The winning ticket: why DraftKings' acquisition of Jackpocket could be a gamechanger

Midway through February, Boston-based DraftKings expanded into the ever-growing lottery space with a $750m deal to buy Jackpocket. Though the deal won’t be completed until H2 2024, DraftKings’ acquisition of the lottery courier app was seen by many industry observers as a significant purchase.

DraftKings CEO and co-founder Jason Robins said at the time of the announcement that the transaction would “create significant value” for the operator – forecasts from the firm’s Q4 analyst call predict 70% revenue growth for Jackpocket in full-year 2024 and over $60m EBITDA in 2026, which could rise to $150m by 2028. He later added that Jackpocket’s customer acquisition cost was in the region of 80% lower than DraftKings but also had “significant customer overlap”. 

A report authored by Spectrum Gaming Group in June 2023, titled The future of lottery courier services: Identifying opportunities and challenges, revealed how Jackpocket would be operational in roughly half of the states in the US by the end of that year.

The first licensed third-party lottery courier service in the country is only available in 16 states only plus Puerto Rico and Washington DC.

It is available in Texas, where sports betting is yet to be legalised following last May’s ending of the legislative session without regulation being passed. DraftKings now being in the Lone Star State, with a population nearing 31 million, gives the operator a head start over its rivals if and when sports betting reaches the state, with the earliest that legislation can be resurrected expected to be in 2025.

With the aforementioned report also highlighting that lottery couriers are reaching younger demographics, it noted the average age of the firm’s user base is 36 and 58% of all Jackpocket players are within the 18-40 range, while nearly 70% of its mobile users are aged 18-45, and 60% of its desktop users are 45 and older. That is a younger player base for DraftKings to bring to its product, not just now but for the future, too.

Looking at stats provided by the North American Association of State and Provincial Lotteries, lottery sales for the full financial year of 2023 totalled $113.3bn – this included GGR from gaming and sports betting. By comparison, that figure in Canada stood at C$10.8bn. Traditional lottery game sales came in at $102.3bn in the US and retailer commissions stood at $6.3bn. In Canada, those figures were C$9.5bn and C$718m, respectively. On top of that, because DraftKings will be operating in a vertical where players tend to stake small amounts in large volumes over a significant period of time as they seek a big payout, it becomes clear why the sector’s immediate reaction was a positive one.

Chris Grove, Acies Investments co-founder, took to several social media platforms including X, formerly Twitter, and LinkedIn to label the purchase a “watershed moment” which, he wrote, could “redefine the competitive landscape in the US market”.

And it was only last year that Spectrum Gaming Group released the aforementioned report stating lottery courier services were reaching “younger demographics” and attracting attention from “adults who are not otherwise playing the lottery”. Lottery is “the most popular form of gambling in this country by a wide margin”, according to Grove, and, when speaking to EGR, he calls the move significant and a missed opportunity for other tier-one operators in the US.     

It’s not surprising

While many have labelled the acquisition as noteworthy, Lloyd Danzig, managing partner at Sharp Alpha Advisors, shares that it wasn’t that much of a surprise to anyone who knows how hard Jackpocket founder and CEO Peter Sullivan works. Nor was it a shock to anyone who has paid attention to the growth opportunities in online lottery.

“DraftKings has demonstrated an appetite for leveraging investment and M&A to integrate their business vertically in order to gain better product control and economies of scale. They also have shown willingness to horizontally integrate complementary customer acquisition channels and revenue streams,” Danzig says. He also highlights how the move is a “significant stride” towards the expansion of real-money gaming total addressable market (TAM), using two particular acquisitions as examples. “It comes at a time when tailwinds for the convergence between igaming and online casino are already mounting in the wake of Aristocrat’s $1.2bn acquisition of NeoGames and Française Des Jeux’s proposed $2.8bn acquisition of Kindred,” Danzig remarks.

For Spectrum Gaming Group’s executive vice-president Joe Weinert, the deal was significant for one simple reason: it meant DraftKings’ rivals were no longer able to buy the lottery courier app. “Strategically, they get Jackpocket and somebody else doesn’t. They struck before their competitors did. Right now, it’s intensely competitive in the digital gaming space for both customers and products, and DraftKings went out and entered the lottery space in one swoop.”

Grove agrees, adding that Jackpocket gives DraftKings, which also owns icasino Golden Nugget, “yet another brand” that has a loyal customer base because it means something to its customers. “The Jackpocket acquisition has a material impact on DraftKings’ total user base. It fundamentally expands both the product set DraftKings can offer and the revenue streams DraftKings can generate.”

The acquisition forms part of Grove’s “more” theory, namely, that the operator that can offer its consumers the most products, brands, price points and, overall, the most options will therefore be the one standing tall when it is all said and done. But, as industry experts discuss the ramifications of the acquisition, could we see a reaction from other operators as they look to respond and kick the tyres on a potential merger, therefore adding “more” to their portfolios in a race to catch up with DraftKings? 

Gambling on superheroes

Eilers & Krejcik Gaming released a report midway through January in which the analyst firm made the case for a gambling company to buy popular mobile game Marvel Snap due to its “substantial overlap with poker”. Though it’s not quite the move suggested in the report, DraftKings diversifying its portfolio with a new vertical will no doubt have its rivals trying to figure out how they can compete. But as Danzig points out, operators have attempted to acquire new customers – just in a different way.

“This is not the first instance of a real-money operator expanding into adjacent revenue streams. Fanatics’ FanCash, FanDuel’s FaceOff and DraftKings’ NFT marketplace are all examples of attempts to boost lifetime value and acquire new customer profiles. That said, the size of the Jackpocket acquisition and its attendant customer base suggests a more substantive role for other forms of real-money gaming going forward.”

He adds that operators are likely to now view other verticals outside of lottery as potential avenues to pursue, mentioning skill-based and sweepstakes gaming to name a few. While some operators may think outside the box and move for a company or product not currently in the igaming industry, such as Marvel Snap, Weinert suggests operators can’t afford not to look at the lottery space due to the high participation rate and that customers play for the majority, if not all, of their lives once they are able to legally participate.

“I don’t think digital gaming operators can ignore the lottery space. Whether they go after another lottery courier domestically, import one from Europe into the [United] States or develop a ground up solution remains to be seen.”

For Danzig, he once again reiterates that there has been an increased interest from operators when it comes to bingo, trivia and “audience-specific engagement platforms” which has culminated in DraftKings’ purchase of Jackpocket. “We have seen a dramatic acceleration in operators who have been seeking to diversify their portfolios over the last six months, with the DraftKings-Jackpocket deal representing a crystallisation of that momentum.”

The purchase means one thing for Grove: igaming operators are alert and on the offensive as they try to match, and even better, DraftKings’ latest strategic move. “I really do think that all major US online gambling operators are now on notice. If they want to keep pace in the market, organic growth alone simply isn’t going to do the trick.”