of EuroLeague games. DraftKings and the pro basketball league signed a deal this summer.
There was also this nugget:
FWIW, @DraftKings CEO Jason Robins also said company will weigh options if sports gambling is legalized nationwide. Could become sports book
— Eben Novy-Williams (@novy_williams) November 7, 2017
That’s pretty vague, but that DraftKings (and FanDuel, for that matter) would be interested in a potential US sports betting market shouldn’t shock anyone.
@deepdfs @olueeee @Icewata810 @DraftKings I'm having the same problem with DraftKings Sportsbook and FanDuel Sportsbook today it's not reading my location on either 2021-01-26 02:19:01 @joethomaiv @DraftKings @Verizon I've tried to and it won't work. Why DraftKings Is Down 7% Today The online sports betting company's shares are up 250% since it went public earlier this year. .Reward tiers are as follows: $3, $10, $100 and $500 are awarded as site credits and can only be used on DraftKings. $1,000, $10,000 & $25,000 are issued. View the latest odds and bet online legally, securely, and easily with the top rated sportsbook. Place a bet now!
Both companies sent representatives to the Global Gaming Expo — the world’s largest gaming conference — in Las Vegas last month. And while that had something to do with their DFS products, it’s foolish to think that’s the only reason either of them was there.
There are a lot of “ifs” about the legalization of sports betting. And there are plenty of reasons why DFS sites will find it challenging to become sportsbooks in the short term, if sports wagering becomes legal. But they also have some advantages.
First off, how would a DFS site as sportsbook work?
There are a lot of questions about how a rollout of legal sports wagering will go down in the US. But the most likely scenario is state-by-state regulation if New Jersey wins its US Supreme Court case involving sports betting.
Sports betting becoming legal nationwide would take a new law and a federal framework from Congress, something that is still difficult to envision in the short term.
That leaves an environment where sportsbooks go live piecemeal around the US, as new state-level laws go on the books (like the one we just saw in Pennsylvania).
So what’s the path of least resistance for DraftKings to become a sportsbook if that happens?
States are likely to give sports betting licenses to already-licensed gaming entities, or allow them to conduct sports gambling, in that scenario. Those casinos, horse racing tracks, etc. could then provide single-game sports betting. Those entities would likely partner with companies that specialize in running sportsbooks. (See the Nevada sports betting industry, for example.)
That leaves an opening for DraftKings to partner with a company that already has a sports betting platform and leveraging its database of US users. (That’s more than 4.5 million actives and eight million total registered users, according to the company earlier this year.)
Anyway, that’s just one plausible scenario of how a DFS site could get involved with sports betting.
There are still real-world problems of putting DFS and sports betting next to each other
Despite that possible path, there are myriad problems confronting DFS platforms getting into the sports betting business. Here’s a short list of the issues:
Draftkings Sportsbook Down Down Alternative
- Despite the law in PA authorizing online sports betting, it’s not clear that other states that want to legalize sports betting will do so outside of a land-based setting, initially. (Still, the user databases of DraftKings and FanDuel would be valuable commodities.) But DraftKings and FanDuel, as online products, are intriguing.
- DraftKings is used to working with a variety of regulatory bodies. There are 17 different DFS laws on the books (and possibly 18 soon). They are also licensed in the United Kingdom and by Malta. Still, outside of its UK license, it is not used to the kind of regulatory scrutiny that comes with being in the gambling sector. DFS sites becoming full-blown gambling operators would be a new world, to some extent.
- All the above states have basically given DraftKings and FanDuel a carveout to operate outside of their gaming laws. How those states (and others) would view a hybrid DFS/sports betting platform is unknown.
- The major US pro sports leagues all have varying degrees of interest and partnerships with DFS sites. The NHL and the MLB both have equity in DraftKings, for instance. While the leagues’ acceptance of sports betting has evolved in recent years, are they interested in having an actual investment in a sportsbook?
And that’s not an all-inclusive list of potential stumbling blocks.
The potential for sports betting is immense in the US
There’s little doubt that DraftKings would benefit from becoming a sportsbook down the road. You only have to look at the numbers from Nevada in September to see why.
Nevada sportsbooks handled over half a billion dollars in that month alone. That would be roughly a quarter of what DraftKings handles in the entire world for the entire year. (Here’s a primer on handle vs. revenue, lest anyone confuse the two things.)
The ceiling for sports betting is undoubtedly higher than the current market for DFS. That’s why, at some point, you’re likely to see more of an effort on this front from the established DFS industry.
Draftkings
DraftKings on Jan. 24 announced the launch of its mobile and online sportsbook in Virginia, which now represents the 12th state in the US where the online sports betting and gaming company’s product is available.
The launch came ahead of the Super Bowl, which is scheduled to begin in the first week of February. DraftKings (DKNG) rolled out its online and mobile sportsbook in the state of Michigan on Jan. 22. States like Virginia and Michigan have already legalized online sports betting and many other states in the US are also looking at doing the same.
Earlier this month, the Governor of New York, Andrew Cuomo, indicated his support to legalize online sports betting and said, “New York has the potential to be the largest sports wagering market in the United States, and by legalizing online sports betting we aim to keep millions of dollars in tax revenue here at home, which will only strengthen our ability to rebuild from the COVID-19 crisis.”
The company has yet to announce its 4Q results. At its most recent 3Q earnings release, DraftKings raised its FY20 revenue guidance from a range of $500-$540 million to a range of $540-$560 million. (See DKNG stock analysis on TipRanks)
DraftKings’ shares were down by 1.9% and closed at $52.53 on Jan. 22.
On Jan. 20, Morgan Stanley analyst Thomas Allen upgraded the stock from Hold to Buy and raised the price target from $39 to $60. Allen is bullish on the stock citing “impressive sports betting and iGaming trends.”
“We also expect DKNG to start to talk about profitability in NJ [New Jersey], as FanDuel did, countering the bear thesis that the industry will never be profitable,” Allen wrote in a note to investors.
“Bringing this all together, we expect Street 2025e EBITDA to rise from $434m today closer to our new $1B forecast (up from $761m). With us still forecasting US sports betting revenue/adult at a discount to Australia/UK, potential for greater share concentration, and a few slower growth peers trading at >30x, further upside looks attainable with our bull case now $179,” the analyst added.
Wall Street analysts are cautiously optimistic about the stock and the consensus is a Moderate Buy with 13 analysts recommending a Buy, 5 analysts suggesting a Hold, and one analyst recommending a Sell. The average price target of $63.89 implies 21.6% upside potential to current levels. Shares have jumped by 22.2% in the past three months.
Related News:
Wabtec Secures Order From Singapore Mass Transit
IBM’s 4Q Revenues Of $20.4B Disappoint; Shares Fall 7.3% After Hours
United Airlines Posts Wider-Than-Feared Loss of $1.9B In 4Q; Street Says Hold