Sports betting in the US is booming. During the 2021 NFL
season, an estimated 45 million Americans are expected to wager
at least $12 billion. Since a 2018 Supreme Court ruling sports
betting is now legal in more than 30 states.
This is that next frontier that the gaming industry has been
looking for for many years. What we've seen is just massive,
massive levels of engagement, from the perspective of people
that are excited about being able to add this component to
their viewing experience, whether it's in person or at
home in places where you have mobile betting. A flood of
new customers, eager for excitement and risk has made
DraftKings one of the nation's biggest sports books. The
company has live online sports betting in 15 states and its
iGaming casino segment, which includes blackjack, roulette and
slots, is available in five states. Well, I
think right now we're at the very early innings of the
industry, I mean, the company's revenue is almost doubling year
over year per our latest guida ce. We're still live in states
hat on average had been live on y a little over a year and I t
ink about a year and a half. S ill most of the population lef
to legalize and we're talking a out a tam that could be $60 bil
ion plus if there were ull legalizat
In the third quarter of 2021 DraftKings revenue rose 60% from
the year prior to $213 million. During that same period, with
mobile betting launching in several states, the number of
its monthly unique paying customers rose 31% to 1.3
million. And the online sports betting and gaming industry in
the U.S. is just starting to grow. As of 2021 only 4% of
gross gaming revenue in the U.S. was generated online compared
with 45% in a more mature market like the UK. The online sports
betting market in the U.S. is expected to be worth nearly $40
billion by 2033. But critics argue that greater access to
mobile sports betting could lead to an increase in gambling
addiction. The National Council of Problem Gambling estimates
the cost of obsessive gambling in the US is already $7 billion
annually, including fees related to the justice system, health
care, job loss and bankruptcy. So what does the future look
like for legal sports betting in America in what challenges lie
ahead for sports betting providers like BetMGM, FanDuel
and DraftKings. Gambling in the U.S. dates back to colonial-era
America. Lotteries were first used in the English colonies to
finance projects, including paving roads, building wharfs,
and constructing churches. Horse racing got his start in the late
1660s in New York, greyhound racing in 1919 in California and
Las Vegas's first themed resort-casino, the El Rancho
Vegas opened its doors in 1941. Betting on sports became illegal
on a state-by-state basis throughout the early 1900's due
in part to the influence of organized crime and scandals
involving a small number of athletes. In 1992, Congress
passed the Professional and Amateur Sports Protection Act
banning sports gambling nationwide in all but a few
states, including Nevada. Sports betting threatened the integrity
of the game, put adolescents at risk for gambling problems and
put student athletes in a vulnerable position, according
to a 1999 National Gambling Impact Study.
For most Americans who, you know, they bet on sports
socially, they bet on the Super Bowl, they bet on March Madness,
they all thought that, you know, this is harmless and they were
doing it in a legal manner but the reality was they weren't.
The goal
was always protecting the integrity of the game.
Unfortunately, PASPA kind of ended up having a bit of a
counter effect. But instead of actually getting rid of sports
betting what happened was it got rid of legal sports for betting
or most legal sports betting.
By the late 2010's Americans were illegally wagering $150
billion annually through black market offshore bookies,
according to DraftKings CEO Jason Robbins. But in 2018, the
gaming industry was given a boost. Led by New Jersey, the
Supreme Court struck down the sports betting ban, leaving it
up to the states to decide.
And since then, we've been seeing states really one after
the other starting to pass new laws regarding sports betting,
and in many cases, this has been accompanied by new law regarding
accessing gambling via the internet.
And that led to a surge in mobile betting. According to
media reports, New Yorkers were flocking across state lines
making New Jersey, the sports betting capital of the country.
New Jersey was one of the first states out of the box. People
that live in New York City and Manhattan would take the Path
cross the river over to Hoboken for Saturday and Sunday so they
could bet on sports.
We're going not just through the largest and fastest expansion of
gambling our nation's history, but a massive cultural shift
that the likes of which we've never seen.
By September 2021, New Jersey became the first state in the
nation to take in more than a billion dollars worth of sports
bets in a single month. State revenue that month from sports
betting reached $82 million, almost 83% higher than a year
earlier. Pro teams and media companies have also turn to
sports betting to diversify the revenue. ESPN partnered with
Caesars Entertainment and DraftKings, CNBC's parent
company, Comcast invested and FanDuel and NBCUniversal
invested in PointsBet.
There's a huge number of partnerships that have started
cropping up and so the growth as we see it in this commercial
industry is not just driven by the betting industry, but it's
also being driven by sports it's certainly being driven by media
as well.
Sports betting creates a new level of fan engagement and that
is something that it is clear that the league's understand,
clear that the broadcaster's understand.
Sports betting in the US is roughly $2.3 billion business
and includes commercial casinos with mobile ventures like
BetMGM, digital sports books, including FanDuel, the top
player in US sports betting, and of course DraftKings. In the
first half of 2021 sports betting revenue reached $1.8
billion, 19% more than the full 2020 year total. DraftKings got
its start in 2012 as a fantasy sports platform by co-workers
Jason Robins, Paul Lieberman and Matt Kalish out of Lieberman's
Massachusetts apartment. In 2018, the trio launched
DraftKings Sportsbook, becoming the first company to offer legal
online and mobile sports betting in New Jersey. A few months
later, it launched Casino, adding its online blackjack
product to the Garden State. The following year, the company
announced plans to go public merging with a special purpose
acquisition company and SPTech a European tech business. It also
added Michael Jordan as a special adviser to the company's
board of directors in 2020 and created partnerships with teams
ranging from the New York Giants to the Detroit Pistons.
Following a temporary shutdown of major sports due to the
Covid-19 pandemic, Americans found themselves stuck at home,
yearning for big league games and glued to their mobile
devices. The company's revenue surged. At the end of 2020
DraftKings reported revenue of $614 million, 90% higher than
2019. Online gaming, which includes fantasy sports,
Sportsbook, the company's sports betting product and iGaming, the
company's online casino that includes digital versions of
blackjack, roulette and slot machines, made up 84.2% of
revenue. A little over 12% of revenue came from the gaming
software segment, which includes the licensing of gaming products
to other companies. Other smaller sources of sales made up
the remainder.
This, you know, really takes fans that maybe weren't
interested in all kinds of games, and makes them interested
in every game, it takes games that maybe are well out of reach
in the fourth quarter and because the spread or your
fantasy lineup is still in play, people are still watching the
whole way through. You can make prop bets up until the last and
end game bets up until the last play of the game.
And the pandemic helped in ot er ways. Massive tax revenue los
es at the state level sped up momentum for sports gambling.
As of October 2021, sports bett ng was legal in 32 states and
he District of Columbia. he backgro
on this from a state level perspective is the state budgets
are more challenged than they would have been otherwise. And
that certainly has induced state legislatures to consider
legalization, which has accelerated the process that we
would have expected to occur post 2018's ruling. As
November 2021, DraftKings had an average of 1.3 million monthly
unique paying customers. To attract new users DraftKings has
saturated the airwaves with advertisements. DraftKings new
Sportsbook app, you can bet on he games you want anytime you
ant. From January 1 to eptember, 9 2021 DraftKings
ational TV ad spend was up 98% rom the previous year. In 2020,
raftKings spent $495 million on ales and marketing 167% higher
han a year earlier,
We're seeing not just the general public but regulators in
states where sports betting is essentially wide open and
available to the constituency we're seeing backlash from these
regulators who are talking about getting complaints about
extensive advertising.
And in addition to its barrage of TV commercials, the company's
also expanded its reach through acquisitions. In August 2021.
DraftKings bought Golden Nugget Online for $1.5 billion. The
deal brings with it 5 million Golden Nugget casino players. As
of August 2021, DraftKings had mobile or retail betting
operations in 17 states and provided sports and gaming
technologies for operators in 17 countries. It was also an
authorized gaming operator of the NBA and MLB and an official
sports betting partner of the NFL. The Super Bowl is one of
the biggest betting events on the sports calendar. In 2020 an
estimated 22 million Americans bet more than $6 billion on the
game. But according to the National Council on Problem
Gambling, about 4% of those gamblers, or 880,000 individuals
have a gambling problem. This includes betting to escape
feelings of anxiety, viewing gambling as a way to make money
or being unable to set limits on time and money spent. According
to the group, two million Americans have a severe gambling
problem and another four to six million have mild or moderate
gambling problems. Vulnerable populations include young people
and athletes.
We haven't caught up yet with the consequences. Everybody's
focused on the revenue on the good things, on the profits. And
not not a lot of us are thinking about the public health aspects
of this of this huge expansion of gambling this huge shift.
Athletes
are generally wired to be competitive. That's a big part
of what makes them such successful professional
athletes. Those same traits are the types of things that make
might make an athlete more susceptible to gambling harm.
To prevent problem gamblers DraftKings advises users to set
limits on how much money you deposit in your account, how
much money you wager, and on the amount of time you play. The
company has also provided funding to the International
Center for Responsible Gaming and collaborated with the
American Gaming Association to promote a public service
campaign in all 10 DraftKings retail sportsbooks. For most
people, it's never an issue. But the last thing we want at this
exciting stage when everyone's talking about all the great
things happening is to have negative experiences for people.
So this is something we've made a real priority at the company
responsible gaming is actually in our mission statement.
Americans have been betting on sports as long as there have
been sports to bet on. Previously they only bet
illegally and so now we have an ecosystem that is much stronger
to protect the student athletes in the cases of college. The
athletes at the professional level, it brings law enforcement
it brings in, it brings operators who can through
algorithmic analysis look at anomalous betting patterns after
a betting line has been established. And
DraftKings has faced other headwinds too. After its stock
price hit an all time high closing price of $71.98 in March
2021 it turned lower over the next few months after questions
surfaced regarding its future in the highly competitive sports
betting market. A 2021 report by Hindenburg Research alleged that
Bulgarian-based gaming tech company SBTech generates
significant revenue from questionable gambling practices
outside of the US. In a statement, DraftKings said this
report is written by someone who is short on DraftKings stock
with an incentive to drive down the share price. Our business
combination with SBTech was completed in 2020. We conducted
a thorough review of their business practices, and we were
comfortable with the findings. But despite those issues,
analysts remain bullish and say DraftKings could see
profitability as early as 2023. And it could see solid growth
over the remainder of the decade. The company could
benefit from other trends too. The three largest U.S. states,
California, Florida and Texas, which accounts for about 90
million people, or more than a quarter of U.S. residents
currently don't have online sports betting on the books.
That could change as new states gain access to legal sports
betting,
What is my player going to do? How many points is my team going
to score? How many points is the other team going to score? These
games within the game, if you will, really create
opportunities for fan engagement that just didn't exist before.
And I think that it's clear that, you know, leagues and
teams and arenas and even advertisers and food and
beverage guys all recognize that there is high value in sustained
fan engagement and that sports betting is an important piece to
that.
We want to expand geographically we want to expand it a new
product lines, I think we have a proven track record of being
able to do that mostly organically. And I think that
really what we're trying to build is much larger than sports
betting or DFS or iGaming. We want to be a big tech company.
We want to be in the same conversation with companies like
Amazon and in the like. So you know, that is where we're trying
to head.