In the two months since COVID-19 disrupted the sports calendar, DraftKings has rotated games the way a casino buffet would change meal options.
Some offerings are esoteric, like a free to play Tiger King popularity pool or German darts, while others stick to the daily fantasy sports (DFS) provider’s bread and butter. Madden simulations, it turns out, do quite well among sports-starved Americans.
In total, DraftKings has introduced more than 50 new free to play pools for its daily fantasy sports customers. The operator is also expanding its sportsbook library in the seven states where it’s legal to wager.
“For a lot of ways this has been business as usual for DraftKings,” says Dan Hannigan-Daley, director, sportsbook product at DraftKings. “We typically like to stay nimble and stay on top of current events and be able to reflect our offerings based on the changing needs and demands of our customers. This is definitely at the extreme end of that spectrum, but we’re well positioned to innovate and continuously create.”
By way of experimentation and improvisation, DraftKings hopes to ride the coronavirus storm through late 2020 into 2021, when CEO Jason Robins expects sports leagues to be operating at full capacity.
“Currently we don’t anticipate any impact to our FY 2021 or long-term plans as a result of COVID-19, assuming the sporting events calendar resumes to a normal state by 2021,” Robins said on a 15 May earnings call.
The barren sports landscape of late spring was unimaginable when DraftKings announced in December that it would go public via a three-way merger with SB Tech and Diamond Eagle Acquisition Corporation. Investors were bullish when DraftKings hit the trading floor on 23 April, and the company’s first quarter earnings report set its stock soaring again despite a net loss of $69m for the quarter. Revenue for the quarter increased by 30% to $89m.
DraftKings could be in for a difficult second quarter, which saw professional sports come to an international standstill until the May return of UFC, NASCAR and Bundesliga. Robins wouldn’t tip his hand to any April or May numbers.
“One week’s story may be different than the prior week’s story,” Robins said. “Right now we’re waiting for the dust to settle before we put any commentary on there about what we’re seeing.”
DraftKings CFO Jason Park said the company has maintained cash burn to $15-$20m per month.
“We are able to achieve these low levels of cash burn to our highly variable levels of cost structure,” Park told investors. “There’s even opportunities to improve that burn rate as we continue to diversify our offerings and grow our igaming activity.”
DraftKings is betting that competitions on popular video game titles like League of Legends and Counter Strike Global Offensive will attract customers to free-to-play pools.
“As those prize pools grow and there’s more appetite to do additional research, and there’s more content getting created, it almost becomes a virtual cycle in that the more content that’s out there, the more informed users feel and they’re subsequently able to end up playing with higher confidence,” Hannigan-Daley said.
“Certainly we provide lots of opportunities for our users to get into these competitions whether that’s a free-to-play so they can test their knowledge initially and try to win money.”
League of Legends entries increased by 50x in the first weeks of stay-at-home orders with contests reaching upwards of $500,000.
In addition to the fantasy side, DraftKings also offers betting on Overwatch and Call of Duty in West Virginia.
“We’re certainly happy with the results that we’re seeing there and hopeful that some incrementality of that sticks even when sports comes,” Hannigan-Daley adds. “It’s working in some ways in that it’s exposing more sports fans to these other types of variants, and we’re hopeful it just broadens the depth of our offering in the appetite of our offering.”
DraftKings also ran contests for NASCAR’s iRacing league and the NBA 2K Players Tournament. But the sports simulation contest with the most interest has been Madden, where on some days there are 10 or more games going on.
“To me it kind of makes sense that there are a lot of football fans who want football year round, and it’s probably even enhanced by the fact that there’s not a lot of other sports on TV,” Robins said. “There could be some potential to extend the NFL season really throughout the year through simulated sports. I think it will also work for other sports, but in particular for the NFL because it’s a scarce product.”
Igaming’s success comes with drawbacks, however. Older bettors who didn’t grow up playing video games may be more reluctant to participate. Frank Carruli, a veteran linemaker and professional sports bettor based in Las Vegas limits his wagers to live sports.
“As a sports bettor, you don’t have many options,” 58-year-old Carruli said. “You can either bet on horse races, bet small limits on sports you know little about like Cactus Tour Golf and table tennis, or do research for the upcoming football seasons in hopes that they don’t cancel the season.”
Online gaming’s popularity among DraftKings’ demographic of younger consumers ensures plenty of overlap, leading customers to choose one type of game over another.
“Across the board it’s mostly our existing customer base,” Robins said. “It’s hard to know if there’s a particular new segment or anything that’s being attracted to any of these new offerings. My guess is it’s mostly existing customers and mostly the same profile of customers we had typically been acquiring.”
Robins predicts that as more states legalize iGaming and sports betting, interest could begin to wane, as happened in New Jersey. When DraftKings introduced its sportsbook to the Garden State, gains in sports wagering cannibalized DFS, according to Robins.
“The degree to which [DFS] will grow, whether it’s low double digits, single digits or flat will depend on how quickly the other states move,” he said.
In the meantime, DraftKings continues to implement new contests that delve away from sports. They’ve introduced contests for reality TV shows like Shark Tank and entered the even murkier waters of politics, running a free pool for a Democratic debate between Joe Biden and Bernie Sanders, which received nearly as many entries as a Super Bowl LIV free pool despite being live for less than a day.
Generally people in the sports betting industry are pretty well aware of the potential for political betting,” Hannigan-Daley said. “Globally it’s a pretty significant market if you look at the UK and Australia. We have DraftKings in those jurisdictions and we understand the value of those types of things.”
In April FanDuel became the first US operator to offer presidential election betting – in West Virginia. Within a day however, the state lottery forced FanDuel to remove political offerings.
DraftKings wants to avoid similar errors.
“We’re going to work very closely with the regulators and with our own internal legal teams to make sure that anything we offer is done at the appropriate timing as well,” Hannigan-Daley said.
All the while, DraftKings is keeping an eye toward the fall and winter, when sports could return at historic volumes. MLB, NHL and NBA seasons are still on indefinite suspension, however.
Those leagues along with the NFL and college football could potentially overlap with marquee events like The Kentucky Derby and The Masters, which were delayed until the fall.
“Usually what we’ve seen is that when there’s more popular sports going on, overall activity and overall revenue go up,” Robins said. “That’s something we see typically in Q4 when we have a lot of sporting activity going on each year. I expect there will be similar impacts but it’s very hard to know, because the combinations are totally different than they’ve ever been in prior years.”