DraftKings – The King of Online Sports Betting
DraftKings is a daily fantasy sports app and sports betting operator, with a market cap of 23 billion. Sports betting is illegal in a lot of states in the U.S., but through DraftKings, you can select players from a team for a temporary fantasy football team and then play that team in tournaments for money. This is because most states consider fantasy sports a game of skill and not gambling. It’s a loophole that allows a roundabout form of sports betting.
Sports betting is still a small piece of the pie when it comes to anything casino related or gambling, but the covid lockdown has started transitioning the legalization of online sports betting at a faster pace. This is the result of massive policy changes that help both DraftKings increase their addressable market and eventually governments who will also take a cut via taxes.
What makes DraftKings an alluring investment? For the most part, their revenues are recurring. Although this is "gambling" many people enjoy online sports betting as a hobby and losing money is all part of having “fun”. The goal of most online gambling apps/ right now is all about user acquisition and paying whatever it takes to secure their market share. This is a tactic for those with deep pockets and willing to spend as the cost of acquisition per user racks up fast. The two ways these companies are acquiring customers are through:
- Huge marketing and advertising expenditures. This includes things such as having their brand name displayed in the background during athlete interviews or on the banners at live sports events.
- Offering each user a bonus just for signing up. These are normally along the lines of "play with us today and we’ll match your initial deposit up to $50"
Both these marketing tactics come with high costs, but as long as these companies keep their Customer Acquisition Costs (CAC) lower than a user’s Life-Time Value (LTV), they will still be making a profit. It’s like saying they will spend $100 for a customer that will eventually provide $200 in revenues.
In my opinion, DraftKings is the Starbucks or Dunkin Donuts of the online gambling industry. Although with expensive costs allocated to marketing, they are securing market share in an industry that is going through massive deregulation and shift in policy changes. Thanks to aggressive partnerships, advertising, and market penetration, they are the leading player in the growing online sports betting and casino market. Recent legislative progress and brand recognition should result in continued growth.
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July 22, 2021 at 10:57AM