DraftKings Q3 Report Casts Interesting Light on the Business World of Sports Wagering

• DK and shareholders plan to sell off shares during a record-breaking opportunity
• Market analysts offer DraftKings Sportsbook confidence but offer caution due to uncertain industry factors
• While Covid-19 lingers in the US, DraftKings continues an aggressive plan with growth and industry leader position

On Monday, the investor and business side of sports wagering wrote an interesting chapter as the awaited Q3 report for new public company DraftKings Sportsbook was released. It offered some components issuing yet more shares to cash in on investor hype while claiming its Q3 revenue will survive a run of unusual NFL bettor-oriented luck. Certainly, something that is not part of the usual footnotes and written notes found in typical corporate financials.

DraftKings Sportsbook announced a confident plan to sell 16M of its shares while current shareholders are selling an additional 16M shares during these opportunity times. The company’s share price closed out Friday, October 2 market trading at a new record $63.78.  The welcome return of all four major US leagues while simultaneously playing offered investors yet another reason for confidence and joy. However, shares of DraftKings (ticker: DKNG) were down 5.4%, to $60.30, in early trading Monday.

The company said its online sports betting “handle”, reflecting the total amount wagered, was expected to have risen 460% in the third quarter relative to the year-ago period and that internet gaming, a.k.a. iGaming, revenue was expected to be up 335%. Figures indicating that DraftKings even outperformed what was expected to be a great market forecast.

DraftKings Sportsbook expects its monthly unique players to reflect about 1.02 million in the third quarter, up 64% from the same Q3 period in 2019. They also expect aggressive sales and marketing expense of $200 million to $210 million in the third quarter. Not surprising, as rivals including FanDuel and new large competitor BetMGM are also spending heavily. Like DraftKings, traditional promotions include free initial bets and other attractive offers as online wagering gets going into new states including Illinois and Tennessee.

Inside the Numbers

While analyzing some inside reasons for the results, third-quarter sales and marketing expense was considerably higher than an estimate of $134 million from Morgan Stanley analyst Thomas Allen. “This illustrates the rising competitiveness of the market, which if it reaches its potential and market concentration plays out as expected, we expect to be justified, but does add risk,” Allen wrote in a client note.

It was reported that DraftKings didn’t provide profit guidance, but it is expected to operate at a loss in the third quarter with the FactSet consensus calling for a loss of 37 cents a share.

The offering comes after a strong run in the DK stock as major sports resumed in the third quarter along with strong investor interest in online sports betting. DraftKings stock had rallied more than 75% since the end of August through the close last Friday. The company had a market value of over $22 billion on Friday, making it the second-largest overall US gambling company behind only Las Vegas Sands (LVS).

The Current Line

All these facts and market results are contributors to help explain why we are seeing DraftKings commercials run seemingly during every NFL football and NBA basketball break on television. This despite possible current non-equitable bottom-line dollar revenue performance numbers to match.

Overall, as the effects of Covid-19 continue to paralyze the US, a market-leading company with strong assets and opportunity will continue taking advantage of a customer base forced to remain at home. DraftKings will continue to prioritize new signups among roll-out US states while building loyal customers with incentives to a very recognized brand. That should also likely continue to add up, but it is still a gamble.