With sports betting now legal in 38 states, it's easy to presume DraftKings' (DKNG 3.94%) highest-growth era is in the past. DraftKings' fantasy sports is offered in all of them (plus a few more), while its sportsbook app is available in 25 of them. More states are apt to legalize sports-based wagering, but that could take more time and effort than was needed to get the first 38 on board.
Such an assumption, however, ignores an important detail about how long it takes DraftKings to reach its full revenue and earnings stride once it sets up shop in a state.
It takes time to get things going
The U.S. Supreme Court lifted the federal ban on sports betting in 2018. DraftKings hit the ground running, producing meaningful revenue later that year in states that, in turn, legalized sports-based wagering.
Even so, it took time to build each state's business. How much time is required before each market reaches its potential? That's just it -- we don't know. What we do know is that the earliest presences that DraftKings established are still growing their revenue through their fourth year of operation.
Image source: DraftKings' 2023 Investor Day presentation.
Although not shown, profitability improves in a particular state the longer DraftKings operates within it. That's largely the result of continued user growth and a decrease in marketing outlays.
Profit growth to outpace revenue growth
In other words, neither the revenue nor the profit margins DraftKings is reporting right now reflect how well the company will likely be doing five years from now. Even if no other states legalize sports wagering or online casino games between now and 2029, this company is going to be markedly bigger in terms of revenue production by then.
It's also likely to be far more profitable than most investors anticipate. DraftKings' own outlook from late last year suggested a top line of $7.1 billion was in the cards for 2028, with earnings before interest, taxes, depreciation, and amortization (EBITDA) likely to roll in at $2.1 billion the same year. Both are well above current comparisons.
