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How a 2018 Supreme Court Ruling Jumpstarted DraftKings' Growth

By Motley Fool Staff - Updated Jun 25, 2021 at 5:10PM

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Moving beyond daily fantasy and into gambling has opened up new opportunities for the company.

DraftKings' (DKNG 3.05%) shift from daily fantasy sports games to online gambling has helped boost growth. It took a ruling from the Supreme Court for that to happen.

In 2018 the Supreme Court ruled the Professional and Amateur Sports Protection Act, which outlawed betting, was unconstitutional. That opened the door for states to allow gambling, and provided an opening for DraftKings and other gambling companies. 

On this clip from Motley Fool Liverecorded May 19, DraftKings co-founder and CEO Jason Robins tells Industry Focus host Nick Sciple he has been surprised by how quickly the sports betting business has ramped up, and gives the reasons he is optimistic that growth can continue. 

 

Nick Sciple: You mentioned that the Supreme Court decision in 2018, we just passed the three-year anniversary of that. How has the business changed in these past three years?

Jason Robins: Well, it's really changed a lot. At its core, it hasn't changed. We always were a consumer product and technology company. We always had a heavy internal reliance on having great products and tech, great data science and analytics. It's the core way we operate our business, and how we look to optimize our LTV [lifetime value] to CAC [customer acquisition cost] hasn't changed. But as we've expanded into online sports betting and iGaming, the focus has really shifted a lot toward those products. We still do have a great [Daily Fantasy] product. We have a team that's constantly working to improve it. We've added a lot of features and social stuff over the last year or two. But so much revenue and so much customer growth is coming from the sports betting and iGaming products that that naturally is the place we're focused. The way we look at it is Daily Fantasy Sports is that steady, reliable way to engage millions of customers, churn out revenue as nice growth, but not blow-your-socks-off growth, and then that hypergrowth is coming from the launching of sports betting and iGaming in new states. Even in the States, you mentioned the three-year anniversary New Jersey launched just under three years ago and we're still seeing tremendous growth there. I think much like what we saw in Daily Fantasy, it was nationwide, so it's a bit different, it's on state-by-state. You're going to get several years of growth as you introduce new products into markets when there's very large TAM like there is for sports betting and iGaming. We haven't seen that slow down at all, which has been amazing. That's really what's driven us into that triple-digit growth as opposed to Fantasy, which is like high-single-digit, low-double-digit growth at this point.

Sciple: We see some of these numbers. New Jersey is right up there with Nevada when it comes to total handle. Have these numbers surprised you? How does it compare to your expectations?

Robins: Absolutely surprised me. I knew that this was a big market, but I didn't realize how big. It's bigger than we thought. I think the iGaming side in particular is just orders of magnitude bigger than what we thought, but sports betting is, too. I think what's really been interesting is, over the last couple of years, we've seen a bit of an acceleration somewhat due to the effects of the pandemic. I think more states are in need of revenue, more people are engaging with online products as opposed to in-person products given the stay-home nature of the pandemic. But there's also just been a tremendous amount of momentum in the industry. I think people that weren't paying attention when their state opened up because it was just one or two or three states and it wasn't getting as much overall national attention, now everyone's paying attention and we're getting more and more inbounds from customers all over the country saying, "When is this coming to my state?" I think there's just a lot of excitement around the industry. Clearly, it's a big market. We're looking forward to continuing to hopefully see that momentum, though we're still in the very early days. To use a sports analogy, we're in spring training, the regular season hasn't really started yet, so it's still very early. The good news is that if we just continue to see more and more states open up and we continue to just do what we're doing, we're going to see incredible growth over at least several more years.

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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