DraftKings targets “two-to-three-year” New York payback
Jason Robins admits attainting sportsbook profit in New York is not imminent as marketing costs rise
DraftKings CEO Jason Robins has admitted that attaining sportsbook profitability in New York could take between two to three years to realize, amid rocketing marketing costs.
Speaking at the firm’s Investor Day, Robins affirmed his confidence that the Empire State would ultimately become profitable for the US sportsbook heavyweight, drawing on DraftKings’ wider strategy in other states.
“What we’ve said pretty consistently is that we’re targeting a two-to-three-year payback in every new state,” Robins explained.
“Some may be closer to two, or more of a two-to-three-year path, it’s hard to say because each state has its own dynamics, but we believe New York will fall within that same two-to-three-year time horizon,” he added.
DraftKings has previously committed to a “disciplined” approach to marketing in the Empire State, echoing many of its contemporaries, while other sportsbooks have suggested they would reduce their marketing spend from higher initial amounts.
Robins’ comments came in the same week as New York Assemblyman J. Gary Pretlow tabled a bill in the house to reduce New York’s controversial 51% tax rate on sports betting down to a more profit-friendly 25%.
The reduction of the tax rate would come with the caveat of widening the New York sports betting market to as many as six new operators, something which could also ramp up the need for increased marketing spend as those incumbents fend off new entrants to the market.
When answering questions from investors on DraftKings’ own capex targets and how much its customer acquisition investment levels might suffer long term, the DraftKings CEO acknowledged the concurrent debate in the New York Senate.
“I think we’ll get clarity on whether that’s likely to happen in this session over the next few months, and because such a large percentage of our New York spend going forward this year will be on the NFL season, we have time to see that play out,” Robins explained.
“The plan is to adjust accordingly based on what the ultimate tax rate is; if it stays the same, we’re obviously going to have lower capex targets than if it goes down, simply because the gross profit we’ll generate from acquired players would not be as high as if it were on a lower tax rate.
“Just like every state, we look at the tax rate, we look at the lifetime value projections of the players, we look at what different products are available in the state, and all the other factors, and consider modeling out the gross profit of each player, usually within that two-to-three-year path” he added.
Independent of sports betting, one vertical which could offer DraftKings some immediate New York relief is igaming, with state legislators also set to debate a bill legalizing the vertical potentially in this session.
The bill aims to capitalize on the explosive start to sports betting in New York by providing additional funding for state causes, which would be the chief beneficiaries of a 25% igaming tax rate.
“It’s very hard to sit here and predict what a state’s going to do,” Robins commented.
“There are so many factors that go into it. I think it’s encouraging to see that more states are considering igaming than ever before, and it would be a great win if New York were to do it.
“We’ll just have to see how that plays out,” he added.