DraftKings in Three Words: Popular Global Sportsbook

Background

DraftKings' mission statement is to build the best, most trusted, and most customer-centric destination for skin-in-the-game fans. It wants to transform the manner in which people experience sports, by allowing them to participate in a wide selection of wagers on the sports and events they are watching.

The company was born at the perfect time, with former Vistaprint and CapitalOne employees Jason Robins, Paul Liberman, and Matt Kalish founding DraftKings in 2012. Well-aware of the PAPSA, they created contests that would involve prizes awarded based on the outcomes of baseball games. These were not direct wagers, but they did pay out real money to the winning participants. And rather than waiting for the entire season to complete (as was common for most fantasy sports apps), players could receive prizes on a daily basis. The traffic to their app increased quickly, and within a year DraftKings brought in Major League Baseball and venture capitalists as new investors.

The company's big break came in the summer 2018 when the PAPSA was declared unconstitutional. Two months later, DraftKings launched its new "Sportsbook" app that allowed people to bet on specific games. It went public in April 2020 through a SPAC merger, raising $813 million in total capital to capitalize on the growing interest in online gambling.

Fast-forwarding to today, DraftKings grew its revenue in 2024 by 30% to $4.8 billion and its customer base by 42% to 10 million. With minimal reinvestment needs, it benefits greatly from operating leverage and its additional revenues fall quickly to the bottom line. Its forward guidance for fiscal 2025 is anticipating 34% revenue growth to $6.45 billion. And due to that operating leverage, it's expecting $950 million of Adjusted EBITDA -- more than 5X greater than the $181 million it generated last year.

Now that it is organically generating EBITDA and free cash flow, DraftKings has more options at its disposal that would reward its shareholders. The company executed its first repurchase worth $48 million, and CEO/co-founder Jason Robins has mentioned an interest in issuing debt to optimize its capital structure.

That's probably a good move. As more states legalize online sports betting the the company's income stream becomes more predictable and reliable, shrewd moves like swapping out equity for debt could reduce the discount rate and increase its intrinsic value per share.

Combined with the stock now selling near its 52-week low, DraftKings might be a company worth betting on.

Conviction Rating Changes

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DraftKings (Nasdaq: DKNG) and FanDuel (owned by Flutter Entertainment (NYSE: FLUT)) have enjoyed more than 80% share for years in America's online sports betting market duopoly.

But now they're adjusting to a new player who's recently joined their table.

Privately-held Kalshi has a reserved seat to allow gamblers to bet on sporting events. Yet this isn't the same as its larger peers, and its new approach is taking the industry by storm.

Kalshi isn't just another online sports book. It is technically an exchange who sells financial products that are tied to the outcomes of sporting events.

That legal distinction is important, because Kalshi and other predictive market platforms are regulated by the Commodity Futures Trading Commission at the federal level. That's quite different from online sports betting platforms, who are regulated by each individual state.

DraftKings and FanDuel have been lobbying endlessly on a state-by-state basis, trying not only to get their apps legalized but also for them to have consistent tax rates. Even after decades of operations, online sports betting is still only legal in 38 states + the District of Columbia.

Yet Kalshi's financial products are available in all 50 states and have quickly sidestepped the traditional book of rules.

As expected, the money is flowing to what's more universally available. The NY Times reported that Kalshi facilitated more than $2.5 billion worth of sports contracts in September alone, with the majority being on NFL games.

That's a pretty formidable number, especially when considering the total cash handle for all sports betting last year was around $150 billion.

There are political ties here as well. Kalshi named Donald Trump Jr as a strategic advisor one week before the president's inauguration, and the Trump Administration further issued tax cuts that are financially advantageous for future contracts as compared to traditional gambling.

I don't personally see much of a difference between prediction market financial contracts and online sports bets. They're pretty much identical in function and are placed in exactly the same way within the apps by users.

Yet in this highly-regulated industry, Kalshi and its predictven market peers appear to have been given a Trump Card. And that's providing an important edge that is causing it to win big at the expense of others.

DraftKings will report its third quarter earnings in early November. I'll grab a front row seat and some popcorn, eager to see how this game will ultimately play out. 

DraftKings initially joined the 7investing Watch List of New Ideas in April 2025.