DraftKings CEO Jason Robins said the Jan. 8 launch of legal online sports betting in New York cannibalized the entity’s existing daily fantasy sports product during Q1 of 2022.
DraftKings reported a $467.7 million overall loss in the first quarter. The entity is second in NY online sports betting market share behind rival FanDuel.
“What we sometimes see with DFS is when a state launches there’s so much excitement around sports betting that there’s a bit of cannibalization, and we did see that in New York,” Robins said on the entity’s latest earnings call.
“Now, in other states we’ve that level off or even come back. Which is why DFS continues to be a growing product. But it’s too early to say whether that will continue in New York. We have no reason to think it’ll be different than other states, though. But certainly given the size of the DFS customer base and revenue in New York, it did have a meaningful impact on the quarter.”
DraftKings attributes losses to cannibalization
DraftKings posted $290 million in adjusted EBITDA losses. Robins said part of that can be attributed to the NY online sports betting launch. While DraftKings Sportsbook NY didn’t spend as much as Caesars, it did do some investing on the marketing and promotion.
Answering a question from a financial analyst about the NY launch and in-person registration being lifted in Illinois, Robins said:
“You are right that those two things were EBITDA headwinds in the quarter. We think that both will lead to outperformance down the road, so both are good things, but in the quarter certainly had negative EBITDA impact.
“At this time we’re not quantifying that specifically. We think that sharing how much we’re investing in individual states would be of a competitively sensitive nature. So we haven’t done that. But you can certainly conclude that they were meaningful in that our adjusted EBITDA would’ve been meaningfully better if we had not had those two events.”
Once again, NY sports betting tax rate enters DraftKings’ crosshairs
Robins also again mentioned the 51% tax rate levied by NY sports betting.
DraftKings was one of several NY operators hoping for a reduction. Local policymakers had introduced legislation to increase the number of operators, thereby reducing the tax rate.
But that proposal failed to gain any traction. Sen. Joe Addabbo and Assemb. Gary Pretlow plan to revisit the possibility at the end of the year, though legal online casino gaming will be their main focus.