DraftKings set to trim $100m in costs during 2023 as profitability comes into focus

DraftKings has confirmed the identification of more than $100m in additional cost savings in 2023 as the firm looks to achieve its goal of a positive adjusted EBITDA in 2024.

Speaking as part of the Boston-headquartered operator’s Q4 2022 financial results, CEO Jason Robins confirmed the operator’s 2022 focus on cost savings would continue into 2023, with more cuts on the way.

Breaking down these costs, Robins suggested $50m would come from “scale marketing efficiencies” with a further $50m from people-related costs.

The firm has already cut 4% of its global workforce in January, with cuts made in the US as well as Europe, Middle East, and Africa divisions. DraftKings has also exited the European daily fantasy sports (DFS) market, ending a five-year spell internationally.

However, Robins refused to rule out a potential international return once DraftKings has solved its operational conundrum of generating profit in the US market. “There will be a time and a place to focus on international expansion, but it’s not going to be right now,” Robins said.

“It doesn’t mean that we won’t look at it and start to do some exploratory work this year behind the scenes. I think we have to always be thinking about what future things we want to do and start laying some of the research and groundwork for that.

“But on the whole, the team is very focused on how do we continue to make progress and do better for the customer in the US and how do we continue to become more efficient and cost effective as an organization?” he added.

Expanding on the potential makeup of the return, Robins continued: “The technology we’ve built is going to be very portable to the global gaming market.

“We believe that when we do decide to expand overseas, we’ll have advantages over incumbent competition when it comes to product, hold rate, things like that,” he added.

In its results, DraftKings confirmed shrinking adjusted EBITDA losses of just $50m, with a 25% year-on-year (YOY) reduction in net losses to $242.6m, while operational losses fell 37% YOY to $232m over the same period.

In respect of trimming its marketing spend, Robins highlighted a 15% reduction in absolute marketing dollar spend across the US as one of the “foundational drivers” of the firm’s continued profit expansion and acceleration across states.

Central to this reduction is a redefinition of team and league partnership deals to more palatable levels, with Robins suggesting there was “room” in the portfolio for cutbacks.

“We’ve had a number of partners that have been very constructive and have agreed to reductions that would make these deals efficient in a way that we need them to be,” Robins explained.

“There are others that we will be discontinuing when the deals come up and have discontinued as they’ve come up over the past year. So, it’s really been a mix.”

He continued: “There’s been a lot of really great partners, though. They’ve recognized that the market’s changed and have said, ‘Look, we want long term to be in business with DraftKings, we realize that this is not an efficient part of the portfolio right now, and we need to rework it.’

“There have been others that we’ve had to unfortunately discontinue the deals with. It will be a mix of things, but it’s really part of an overall effort that we have to be more efficient as a company and I think there is an opportunity in this category to get even better,” Robins added.

The maturation of marketing deals signed in the early stages of sports betting, Robins suggested, was simultaneously being mirrored by a maturing of the US market beyond promotional saturation to a more profitable environment.

“I think that natural kind of promotional reduction that happens as states mature, we’ll continue to see a tailwind from that. Obviously, there’s always going to be new entrants coming in and out of the market,” he explained.

“I think one thing we’ve seen, though, is that [happening] – and I expect the same would apply to any new entrant. The market competitively has become much more rational.”

The DraftKings CEO continued: “There was a period of time in 2020 and part of 2021 where there was really a message from the market that market share and revenue growth were all that mattered and I think you saw some irrational behaviors from some of our competition coming about as a result.

“Once the market started to change their tune, and there was more of a demand on accountability for efficiency and profitability, you saw that change and I don’t see that changing again.

“I think that we’re in a new phase of the market where competing on a much more rational playing field is the norm. And I think that you’ll continue to see that, whether it be existing operators or any new operators that come into the market,” Robins concluded.