DraftKings focuses on cost controls as US marketing dollars shift toward national ads

DraftKings CEO Jason Robins has outlined $100m in annual cost savings deployed across the business as the US sportsbook heavyweight looks to trim its fixed costs.

Robins was speaking to investors as part of the Nasdaq-listed operator’s Q3 2022 financial call, during which the firm revealed a 15% year-on-year (YoY) drop in its adjusted EBITDA losses for the period.

DraftKings’ Pro forma costs, inclusive of sales and marketing, product and technology, and general administrative costs, amounted to $584m, a figure down by just under 1% from that reported during Q3 2021.

For comparison purposes, DraftKings Q2 2022 costs grew 7% to $462.3m, while its Q1 2022 costs amounted to a whopping $932m.

While the reductions themselves have only been in single-digits in percentage terms, Robins praised his team for moving forward on the group’s ambition to become a profitable business by the end of 2023.

Focusing on top line growth while winning competitively and retaining and growing customer engagement levels were highlighted by the DraftKings CEO.

“We are also seeing a benefit to our marketing efficiency from shifting towards national advertising and away from local spending, considering we’re now live with mobile sports betting in 18 states that collectively represent 37% of the US population,” Robins said.

“We believe we are striking a great balance between maintaining an aggressive and customer-focused growth plan, while simultaneously working to manage expenses.

“This combination of revenue growth and expense management creates a clear path of profitability that is consistent with the long-term gross margins and adjusted EBITDA margins that we have consistently articulated,” he added.

Alluding to the changes made in marketing focus, Robins suggested flexibility was key, citing recent deals with Amazon and speculation concerning a potential deal between DraftKings and ESPN.

“The majority of our marketing spend is not committed. It’s completely controllable,” he said.

“We’re pretty selective with deals, but we feel really good about the Amazon deal. I think it’s one of the better deals that we’ve had in recent years and very excited about the results we’ve seen through the first several weeks of Thursday Night Football with that one.

“But no, most of our marketing spend is not committed. We like to keep flexibility so that we can optimise in and out of things,” he added.

Robins would later cite a drive towards lower promotional activity by operators, coming off the back of soaring spending levels in 2021 and state launches in highly competitive markets like New York and Louisiana during the early part of 2022.

“It’s a subset of the more rational competitive environment we’re seeing this year versus last year which in comparison was truly night and day,” Robins said.

“As far as the competitive environment and the rationality behind it, there was still certainly some aggressive investments by some of our competitors, but nothing that was, I think, out of the ordinary.

“I think certainly, the change in that promotion environment as well as in the external marketing spend of some of the competitors helped us gain some share as well,” he added.

The DraftKings CEO also suggested that increased legalisation would also come into play when applied to sports betting marketing strategy going forward, with DraftKings pivoting away from localised advertising to marketing nationally.

“Over the last few years, we’ve said that as we get to north of around 35% of the population having legal online sports betting, that would be a turning point where national advertising would start to become, in many cases, more efficient than local advertising,” Robins explained to investors.

“We’re just crossing that threshold now. We are in states that represent about 37% of population so we’re just starting to see some small impacts and favourability from that.”

He continued: “That should only continue to increase. We have states right now that represent 8% of the population that are in the next five months or so projected to launch, the ones that we mentioned, Maryland, Ohio and Massachusetts pending licensure and regulatory approvals, of course.

“That will really start to add additional tailwind, and then it really just continues to go from there because as each new state comes on, you’re reaching customers that already are seeing those national ads. You don’t have to advertise locally as much anymore.

“So really, I think, there’s a big tailwind behind our back now, and you’re starting to see that in some of the Q3 results,” Robins added.