TRANSKRIPT 🔗
00:00:06
Speaker 1: Cheers to DraftKings plunging on a 2027 earnings forecast that missed estimates. Investors also not happy with third quarter revenue and a cut outlook for the fiscal year 2026. Shares down about 26% right now. We're joined by the CEO of DraftKings, Jason Robbins. Jason, To me, this was all about prediction markets, not in the sense of competition, but in the sense of stepped up investment in what you're doing with prediction markets. You said $ 650 to $ 700 million as a result of this. Why are prediction markets so expensive for you to build out?
00:00:38
Speaker 2: Well, it's not the build-out. We actually built out, I think, what is now the best-in-class sports offering for much less. Most of that was marketing investment to acquire customers. We had unbelievable customer acquisition paybacks with the cohort we acquired so far this year. So we leaned in, and this was one where we messaged that we were going to follow the data and spend more. I think it was a lot more than people thought. There was some sticker shock. I do think if you look at our earnings materials, we disclosed a lot of data on the paybacks and what the returns on those investments are, and they look extremely attractive. So I think once that dust settles and we start to be able to show that, that people will see it was a good investment, but there was certainly a reaction to the short term, and I understand that. But I think this will prove to be the right move for us over the next year or two.
00:01:31
Speaker 1: Just a few months ago, you expected to invest only $ 200 to $ 300 million in in predictions this year. Do you think some of the sell-off is because investors might not have the confidence that it sticks to 700 million, it doesn't become 900 million?
00:01:45
Speaker 2: I don't know about that. I mean, I think the fact that it was much higher than previous, if you look at what that means for earnings this year, it reduced our earnings. And that's what people are upset about. I hope people don't think we're going to spend more. That's already quite a bit of investment for this year. And we did also note that we are getting a great return on that. Of that money we're spending, the customers we acquired, not even the ones that we are going to acquire the rest of the year, just the ones we acquired to date, are going to generate $ 350 million of gross profit next year. So you can see why we're excited about the paybacks on this and feel very good about that investment. And this really is very similar to how we've always managed the business. There was a period where we were loss-making in 2022 and 2023, in the early 2023, where we were investing into things and people were a little skeptical of it. And now they're like, okay, I get it. Those cohorts look really good and are producing real cash flow in the core business, the non-predictions part of the business. So I think this one's a little unique because you have the regulatory uncertainty. So I think that's part of what makes investors skittish about it. But I think what made us feel some conviction that this was the right thing is that even in a regulatory scenario where sports contracts go away, we still will be able to pay back these cohorts in roughly four years, which is a bit longer than our typical three-year target, but still something I think that's acceptable given the paybacks are much, much better in the event that sports contracts do stick around.
00:03:16
Speaker 1: Do you think that sports contracts will go away? It looks like this is going to go to the Supreme Court. What chance do you think it has in surviving?
00:03:24
Speaker 2: Oh, I can't predict that. I mean, there's, you know, anybody who tells me they can't.
00:03:29
Speaker 1: But you're spending a lot of money on something that might not be a legal business, right?
00:03:34
Speaker 2: Well, yes, but we also have cross-sell into other non-sports contracts as well as other products we have like Lottery and Pick Six. So our 26th cohort is going to pay back before what the projected Supreme Court decision date is. So that investment we definitely feel good about. The 27th cohort we think will not entirely pay back by then. Obviously the court date could get pushed out, but it will end up paying back just a couple years later. So we also feel like that's the right decision. But coming back to what you're saying about the uncertainty, here's how I would think about it. If you look at the landscape, whether it's the traditional prediction market operators like Poly Markets and CalSheets of the world, or whether it's our traditional competitor set and the legal regulated gaming market, the Fan Duels of the world, I think if you look at all of that competitive set, We are the only company that has positioned ourselves where we are in a great spot either way, regardless of what the court outcome is. They are really counting on it. If you're a traditional prediction market operator, you're counting on that going your way. Otherwise, the whole business is in shambles. And if you're one of our traditional competitors who hasn't been able to make the progress that we've made on the predictions front, you're really counting on it getting shut down. Otherwise, you are way behind in something that now is a real part of the industry. So I think that's strategically how we've tried to position ourselves. And I don't think investors quite get that yet. But I think we should get credit for that, that Sure, it costs money. I'm not saying it's free. We do think we're going to get a return on that money, but we've also strategically positioned ourselves so that we are not dependent on an outcome that we have no control over, whereas everyone else virtually in our competitive set is dependent on that outcome.
00:05:21
Speaker 1: Jason, we only have 30 seconds, 20 seconds left. Just on prediction markets, what role do you think they played in this year's elections? I mean, Kalshi and Polymarket are doing a victory lap right now, just very briefly.
00:05:31
Speaker 2: Well, I think obviously people looked at prediction markets to see how they were doing. We had a lot of traffic for that. There's not a lot of volume in terms of people actually going in there, though. So I'm not sure how accurate some of them are. The ones that have decent liquidity that really, you know, the bigger ones are probably pretty reflective of sentiment. But there's a lot of smaller ones where you can move the needle with very small volume.
00:05:55
Speaker 1: All right. Jason Robbins, always good to catch up. CEO of DraftKings joining us from Boston.