Analysts weigh up DraftKings’ methodology as operator raises US TAM forecast to $80bn
The operator also increased its long-term adjusted EBITDA outlook to $2.1bn.
At last week’s investor day event, DraftKings CEO Jason Robins said the improved guidance was due to impressive GGR per adult trends across regulated US states for both online sports betting and iGaming.
Using New Jersey as the benchmark, and its GGR per adult of $107 for online sports betting in 2021, DraftKings said the implied US TAM already stands at $28bn. It then reduced this figure to $26bn, and GGR per adult of $98, when adjusting for GDP per adult in New Jersey.
However, this estimate was based on the 100% legalisation of online sports betting in the US across all states, which did not sit particularly well with the analyst team at Deutsche Bank, who pointed out New Jersey has the highest spend per adult for online sports betting and that it would be a stretch to assume that all other states would reach similar levels.
“It’s anyone’s guess what the future will hold,” said Robins, who defended the operator’s use of New Jersey as the benchmark with the slide below. “We’ll let investors make up their own minds about what they think the true growth rate of New Jersey going forward is, and if you extrapolate that to the remainder of the US and what that means for the TAM.”
Using the same New Jersey-based methodology, the TAM rose to $52bn for iGaming. Some form of iGaming is currently legal in seven states, encompassing 13% of the US population, according to DraftKings.
“The reality is, getting from 13% of the country with legalised iCasino today to 30% in the future will be a heavy lift and one that we view as being considerably more onerous than the legalisation of sports betting, for a slew of reasons,” said Deutsche Bank.
Independent investment bank Needham was more bullish, however. Reiterating its Buy rating for DraftKings stock, the analyst team said: “We are raising our medium term and beyond revenue assumptions off of a higher estimated TAM, matching the continued growth in New Jersey.”One analyst suggested it would take several years longer to reach the TAM forecast for iGaming than for online sports betting due to the legislative timelines of US states and the regulatory complexity associated with legalising the vertical.
When asked to provide an update on the iGaming legislative pathway in the US, Robins said: “I wish I had a crystal ball, but I can’t predict. What we expected and said from the beginning is that online sports betting would lead the way and iGaming would be a second wave, and we continue to believe that’s the case.
Some states, including Connecticut and Pennsylvania, decided to legalise both online sports betting and iGaming at the same time, but they are the exceptions, rather than the rule.
West Virginia legalised iGaming one year after online sports betting, but iGaming appears to be an afterthought at present for most states. Online sports betting is viewed as low hanging fruit by most legislators due to its tried-and-tested operating model and cultural acceptance among consumers. Additionally, it is often met with less resistance from tribes.
Robins said there were too many different dynamics at play to pinpoint the exact year that DraftKings’ iGaming TAM forecast would come to fruition.
“So much of it depends on the economic state of the country and of different states,” he added. “States flush with cash might not be in as big of a rush, whereas others that really need the tax revenue might accelerate.
“Will you see a little bit of a lag in iGaming [regulation] versus sports betting? Yes, that’s something we’ve always said and continue to believe to be the case,” he added.
DraftKings agreed the all-stock acquisition of Golden Nugget Online Gaming last year, with the deal set to complete in the coming months. Revenue synergies resulting from that deal have not been included in the operator’s new TAM and iGaming share estimates.
On the increased iGaming share forecast, the analyst team at Morgan Stanley said: “This does not surprise us given state reported data that showed DKNG at ~20% and its acquisition of GNOG post last year’s investor day.”
DraftKings’ share price dropped by 10% after the investor day and closed for the week at $20.69 on Friday 4 March. At the time of writing, the stock has dropped a further 3% in pre-market trading.