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DraftKings losses widen further in Q1 despite revenue growth


DraftKings and SBTech both saw revenue grow in the first quarter of 2020, but combined losses widened to $74.0m in the pair’s last full quarter before their merger closed.

The businesses officially merged in April, trading on the Nasdaq exchange under the DraftKings name, after agreeing the combination in December 2019.

DraftKings and SBTech generated combined revenue of $113.5m for the three months to 31 March, up from $90.0m in Q1 2019.

Of this sum, $88.5m came from the legacy DraftKings business, a 30.0% year-on-year increase. This came predominantly from its online betting, gaming and daily fantasy sports operations, which accounted for $83.7m of the total, up 28.8%. The remaining $4.8m was generated from other sources including retail sports betting.

“The increase in revenue was attributable primarily to the launch of our online Sportsbook offering in Indiana, New Hampshire, Pennsylvania and West Virginia, in the third and fourth quarters of 2019 and Iowa in the first quarter of 2020, as well as a period-on-period increase in revenue from existing territories despite a March decline due to the outbreak of the Covid-19 pandemic,” the operator explained.

Average monthly player numbers grew 16.3% to 720,000 by the end of the quarter. Its US-facing business alone generated revenue of $90.8m, up 35.1%, but the total was brought down by a $2.3m loss from other markets.

SBTech, meanwhile contributed a further $24.9m. The vast majority of its Q1 total came from four unnamed clients, which collectively accounted for 68.9% of the total, with one accounting for $14.2m alone.

For Q1, the combined businesses reported revenue-related costs of $62.7m, of which $43.4m came from “old DraftKings” – up 101.4% – with $15.6m from SBTech. Revenue related costs increased by a further $2.4m due to accounting adjustment.

This left a gross profit of $50.7m, which after operating expenses of $120.8m. This included $53.7m in marketing expenditure by DraftKings’ legacy business, with the operator also investing $18.0m on product and technology. SBTech, meanwhile, spent $6.5m in research and development costs, which were reclassified as capitalized development costs.

This resulted in a combined operating loss for the quarter of $70.0m, and after interest expenses, pre-tax loss amounted to $72.8m. Once income tax payments of $988,000 and a $203,000 loss from investments were factored in, the quarterly net loss amounted to $74.0m.

Looking ahead, Robins said that the business would be able to withstand the impact of Covid-19, with its igaming offering mitigating the loss of sports betting revenue.

The business added that customer activity for esports and virtual sports has risen significantly during the sporting shut-down but added that this growth was “not expected to materially offset the revenue decline from sportsbook product offerings”.

At the end of the quarter, a cyberattack saw more than 50 sportsbooks powered by SBTech go offline, following a ransomware attack. As a result, SBTech’s vendors set aside $30m in cash and stock to settle any claims related to the incident.

However, DraftKings noted that the compensation payments had an “immaterial financial impact” on the business. SBTech’s investigation into the incident resulted in a number of recommendations to improve its network security, which the business is to implement in full.

“SBTech believes it is in compliance with applicable regulatory requirements related to the cybersecurity incident,” DraftKings added. “None of SBTech’s customers have terminated services with SBTech since the cybersecurity incident or notified SBTech of their intention to do so.”