DraftKings Stock

DraftKings Inc. (DraftKings) operates as a digital sports entertainment and gaming company.

The company provides users with online sports betting (Sportsbook), online casino (iGaming) and daily fantasy sports (DFS) product offerings, as well as retail sportsbook, media and other consumer product offerings. The company is also involved in the design and development of sports betting and casino gaming software for online and retail sportsbooks and iGaming operators.

The company continues to make deliberate and substantial investments in support of its long-term growth. For example, the company has invested in its product offerings and technology in order to continuously launch new product innovations; improve marketing, merchandising, and operational efficiency through data science; and deliver a great user experience. The company also makes significant investments in sales and marketing and incentives to grow and retain its paid user base, including personalized cross-product offers and promotions, and promote brand awareness to attract the skin-in-the-game sports fan. Together, these investments have enabled the company to create a leading product built on scalable technology, while attracting a user base that has resulted in the rapid growth of its business.

The company’s priorities are to continue to invest in its product offerings, launch its product offerings in new jurisdictions, create replicable and predictable state-level unit economics in sports betting and iGaming, and expand its consumer product offerings. When the company launches Sportsbook and iGaming product offerings in a new jurisdiction, the company invests heavily in user acquisition, retention and cross-selling until the new jurisdiction provides a critical mass of users engaged across its product offerings.

The company’s technology is highly scalable with relatively minimal incremental spend required to launch its product offerings in new jurisdictions. The company will continue to manage its fixed-cost base in conjunction with its market entry plans and focus its variable spend on marketing, user experience and support and regulatory compliance to become the product of choice for users and to maintain favorable relationships with regulators.

Product Offerings

The company’s revenues are predominantly generated through its three online gaming product offerings — Sportsbook, iGaming, and DFS. For Sportsbook and iGaming, it operates under both its DraftKings brand and its GNOG brand. The company considers these three product offerings to be of a similar product class, and together they accounted for 96% of DraftKings’ revenues for the fiscal year ended December 31, 2023. DFS, which was the company’s sole product offering until 2018, historically drove its results; however, since it launched Sportsbook and iGaming in 2018, states where Sportsbook and iGaming are operating have accounted for a rapidly growing proportion of its users, which has contributed, in part, to its revenue growth. In addition to its three online gaming product offerings, the company offers non fungible tokens (NFTs) on DraftKings Marketplace (Marketplace), NFT-based DFS-style contests, gaming software services, and advertising and sponsorship packages to targeted advertisers across its DFS product offering, free games, and media content.

Below is a description of each of the company’s primary product offerings and services:

Online Gaming Product Offerings

Sportsbook - Sportsbook engages consumers in their sports viewing experience. Sports betting involves a user placing a bet by wagering money on an event at fixed odds (proposition) determined by DraftKings. In the event the user wins, DraftKings pays out the bet. The company’s Sportsbook revenue is generated by setting odds that are intended to provide a built-in theoretical margin for each proposition offered to its users.

iGaming - iGaming, or online casino, product offerings typically include the full suite of games available in land-based casinos, such as blackjack, roulette, baccarat and slot machines. For these product offerings, the company functions similarly to land-based casinos, generating revenue through hold, or gross winnings, as users play against the house.

The company’s iGaming product offering consists of a combination of games that it has built in-house and licensed content from suppliers, such as International Gaming Technology, iForium, Light & Wonder Inc., Spin, and Evolution for live dealer services. The latter are subject to standard revenue-sharing agreements specific to each supplier, whereby the supplier receives a percentage of the gaming revenue generated from their respective casino games played utilizing its technology. In exchange, DraftKings receives a limited license to offer the games to users in jurisdictions where use is approved by regulatory authorities. Revenue generated through the company’s self-developed major casino games, such as blackjack results in decreased overall revenue share payments as a percent of revenue.

Daily Fantasy Sports - Since its launch, the company has monetized its DFS product offering by facilitating peer-to-peer play, whereby contestants compete against each other for prize money. The company provides contestants with technology that establishes DFS contests, scores the contests, distributes the prizes and performs other administrative activities to enable the skin-in-the-game sports fan experience. The company’s revenue from DFS consists of the difference between the entry fees collected and the amounts paid out to contestants as prizes in a period.

Other Consumer Product Offerings

Retail Sportsbook - In addition to its online Sportsbook, the company maintains retail distribution in thirteen states, in which its retail revenue is subject to individual agreements with third parties that provide for a revenue share. Retail distribution leverages the foot traffic for existing casino and other properties to convert their customers to engage with the company’s retail sportsbook while on the premises. Similar to its online Sportsbook, retail sportsbook revenue is realized by taking the settled handle for betting markets that have been resolved and subtracting the payouts for these betting markets such that the difference is its gross revenue, or hold.

Media, Advertising and Sponsorship - The company’s advertising packages range from standard ad placements and background ad placements to more high-touch integrations, such as sponsored DFS contest series or custom site takeovers. These are typically served and tracked by a range of advertising methods that have been built directly into the company’s product offerings and feature partnerships with brand categories ranging from entertainment to food to automotive. Each advertising package is bespoke, and the company offers each client a custom menu of advertising options, which include online media (such as display, video and audio advertisements and page and skin sponsorship takeovers), custom content, including branded video content, live events, such as sponsored watch parties and sponsored free or paid games, including daily fantasy, pick’em and bracket games. Other packages, such as custom-branded video content or online advertisements, are sold with a guaranteed number of impressions, which are priced per a certain number of guaranteed impressions. Each time a consumer sees an advertisement while playing, watching, reading or listening to a piece of content or playing a game, an impression is counted.

DraftKings Marketplace - The company launched DraftKings Marketplace during the third quarter of 2021. Marketplace is a NFT ecosystem designed for mainstream accessibility that offers curated initial NFT drops (Primary Sales) and allows owners of NFTs on Marketplace to list their NFTs for sale to other Marketplace customers (Secondary Sales). The revenue the company earns on Primary Sales and Secondary Sales is based on a specific percentage of the gross value of each such sale. The company also offers NFT-based DFS-style contests through its Reignmakers franchise.

Gaming Software Services

The company supplies business-to-business sports betting and iGaming services globally, primarily in Europe and the United States, for various gaming operators and government-run lotteries. The company’s gaming software services are primarily comprised of the operations of SBTech (Global) Limited (SBTech), which it acquired on April 23, 2020, with principal activities involving the design and development of sports betting and casino gaming software. The company’s services are delivered through its proprietary software, and its complementary service offerings include trading and risk management and support for reporting, customer management and regulatory reporting requirements. The company’s gaming software services generate revenue from operators by providing sports betting and integration to iGaming content directly to operators in exchange for a share of operators’ revenues.

Offsetting the revenues attributable to the company’s Sportsbook, iGaming, DFS, and Marketplace product offerings is the portion of gross revenue that it allocates to new and existing user incentives and promotions, which are awarded as a result of game play or at its discretion, through loyalty programs, free plays, deposit bonuses, discounts, rebates or other rewards and incentives.

Seasonality

The company’s business experiences seasonality primarily based on the relative popularity of certain sports. Although sporting events occur throughout the year (year ended December 31, 2023), the company’s users are typically most active in the fourth quarter due to the overlapping calendars of the NFL and NBA seasons, which are the most popular sports on its Sportsbook product offering.

Marketing

User Acquisition and Retention – The company’s ability to effectively market is paramount to its operational success. Utilizing a blend of analytics and data science as its foundation, it leverages its marketing to acquire, retain and reactivate users while building a trusted consumer-facing brand. The company uses a variety of free and paid marketing channels, in combination with compelling offers and exciting games. Furthermore, the company optimizes its marketing spend using data collected since the beginning of its operations, as well as additional data that it collects from vendors, partners and data providers.

Where paid marketing is concerned, the company leverages a broad array of advertising channels, including television, radio, social media platforms such as Facebook, Instagram, X and Snapchat, affiliates and paid and organic search, and other digital channels, such as mobile display. For Sportsbook and iGaming, these efforts are concentrated within the specific jurisdictions that have passed enabling legislation and regulations, and in which it operates or intends to operate (which vary on a per-offering basis).

In addition to traditional paid advertising channels, the company cross-promotes its product offerings to its existing user base through internal channels, such as mobile push notifications, email and text messages, and external channels, such as Facebook, Twitter, Instagram and Snapchat. Through those channels, the company uses a combination of content, contests and promotions to engage existing users. Additionally, the company incentivizes it users to refer new users through its Refer-a-Friend program, offering incentives, such as free entries into tournaments or free bets if the referred user ultimately interacts with its product offerings.

League, Team, and Media Relationships - The company engages in relationships with sports leagues, including the NFL, NBA, MLB, NHL, and UFC, and professional sports teams to improve its brand awareness, improve user retention and create unique collaborative integrations for its users.

The company also engages in relationships with media partners including Amazon, which selected DraftKings as a sponsor and official pre-game odds provider for Thursday Night Football (TNF) on Prime Video in September 2022. Under the multi-year agreement, TNF on Prime Video will feature DraftKings integrations in its live pregame, including odds and additional sports betting insights, as well as other TNF-themed offerings. The company also has established partnerships with media entities like Meadowlark Media and iHeartMedia as it seeks to grow audience of U.S. sports fans and potential users.

Distribution

The company distributes its Sportsbook, iGaming, DFS and Marketplace product offerings through various channels, including traditional websites, direct app downloads and global direct-to-consumer digital platforms, such as the Apple App Store and the Google Play store. These two digital platforms are the main distribution channels for the company’s product offerings. The company’s DFS product offering is delivered as a free application through both the Apple App Store and Google Play Store and is also accessible via mobile and traditional websites. The company’s Sportsbook and iGaming product offerings are primarily distributed through the Apple App Store and a traditional website. The company allows its Android Sportsbook and iGaming users to install its Sportsbook and iGaming product offerings through the Google Play Store and its website. The company derives nearly all of its revenue through product offerings distributed via the Apple App Store, Google Play Store and via traditional websites. For all of the company’s product offerings, neither Apple nor Google take any revenue share for distribution.

For its gaming software services, Sportsbook and iGaming product offerings and services are distributed online via the Apple App Store, Google Play Store and traditional websites by operators that have licensed such products and services directly from the company, while retail product offerings and services are distributed primarily via self-service betting terminals and standalone computer terminals. Similarly, Apple and Google do not take any revenue share for distributing those product offerings and services.

Intellectual Property

The company’s business substantially relies on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of software code, patented technology and trade secrets that the company uses to develop and properly run its Sportsbook, iGaming, and DFS product offerings and related services. The company also creates intellectual property that includes proprietary sports betting, iGaming, and DFS-related technology and content, as well as proprietary data acquired from the use of those product offerings.

The company pursues the registration of its domain names, trademarks, and service marks in the United States and in locations outside the United States. The company’s registered trademarks in the United States include DraftKings, and the names of certain of its services and applications, among others.

Government Regulation

DraftKings is subject to various U.S. and foreign laws and regulations that affect the company’s ability to operate its Sportsbook, iGaming, and DFS product offerings.

Outside the United States, the company maintains a DFS license in the United Kingdom. In the United Kingdom, online gaming and sports betting is subject to the Gambling Act 2005 (the GA2005), as amended by the Gambling (Licensing and Advertising) Act 2014, and the regulations promulgated thereunder. Under the GA2005, entities wishing to offer online sports betting (which for purposes of GA2005 is defined to include DFS) and/or online casino services to persons located in the United Kingdom must first obtain a remote gambling operating license from the Gambling Commission. The company holds a remote-pool-betting operating license authorizing it to offer its DFS product offering to residents of the United Kingdom. The company also holds a gambling software operating license issued by the Gambling Commission, which authorizes it to develop the DFS software it uses. The company’s gaming software services are licensed in various states in the United States and in the United Kingdom, Sweden, and Belgium. Because the company handles, collects, stores, receives, transmits and otherwise processes certain personal information of its users and employees, the company is subject to the U.S. federal and state laws and foreign laws related to the privacy and protection of such data, and it may also faces particular privacy, data security and data protection risks in connection with requirements under the amended California Consumer Privacy Act and its implementing regulations, Virginia’s Consumer Data Protection Act, the General Data Protection Regulation of the European Union (EU) 2016/679 (the GDPR), and other data protection regulations. The company has developed and implemented an internal compliance program to help ensure that it complies with legal and regulatory requirements imposed on it in connection with its Sportsbook, iGaming and DFS product offerings. In the event of a data breach, the company is subject to breach notification laws in the jurisdictions in which it operates, including under the GDPR, and the risk of litigation and regulatory enforcement actions.

As of February 13, 2024, 35 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 37 legal jurisdictions, 32 have legalized online sports betting. Of those 32 jurisdictions, 31 are live, and DraftKings operates in 24 of them. As of February 13, 2024, the company operates its online sports betting product offering via the DraftKings Sportsbook app in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, West Virginia, Wyoming and Ontario, Canada pursuant to the company’s licenses, temporary licenses, or executed vendor agreements granted by the gaming or lottery commission of such states, specifically, the Arizona Department of Gaming, State of Colorado Department of Revenue Division of Gaming, State of Connecticut Department of Consumer Protection, the Illinois Gaming Board, the Indiana Gaming Commission, the Iowa Racing and Gaming Commission, the Kansas Racing and Gaming Commission, the Louisiana Gaming Control Board, the Maine Gambling Control Unit, the Maryland Lottery and Gaming Control Agency, the Massachusetts Gaming Commission, the Michigan Gaming Control Board, the New Hampshire Lottery Commission, the New Jersey Division of Gaming Enforcement, the New York State Gaming Commission, the Ohio Casino Control Commission, the Oregon State Lottery, the Pennsylvania Gaming Control Board, the Tennessee Sports Wagering Council, the Vermont Department of Liquor and Lottery, the Virginia Lottery, the West Virginia Lottery Commission, and the Wyoming Gaming Commission. Additionally, DraftKings operates its online sports betting product offering in the Canadian province of Ontario pursuant to a registration approved by the Alcohol and Gaming Commission of Ontario.

In addition to its DraftKings-branded sports betting product offering, the company operates its GNOG-branded online sports betting product offering via the GNOG Sportsbook app in Arizona and New Jersey pursuant to its licenses granted by the respective state’s gaming or lottery commission. The company also operates retail sportsbooks in Arizona, Colorado, Connecticut, Illinois, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, New Hampshire, New Jersey and Washington pursuant to state and/or tribal regulatory regimes.

As of February 13, 2024, the company operates its DraftKings-branded iGaming product offering in New Jersey pursuant to a transactional waiver granted by the New Jersey Division of Gaming Enforcement, in Connecticut pursuant to a license granted by the State of Connecticut Department of Consumer Protection, in Michigan pursuant to a license granted by the Michigan Gaming Control Board, in the Canadian Province of Ontario pursuant to a license granted by the Alcohol and Gaming Commission of Ontario, in Pennsylvania pursuant to a license granted by the Pennsylvania Gaming Control Board, and in West Virginia pursuant to a license granted by the West Virginia Lottery. In addition, the company operates its GNOG-branded iGaming product offering in Michigan, New Jersey, Pennsylvania and West Virginia, subject to licenses or transactional waiver issued by the Michigan Gaming Control Board, the New Jersey Division of Gaming Enforcement, Pennsylvania Gaming Control Board and the West Virginia Lottery, respectively.

As of February 13, 2024, the company’s DFS product offering is available in 44 U.S. states, the District of Columbia, certain provinces in Canada and the United Kingdom. In those states that require a license or registration for DFS operations, DraftKings has either obtained the appropriate license or registration or a provisional license from the relevant regulatory authority or is operating pursuant to a grandfathering clause that allows operation pending the availability of licensing applications and subsequent grant of a license. DraftKings also has a foreign DFS license in the United Kingdom. Various state laws and regulations govern its licenses, but generally such state laws and regulations define paid fantasy sports, establish the rules concerning the application and licensure procedures for gaming operators in the fantasy sports business and regulate practices for paid fantasy sports deemed to be detrimental to the public interest. As part of the licensing process, it must submit, in some jurisdictions, extensive materials on its operations, including technology and data security, age verification of contestants, segregation of account funds and responsible gaming initiatives.

Outside the United States, the company maintains a DFS license in the United Kingdom. In the United Kingdom, online gaming and sports betting is subject to the Gambling Act 2005 (the GA2005), as amended by the Gambling (Licensing and Advertising) Act 2014, and the regulations promulgated thereunder. The company holds a remote-pool-betting operating license authorizing it to offer its DFS product offering to residents of the United Kingdom. The company also holds a gambling software operating license issued by the Gambling Commission, which authorizes it to develop the DFS software it uses.

The company’s gaming software services are licensed in various states in the United States and in the United Kingdom, Sweden, and Belgium. As of February 13, 2024, the company supplied its SBTech gaming software to the U.S operators in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Virginia, West Virginia, and Wyoming, and it supplied retail sportsbook gaming software services in Arizona, Colorado, Connecticut, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, New Hampshire, New Jersey and Washington pursuant to state and/or tribal regulatory regimes.