‘We’re seeing incredible growth in our existing markets’

DraftKings shares jumped after beating earnings estimates. DraftKings CEO Jason Robins joins Yahoo Finance Live to discuss the company’s third-quarter earnings report and weigh in on the future of the sports betting industry.

Video Transcript

ZACK GUZMAN: Welcome back. Sports gaming company, DraftKings and seeing a nice pop today after a strong earnings beat. The company also raising its fiscal year 2020 guidance. Our own Dan Roberts joins us now for more on that, along with the CEO of DraftKings, Jason Robins. Dan, I’ll send it to you.

DAN ROBERTS: Thanks, Zack. Yeah, delighted to Jason on. Jason, thanks for being here with us again.

JASON ROBINS: Thanks for having me.

DAN ROBERTS: So as Zack mentioned, you released your earnings this morning and you guys raised your guidance. I think that gave the stock a nice boost. Now you mentioned in the earnings, of course, that’s contingent on the sports calendar. And we are seeing these cases rise across the country right now. I guess I’d start by asking how much that could derail you guys in the next six months or so–

–Especially you have college football and the SEC and Big 10 have both had to cancel a lot of games. We’re hoping college basketball is going to start, but it’s anyone’s guess. Are you guys prepared for what might be kind of a second round of sports coming off the table, which you weathered so well in the beginning of the pandemic?

JASON ROBINS: Well, first of all, that’s something that’s not within our control unfortunately. So we don’t spend a whole lot of time trying to figure out how much it could impact things. And we’re extraordinarily well capitalized, so any short-term disruptions to the sports calendar really will have no effect on the long-term business prospects. That said, we’re a sports company, so certainly the game is being played and not having cancelations is important for us to be able to deliver on our numbers.

We do have some push and pull on each side. So for example, in the college football realm, we did include additional games, but we haircut it a little bit. And also, we haven’t included any new states next year. So even if you were to see a little bit of disruption in sports, that could be offset, whether it be any new states that launch. So there’s certainly things that we’ve been conservative with. And hopefully, there won’t be any disruption to sports, but if that occurs, we’ll be fine we think, because over the long term, it really isn’t going to affect our business.

DAN ROBERTS: You mentioned launching in new states, you guys now have mobile betting operational in 10 states. And you also mentioned on the earnings call, the team deals that you guys have signed with the Cubs and the Eagles, and I know that you’re ramping those up. What right now is the growth engine for the company? Is it watching more states legalize and hurrying up to launch physical sports books and mobile betting in those states? Is it signing those individual franchise betting sponsorships? What’s really driving the growth for you guys moving forward?

JASON ROBINS: It’s a combination of things. We’re seeing incredible growth in our existing markets. New Jersey, which is in its third NFL season, is up triple digits again year over year. So really excited to see that. And it gives us confidence that, hopefully, other new states that we’re launching now will continue to grow for many years to come. Of course, new states helps. We just watch Tennessee a couple of weeks ago. We’re hopeful that we’ll be able to launch Michigan and Virginia in the new year, although neither of those are included in our guidance.

And then there’s also a number of new states that have legislation that they’re going to be considering in the coming year, including three states. South Dakota, Louisiana and Maryland, which had ballot initiatives passed. So hopefully, we’re going to see a really active legislative state legislative calendar in the coming year. And the first half is really when most states meet, so I think we’re going to see a lot in Q1, Q2 that will tell us what the pace of legalization is going to look like.

DAN ROBERTS: You guys are spending a fair deal on customer acquisition right now, which has worked pretty well. But spending a lot on TV ads. We’re seeing a lot of those DraftKings ads right now when we watch sports. In many ways, it feels like 2015 when you guys were really flooding the airwaves. Is there a time in the near future when you imagine you can kind of slow down that customer acquisition spending and focus on other investments? I mean, at some point, you don’t want to be spending so much on the ad blitz.

JASON ROBINS: Well, I think we’re in a very early stage of the industry right now. This is the customer acquisition stage. Put it in perspective. We had two states live but online sports betting to start last NFL season. We’re in 10 now. So it’s a lot of new customers that are for the first time ever, able to bet on the NFL on DraftKings. And we’re working hard to get them on the platform.

We’re extremely data driven, so we don’t really look at it so much as we’re spending now and not later. We look at it as we’ll spend when the data says to spend and we won’t when it doesn’t. Put it differently, if I told you you could give me $1 and I was going to hand you back $2 next year, you’d probably do it. So that’s kind of the way that we look at data and analyze our customer acquisition spend. And if we continue to see good things, we’ll continue to invest.

To your point, the natural sort of expectation one might have, the natural pattern that you would expect the industry to follow, and it was no different than daily fantasy sports, is there’s a heavy customer acquisition period, and then there’s a profit taking period that occurs afterwards. But the interesting thing here is, it’s happening state by state. So you’re going to have states like New Jersey that might be in their fourth or fifth year time when other states are in their first year.

And I think our sophistication on the marketing side, our ability to have automated systems deploy spend and our data-driven nature are going to give us a real advantage in a very complex environment to know how to make investments smartly and return well on our investor dollars

DAN ROBERTS: Jason, let’s end on this. We’ve got the Masters going on right now. Unheard of, because of COVID, we’ve got the Masters going on in November, very exciting. And the ratings actually for pro golf have been pretty good across the board. But interestingly, you zoom out, and in the summer and the fall, live sports TV ratings really took a major dip.

The NBA Finals were way down, Kentucky Derby was down 60%. Even the NFL through the first six weeks saw a ratings dip. Of course, everyone debates what they think the cause was. But you guys are directly involved here, because more eyeballs watching the sports is good for you, more people doing fantasy, more people betting. What do you make of that live sports TV ratings decline? What do you think the cause was?

JASON ROBINS: Well, first of all, we’re seeing the exact opposite in our numbers. So my guess is that where there are drop-offs, it’s the very casual viewers and not people that are more those that we’re after. We’re seeing the exact opposite. Our numbers are all way up year over year across sport. So I’ll start there. As far as what might be driving some of the differences this year, there are so many variables this year in play, from sports calendars overlapping to the election that it’s really hard for anyone. It’s nice to speculate, but no one really knows.

I do recall four years ago when the NFL dipped and everyone was like, is this the end of the NFL? And turned out the election had a bigger impact than people thought on sucking attention away from viewership. So we’ll have to see if that’s the case here. But just intuitively, it makes sense that when a large percentage of the country’s attention is taken away from sports and they’re glued to channels like CNN and Fox News instead, they’re probably not going to have same type of viewership levels in the NFL that they would have in a non-election year. So that’s my guess. But there’s so many moving parts this year, that it’s really hard to tell.

DAN ROBERTS: All right. Great stuff, Jason. Thanks so much. Talk to you again next quarter, and I’ll kick it back to Akiko Fujita.

AKIKO FUJITA: All right, thanks so much for that, Dan, and I’ll thank Jason as well.

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