Having made its name as a fantasy sports provider, DraftKings got a boost when in May, the Supreme Court struck down a federal ban on sports betting and cleared the way for states to legalize and regulate the practice. In August, DraftKings launched its first online sports betting product in New Jersey, with aspirations to expand to many more states as sports betting goes legal. TheStreet sat down with CEO Jason Robins to talk about how DraftKings plans to tackle the burgeoning market, its fundraising plans -- and the most surprising trends in fantasy sports this year.
In terms of immediate impact to DraftKings, how big was the Supreme Court decision in May?
"It's huge. Assuming that more states decide to move forward with legalizing sports betting, it's going to open up a massive market that we have the perfect customer base and brand to go after. I've always felt in the long term, you'll have sports betting available in the U.S.. It just made sense to me given how it's done in so many other parts so the world: Australia, Europe and so on. So when the Supreme Court made the decision they did, it was obviously a huge accelerant.
Where do things stand now?
"Legalization is only part one; each state then has to issue regulations and then licenses, so it could be six months to a year between a law getting passed and getting up and running. In New Jersey's case, since they were the state that went to the Supreme Court, they were very motivated and working on this beforehand. West Virginia, for example, is granting reciprocity with Jersey instead of building their own regulations and licensing process, which can be lengthy and costly to administer. I'm hoping that a lot of other states take that same approach, which will make things a lot faster or easier for everyone. And it could play to our advantage because not everyone is as prepared as we are to operate in this multi-state, multi-regulatory environment environment.
Assuming that the trend continues toward legalization in more states, what kinds of opportunities are you forecasting -- for DraftKings, and for other companies looking to capitalize on the new market?
"For us, we're a consumer-facing product so I think there are things people forget about -- March Madness brackets, Super Bowl squares -- that prior to this type of legislation you couldn't do online for money. So we're going to be creating all kinds of products that are possible now, including, of course, traditional sports betting products. As far as other startups, I'm glad you asked because this is a lesser told story. There's going to be a whole set of ancillary industries that get build up around this, everything from geolocation services to software for compliance and anti-money laundering, payment processing, platforms for white-labeling products, services that monitor industry-wide activity to see what we need to pay attention to. The possibilities are endless: Anytime you see an industry that goes from black market to a regulated legal market, there's tens in billions of possible value, and I think you'll see that in a lot of places.
A bit like the growing cannabis market we're seeing, no?
"I think so, yes. There're obviously some differences, but anytime an industry goes from black market to a regulated legal market, there's a lot of commonalities in managing regulation and compliance that needs to happen.
How has the business grown since the Supreme Court decision?
"August was an awesome month for us in both fantasy and sports betting. In sports betting, we started with a few thousand bets per day, now we're up to 40,000 to 50,000 bets per day. And on the first day of college football, we took over 60,000 bets, which was a remarkable amount of volume for a state [New Jersey] that's only about 2.5% of the country's population. We're about 300% better than what we forecasted on volume. Some of that was just conservative forecasting, but it's also just that we've really beat expectations.
What are some surprises you've seen in the area of fantasy or sports betting?
"Golf has been on fire this year because of Tiger [Woods]. It's amazing -- the ratings go up, our games go up, everybody wants to see Tiger. People think he has a real shot to win again, and that's gotten a lot of casual fans back into golf. It's also a great fantasy sport -- it's interesting, I never thought of golf fantasy years ago when I was playing. But it just works, it's the perfect combination of knowing the names so it doesn't feel as intimidating to a new customer, there's enough interesting analysis on the courses and the players' strengths. And with tournaments, you can play for four days with one entry fee.
And maybe this isn't surprising, but a lot of our betting in New Jersey has been for the Yankees and against the Red Sox. It's a very high percentage of our sports bets in New Jersey -- and that includes bets against the Red Sox as a whole.
What's the biggest area of focus in the next year?
"The Supreme Court only cleared the way for the states to take action, so now it's about getting more of the country opened up and getting good quality products into those places. And continuing to innovate the fantasy business, and using a combination of that and our media and content strategy to grow our user base. Even if a bunch of states go [legal] next year, it'll still be not even 50% of the country that can do sports betting. But that will change over time, so our job is to make sure we have the best products, the most customer engagement, and the most brand loyalty for when it does. It's balancing those two things, and in particular, growing the user base.
Awhile back there was talk of a merger with FanDuel, and at one point talk of a public offering. What's your game plan in terms of fundraising?
"We'll probably complete another private round, and then maybe we'd do an IPO as a next move. I don't know what the timing would be, but that's what I would guess. There are a lot of things that would need to happen between now and then, and a lot that's out of our control -- how many states open up, how fast the market develops, and I think a lot of that will affect whether we'd want to do another private round or go to the public markets. But if I had to guess, it's one more private round and then a public offering."