Can You Really Win Money On Draftkings – Almost every tech stock has seen a drop in trading in recent months, but one high flyer in particular has seen a scary correction that it has yet to pull off: DraftKings ( NASDAQ:DKNG ) . The fantasy sports leader is up 30% over the past month, which I think deserves a serious look for the long-term investor.
DraftKings, which became one of the first high-profile unicorns to go public through a SPAC (special purchase vehicle) earlier this year, is a company that has been hit by the pandemic and long dry months in new sports content. But in my opinion, the massive popularity of the DraftKings bodes well for long-term dominance to improve the fan experience and give them a way to put “skin in the game” in the state of DraftKings’ spectator sports.
Can You Really Win Money On Draftkings
But the pace and magnitude of the recent corrections will prompt long-term investors to reconsider their bullish thesis on this stock, which I think is strong. There are several tailwinds that could drive DraftKings to become a much bigger business, the most prominent in my opinion being:
Draftkings Ceo Jason Robins: Quit Day Job For A Successful Start Up
To understand DraftKings and its broad product universe, it’s helpful to break down the company into three primary consumer offerings: Daily Fantasy Sports, Sportsbook and iGaming.
Daily Fantasy Sports, or DFS, is a category developed by DraftKings. Designed for real-time and instant gratification to players, daily fantasy sports demand the same level of excitement and skill as typical season-long fantasy sports leagues, capturing the variety of action in a single day while compressing the time frame. competition and competition. While many players play for prize money, a large number of users also play for free (which DraftKings monetizes through advertising), giving DFS a less legal status than straight betting.
As the operator of the tournament, DraftKings has no risk in the tournaments – the tournaments are P2P only and the operator only makes the market and manages the prize money (for a fee). As of 2018, DFS was DraftKing’s only consumer offering.
Take a risk, even though its algorithm sets the odds on individual bets so DraftKings is the clear winner in the long run (as the old saying goes, “The house never loses.”) In these types of transactions, DraftKings takes its customers by storm. Bet (often called “handle” or “hold”) and pays out depending on the outcome. DraftKings’ profits between the two are booked as corporate income. Needless to say, the demand for sports betting is incredibly high – especially since it’s banned in many areas – and legalization in various states would greatly increase DraftKings’ revenue.
Draftkings Fantasy Fair Play Commitment
With both its DFS and sportsbook offerings, DraftKings is one of the most well-known brands in sports, tied with closest competitor Fanduel as shown in the chart below, where respondents were asked which brand was top and which brand was the pick. When it comes to sports betting:
Finally, DraftKings also offers a collection of online casino games that it calls its iGaming division. The company offers a full suite of casino games offered on site at the casino, including poker, blackjack, slots and roulette. It is important to know that in this industry, DraftKings believes that it has an advantage over traditional casino operators because the volatility of results is reduced when the average bet size is small and the amount of bets is large, which is usually online versus in person. . Like the sportsbook industry, DraftKings takes risks by running casino games, but the risk of negative outs (one player winning big) in lower-stakes online games is greatly reduced. The games offered by DraftKings in its iGaming division are a combination of both games developed in-house as well as games licensed from other publishers.
In addition to these consumer offerings, DraftKings also offers operator services to businesses and government entities in exchange for a share of revenue. For example, in 2018 DraftKings (via recently acquired company SBTech) was selected as the operator of the national lottery in Denmark, just as it gained access to the country’s sports betting market.
In addition to the direct operating/revenue cut that DraftKings receives from operating these markets, the Company also generates its revenue through advertising and sponsorships, tailored and tailored agreements with advertising partners.
Place Your Bet: Who Will Win The Competition For Sports Betting Dollars
Globally, DraftKings estimates that the annual online and mobile gaming market opportunity is just shy of $500 billion:
As you can see in the image below, DraftKings daily fantasy sports lineup is available in almost every state in the United States. Because the Federal Court has ruled that fantasy sports are not games of chance but games of skill, they are not considered primarily games of chance and are currently DraftKings’ most extensive offering:
Sports betting, on the other hand, is a much messier situation. Very few states have legalized sports betting, and draftKings are still missing in big markets like California (~12% of the US population) and Texas (~9%). It’s important to note that legality depends on the state you’re in when you place the bet, not your place of residence. This means that a California resident traveling to Washington can place a legal bet, but a Washington resident traveling the other way cannot.
However, I see the fact that many markets are still untapped as a huge growth driver for DraftKings, offering an immediate springboard to revenue opportunities once the market legitimizes.
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By the end of the quarter, yields in Colorado for May and June had already surpassed Indiana (which is only 2% of the US population), indicating that the ramp period is almost instantaneous when a particular market takes off.
In another less recent example, DraftKings’ prospectus also showed that after New Jersey legalized sports betting in 2018, DraftKings was able to capture about 20% of the state’s entire sports betting market the following year.
In August 2018, New Jersey became the first state to legalize sports betting and provide available jurisdiction after the US Supreme Court struck down PASPA in 2018. Eilers estimates that New Jersey’s sports betting market will exceed $500 million in total gaming at the end of the term. Revenue (“GGR”) per annum, of which more than 75% is expected to be online. DraftKings launched iGaming in December 2018. During the year ended December 31, 2019, we generated approximately $86 million in US GAAP from our entire B2C product offering in New Jersey […] We believe our success in New Jersey was primarily attributable to our existing DFS user base generated by our DFS offering. Our strong brand presence. We rely on cross-selling to DFS users as a key element of our strategic differentiation in New Jersey, where approximately 30% of our DFS user base converts to our sportsbook offerings. 31 December 2019.”
That’s the advantage of DraftKings’ large national brand: the demand for online sports betting is huge, and it’s only a matter of time before various states start legalizing it. The map below shows the orange states that are actively considering legalizing mobile sports betting:
Fanduel, Draftkings, What’s The Catch?
In addition to market expansion due to legalization by some states, DraftKings has also identified several positive drivers for growth in the post-coronavirus era. With busy demand for sports and entertainment after a long drought of major sporting events in the first and second quarters, DraftKings expects a busy calendar in the second half of 2020 with several sports leagues already in action.
Now let’s see how the business has developed in recent seasons. Check out a breakdown of DraftKings’ Q2 earnings below:
While DraftKings reported an increase in revenue of $70.9 million, the company also provided the pro forma results shown above that better reflect true underlying business trends by combining SBTech’s prior period performance. On this real basis, DraftKings’ revenue fell -10% year-over-year – to $75.0 million in the quarter, reflecting the cancellation of several major sports events.
However, I think a more telling measure of DraftKings’ potential is how the company has fared with the resumption of multiple games. Prepared comments from CEO Jason Robbins on the Q2 earnings call indicated that while aggregates turned positive in June, that momentum continued into the third quarter (and with the resumption of big drivers like the NBA and college football in the third quarter, it’s likely that results will improve significantly as well):
How Not To Be A ‘sucker’ On Fanduel Or Draftkings
As the benefits of sports began to flow, we saw a sequential improvement in revenue in each month of the quarter, with June revenue growing by 20% on a pro forma basis year-on-year.”
Robin’s comments highlighting the return of Major League Baseball (MLB) and professional hockey (NHL) also underscored the fact that demand for sports is currently very depressed and will increase for DraftKings. Robbins says MLB and NHL raise 3x and 2x a year respectively:
The momentum we saw in June picked up with the return of MLB, NBA and NHL in late July and early August. As a result, we see continued year-on-year growth in revenue
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