U.S. Sports gambling giant DraftKings, which recently acquired gaming technology supplier SBTech in anticipation of being able to go public, will need to plug a few leaks if it hopes to have a successful initial public offering (IPO). A substantial increase in revenue from 2018 to 2019 is proof-positive that the Massachusetts-based company is on the right track, but a massive loss in profits is keeping DraftKings from truly coming into its own.
The good news is that the company is seeing better revenue than ever. According to a filing with the Securities and Exchange Commission (SEC), the first nine months of last year saw revenue growth of 44% as DraftKings took in $200 million compared to $133 during the same period a year earlier. The bad news is that, during those same nine months, the company saw operational losses increase by 53% to $115.41 million – the losses had “only” been $75.62 million during the same timeframe in 2018. Net losses amounted to $114 million, 52% higher than the $75.14 million from a year earlier.
In many cases, the last quarter of any given year is the most profitable for sportsbooks. This is when the majority of the sports action in the U.S. is found, with pro and college football, NHL and the NBA in full swing. Football is always a huge attraction for wagers, and DraftKings, as well as other sports gambling and daily fantasy sports operators, bank on the final quarter of the year as their prime time for activity.
However, DraftKings wasn’t saved by the final three months of the year in 2018 (the final quarter figures of last year aren’t yet available). According to its filing, the company saw its losses increase during the period, not decrease, with a net loss of around $1 million reported. In speaking with the Boston Business Journal, a representative from the company, Jamie Chisholm, observed that DraftKings is “well-positioned to achieve profitability when total contribution profit exceeds the fixed costs of our business.”
That’s a statement of the obvious, but the company will need to try to clarify when that might actually be if the IPO is going to draw the level of support DraftKings hopes. 2019 saw a number of IPOs that weren’t overly successful, with the year being the least profitable, in terms of public offerings, that has been seen in 20 years, and investors are going to scrutinize any company more than ever this year.
As 2020 gets underway and DraftKings gets ready to go public, the company is hoping more states will introduce legalized sports gambling ahead of the IPO launch. In the meantime, it will also have to figure out how to boost its profit margin. That task will rest primarily on the shoulders of CEO Jason Robins, chief revenue officer Matthew Kalish and chief operating officer Paul Liberman, who are also the three founders of the company. Given their annual salaries from 2018 – $13.8 million (mostly in the form of options), $3.6 million and $3.4 million, respectively – they should have the economic and business minds to collectively determine a solution.
