Why DraftKings Acquired Its Tech Provider

DraftKings (DKNG -0.87%) went public in April 2020 via a merger with a special purpose acquisition company (SPAC). But the deal was actually a three-way merger, with DraftKings also combining with SBTech, the tech company behind its platform.

That's a lot of complexity for a young company to navigate. But Co-Founder and CEO Jason Robins believes bringing SBTech in-house was critical to his company's success. On this clip from Motley Fool Live's "Industry Focus," recorded May 19, Robins explains to "Industry Focus" host Nick Sciple why the company believed it was necessary to do the deal.

Nick Sciple: One of the points you mentioned is automation. One of the points of difference with DraftKings is the SBTech acquisition, you're in the process of integrating that. How does that fit in with DraftKings' differentiation? You mentioned data earlier, benefits of scale. Does that generate benefits to scale as you build out a nationwide brand?

Jason Robins: Having control of our vertical product, tech stack, or trading, we realized pretty quickly that that was a critical thing for us. We're, at the core, a product and technology company, and we have a great relationship with our third party that provides those services now, but it just wasn't something that we felt made sense long term, to take such a big part of the customer experience, the product, and have so much of it done by a third party where we didn't have full control over what we could do. We have a very ambitious product roadmap once we complete the migration, which we expect to be at or before the end of Q3 this year, onto our own proprietary technology, SBTech. Then we have lots of things planned over the coming years that we wouldn't have been in control before if we hadn't made this acquisition. I think that was really important, and it also stems from a belief that it's not just who we are but it's important in this market and to this customer that the customer will demand the best experience and that ultimately it's a viral enough market and people talk enough that, if you're providing a superior experience, then that's going to be what keeps the best stickiness and draws the most new customers in. There's also a monetization component. If you offer more ways to bet, your LTVs [lifetime value] will go up, and I think that then has a reinforcing thing where you can continue to be more aggressive on the marketing side because you have higher LTVs than the competition. For all those reasons, I think it's really important to control your entire product and technology stack if you're going to be a major player in this market. We realized that pretty quickly early on and this is a move that we've been contemplating since really late 2018, early 2019. It's been a long time coming and we're pretty excited that we're coming up toward where we're going to be fully migrated and finally be 100 percent in control of our own destiny.