Following its strong online gaming performance in 2020, Draft Kings has improved its long-term earnings before interest, tax, depreciation and amortization (EBITDA) guidance to $1.7 billion.
At this moment, it remains unknown when the operator expects to reach this level. The company explained the new guidance was based on the increase in online betting and online gambling in the US and Canada.
Nationwide Legalization Could Boost Revenue
Presently, legal online betting is available to 65% of the US, while 30% has access to legal online gambling. At the same time, 64% of Canadians can legally enjoy both these activities.
If the levels of legalization remain the same, DraftKings should reach the target after five years of maturity.
Current estimates say the US sports betting market could be worth $22 billion in case of nationwide legalization. In that case, the operator could have a significant market share of at least $20 billion. This translates into a betting revenue of nearly $3 billion.
When it comes to online gambling, its fully-legalized market would be worth $40 billion. With a market share of at least 15%, DraftKings can look forward to $1.8 billion in revenue. We should point out that this figure was increased by 10% compared to previous projections, although it’s still lower than the share the operator has in most markets.
Commenting on the latest numbers, Jason Robins, Chief Executive Officer at DraftKings, said they showed the future looked bright for the business. He also added it wasn’t likely a decline in market share would happen but pointed out the operator wanted to be conservative when making these estimates.
The Operator Reveals Its Expectations
DraftKings expects a market share of around 10%, which should generate $300 million in revenue. An additional $200 million is expected from other sources.
Costs of sales for a gross profit of $3 billion should be $2.4 billion, while marketing costs are expected to reach $500 million. During the twelve months of 2020, DraftKings spent a little over $495 million on marketing. In the end, the company should have a contribution profit of $2.5 million. That’s an improvement from the last year’s loss of $227.2 million.
With selling, general and administrative costs reaching $1.1 billion, and with $200 million saved through synergies, the company’s EBITDA should be $1.7 billion. DraftKings ended 2020 with an EBITDA loss of $391.9 million.
Speaking about its migration to SBTech’s platform, DraftKings CEO Jason Robins pointed out the process was still in the beta stage. According to the operator’s estimates, it should be completed by the end of the third quarter.
Robins took the time to talk about the future. He said that in the long term, DraftKings planned to expand its operations outside of North America. However, Robins explained that it wouldn’t be the operator’s primary focus.
DraftKings is eager to position itself as a global company. Although expansion is a part of its future, the US remains its most important market.