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DraftKings CEO Sees Potential Growth in In-Game Betting

26th May, 17:03

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DraftKings CEO Jason Robins says the company is developing more in-game betting opportunities for users of the company's popular sports wagering website, calling it "our No. 1 focus from a product perspective."

"In the U.K., in-game is about 75% of the revenues at sports books and here's it's much lower," Robins tells Barron's. "You can bet on almost anything in an EPL (English Premier League soccer) game including who will get the next yellow card. Arguably, U.S. sports like baseball are better built for this because of the stoppage in play."

"Think about baseball, there is so much opportunity to make prop bets," Robins says, referring to wagers unrelated to the outcome of the game. Outside the U.S., tennis is popular for in-game wagering. "People are betting on every point. It's literally at that level," Robins says.

Viewers of the charity pro-am golf match on Sunday between the team of Tiger Woods and Peyton Manning against Phil Mickelson and Tom Brady got a chance to see DraftKings in-match odds onscreen during the broadcast. DraftKings (ticker: DKNG) offered betting on the individual holes and the overall match, which was narrowly won by Woods and Manning.

The match was the biggest golf event ever for DraftKings, doubling its previous top handle, a company spokesman said Tuesday. The in-game betting was a major factor, and golf is well-suited to it.

Shares of DraftKings were up more than 3%, at $30.08, at midday on Tuesday. The stock has surged about 70% since April, valuing DraftKings at $10 billion, behind only Las Vegas Sands (LVS) in the U.S. gambling sector.

DraftKings has been on a roll in the past few months even though major U.S. sports are on hold. The company had a strong first-quarter pre-Covid 19, and went public in late April when it completed a merger with Diamond Eagle Acquisition, a special-purpose acquisition company. The deal had been unveiled in late 2019.

Investors' enthusiasm is being fed by the company's asset-light online focus and expectations that mobile sports betting will be legalized in more states in the coming years.

"We think that being a digital-first company has some pluses, in addition to the general migration to online channels," Robins says. Younger bettors like sports and prefer to wager on their phones.

DraftKings is live in seven states, including New Jersey and Pennsylvania, with another seven having legalized online sports betting.

On the company's first-quarter conference call earlier in May, Robins said he was still comfortable with prior projections for 2021, notably about $700 million in revenues.

"We're expecting the sports calendar to be full enough for us to achieve those numbers," he says.

Robins is looking ahead to what could be a busy second half of 2020 with Major League Baseball contemplating a start to the season around July 4 and the National Football League set to begin on schedule in September. Add to that marquee postponed events like golf's Masters Tournament now on tap for November and the French Open tennis tournament, which is set to start in late September.

Without major sports, DraftKings has seen surprisingly strong interest in fantasy sports and betting on a range of what is still being played, including e-sports, Korean baseball, German professional soccer, and table tennis.

Robins says having the best in-game offering will help differentiate DraftKings in a competitive market. The company and FanDuel have leveraged their leadership in fantasy sports to top positions in online sports gambling.

New Jersey has become the most important market for both online sports wagering and "igaming," or online casino betting. FanDuel is controlled by Flutter Entertainment (PDYPY), a leading U.K. betting company. DraftKings' market share in New Jersey is estimated in the 30% area.

The investor excitement about the growth prospects for online sports betting in the U.S. is evident in the valuation of DraftKings, which is valued like a cloud computing stock at about 14 times next year's projected revenues. Some analysts think DraftKings may turn a profit starting in 2023.

The company has outlined a path to $1 billion in annual earnings before interest, taxes, depreciation and amortization (Ebitda), but has not said when it expects to get there. Analysts have estimated that may not happen until after 2025.

The in-game betting market is more developed in established markets outside the U.S. like the U.K. Online sports wagering really got going in the U.S. only in 2018, when New Jersey legalized it.

Overseas bettors could have made a variety of prop wagers on the Super Bowl this past February, including length of the halftime show, the color of Jennifer Lopez's halftime outfit, and the color of the Gatorade.

"Our No. 1 prop bet during the Super Bowl was the coin flip," Robins says. "Believe it or not, people want to be betting on things from the moment the players walk onto the field. By the time you get to halftime, some of the pre-game bets aren't looking so good. People want to keep making predictions and having skin in the game."

"I had someone come up to me the other day and ask me to create a market for the odds that a bird would land on the 20-yard line in one of the opening NFL games," Robins added, noting that "I don't know how we would come up" with odds for such an unusual event.

At odds of 100,000 to one, that person told Robins that he would "put a dollar or two on that; all kinds of things pop into people's minds and we want to be creative."

Write to Andrew Bary at andrew.bary@barrons.com

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