Q4 2023 DraftKings Inc Earnings Call
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Speaker Change: Good day and welcome to the Draft Kings Q4, 2023 earnings call. At this time, all participants are in a listen only mode.
Operator: Good day, and welcome to the DraftKings Q4 2023 earnings call. At this time, all participants are in listen-only mode.
Operator: After the speaker's presentation, we will conduct a question and answer session. To ask a question at that time, please press star 1 1. As a reminder, this call is being recorded. I would like to turn the call over to Stanton Dodge, Chief Legal Officer. You may begin. Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties, and other factors, as discussed further in our SEC filings, that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law.
Speaker Change: After the Speakers' presentation, we will conduct a question answer session to ask a question at that time. Please press star one one.
Speaker Change: As a reminder, this call is being recorded.
Speaker Change: I'd now like to turn the call over to Stanton Dodge Chief Legal Officer, you may begin.
Stanton Dodge: Good morning, everyone and thank you for joining us today certain statements. We make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors.
Stanton Dodge: Further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast we assume no responsibility to update forward looking statements other than as required by law during.
Stanton Dodge: During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. However, these measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our annual report on Form 10-K, as filed with the SEC.
Stanton Dodge: During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating baskins operating performance. These measures should not be considered in isolation or as a substitute for dockings financial results prepared in accordance with GAAP.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation.
Stanton Dodge: Which can be found on our website and in our annual report on Form 10-K filed with the SEC.
Jason Robbins: Hosting the call today, we have Jason Robbins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on our business, and Jason Park, Chief Financial Officer of DraftKings, who will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robinson, morning, and thank you all for joining us. Last year at this time, we shared our first end of year letter.
Stanton Dodge: Hosting the call today, we have Jason Robins co founder and Chief Executive Officer of <unk>, who will share some opening remarks and update on our business adjacent Park Chief Financial Officer, <unk>, who will provide a review of our financials. We will then open the line to questions I will now turn the call over to Jason Robins.
Jason Boisvert Bazinet: Good morning, and thank you all for joining.
Jason Boisvert Bazinet: Last year at this time, we shared a firsthand view of it.
Jason Robbins: In that letter, I described DraftKings as a company that would thrive when business conditions became more challenging. I wrote that our culture and people positioned us well to execute, which effectively made 2023 an excellent year for DraftKings. As you've seen, our team rose to the occasion.
Jason Boisvert Bazinet: In that letter I described back into the company that will thrive in business conditions became more challenging.
Jason Boisvert Bazinet: That our culture and people position us well to execute which effectively made 2023 improving year for drafting.
Jason Boisvert Bazinet: As you've seen our team rose to the occasion revenue increased 64% year over year in fiscal year 2023, even with very customer friendly outcomes in late November.
Jason Robbins: Revenue increased 64% year over year in fiscal year 2023, even with very customer-friendly outcomes in late. More importantly, we improved adjusted EBITDA in fiscal year 2023 by nearly $600 million year over year and posted our first two adjusted EBITDA positive quarters in the company. Beyond our financial highlights, we improved our product and customer experience and also made a number of operational improvements to better serve our customers and operate more. We gained share, including taking the number one position in combined OSB and iGaming gross gaming revenue share in the US for the third quarter. We focused on our core value drivers and empowered our leaders to set aspirational goals and drive their teams to meet and exceed. We lean heavily on data and analytics, giving us the confidence to cut expenses in some areas and double down. This year, our focus will largely be on essentially the same idea.
Jason Boisvert Bazinet: Importantly, we improved adjusted EBITDA in fiscal year, 2023 by nearly $600 million year over year and posted our first two adjusted EBITDA positive quarters in company history.
Jason Boisvert Bazinet: Beyond our financial highlights, we improved our product and customer experience and also made a number of operational improvements to better serve our customers and operate more efficiently.
Jason Boisvert Bazinet: We gained share including taking the number one position in combined OSB in our gaming gross gaming revenue share in the U S for the third quarter, we focused on our core value drivers and empowered our leaders that aspirational goal can drive their teams to meet and exceed those goals.
We think heavily on data and analytics are giving us the confidence to cut expenses in some areas and double down in others.
Jason Boisvert Bazinet: This year, our focus will largely be on essentially the same items.
Jason Robbins: We are still in the early innings of U.S. online gaming, and there is still a share that can be gained through innovation and operational efforts. We will continue to focus on product and customer experience as key differentiators. We will continue to leverage our scale to invest in important areas while also focusing heavily on efficiency and optimization. We will continue to focus on the core value drivers of our business. Having superior lifetime values and customer acquisition costs is the ultimate competitive advantage, and we have a number of initiatives planned to enhance both in 2024. We also continue to face new competition, as we consistently have in the past. However, we've been able to drive growth and gain share while simultaneously becoming more efficient.
Jason Boisvert Bazinet: We're still in the early innings in the U S online gaming industry and there is still fair that can be gained through innovation and operational excellence. We will continue to focus on product and customer experience is a key differentiator and we will continue to leverage our scale and invest in important areas, while also focusing heavily on efficiency and optimization.
We will continue to focus on the core value drivers of our business.
Jason Boisvert Bazinet: Having superior lifetime values and customer acquisition cost is the ultimate competitive advantage and we have a number of initiatives planned to enhance both in 2024 and beyond.
Jason Boisvert Bazinet: We also continue to face new competition as we consistently have over the years in the past, we've been able to drive growth and gain share while simultaneously, becoming more efficient, but importantly, we do not take any of our recent success for granted we have the right team in place and are working hard to maintain our edge.
Jason Boisvert Bazinet: Going into 2024, there are three main opportunities on that line.
Jason Boisvert Bazinet: Firstly, continuing to foster our entrepreneurial culture and empower our great people to pursue big opportunity.
Jason Robbins: But importantly, we do not take any of our recent success for granted. We have the right team in place and are working hard to maintain our Going into 2024, there are three main opportunities on my agenda. The first is continuing to foster our entrepreneurial culture and empower our great people to pursue big opportunities. The second is developing our next crop of leaders and giving them opportunities that allow them to stretch, grow, and contribute at higher levels.
Jason Boisvert Bazinet: Secondly, developing our next crop of leaders and giving them opportunities that allow them to stretch to grow and contribute at higher levels.
Jason Boisvert Bazinet: The third is leveraging our free cash flow, which we expect to generate in order to maximize value for our shareholders.
Jason Boisvert Bazinet: We are excited to have an agreement to bring Jack pocket into the drafting family and enter the rapidly growing use digital lottery vertical importantly, this is not just a new product for our customers to enjoy but really a way to strengthen our core OSP and <unk> position in the U S by optimizing our overall LTV and CAC, we look forward to working together to provide tremendous <unk>.
Jason Boisvert Bazinet: <unk> added value to the combined customer base.
Jason Boisvert Bazinet: In closing 2023 with a fantastic year for drafting yes, I believe that 2024 will be even better.
Jason Robbins: The third is leveraging our free cash flow, which we expect to generate in order to maximize value for a share. We are excited to have an agreement to bring Jackpocket into the DraftKings family and enter the rapidly growing U.S. digital lottery market. Importantly, this is not just a new product for our customers to enjoy but really a way to strengthen our core OSB and iGaming position in the US by optimizing our overall LTV engagement. We look forward to working together to provide tremendous and differentiated value to the combined In closing, 2023 was a fantastic year for DraftKings, yet I believe that 2024 will be even better.
Jason Boisvert Bazinet: Unbelievably excited about the plans we have in place to continue serving our customers and growing our business and most importantly, I am excited about the quality of the team we have in place and I have no doubt that we will continue to execute very effectively against our key priorities. This year.
Jason Boisvert Bazinet: We will work tirelessly to produce great results and build on the incredible momentum we generated in 2023.
Jason Boisvert Bazinet: With that I will turn it over to Jason Park.
Jason Boisvert Bazinet: Thank you, Jason I'll hit the highlights, including our full year 2023, and fourth quarter performance and our updated guidance for 2024. Please note that all income statement measures discussed except for revenue are on a non-GAAP adjusted EBITDA basis.
Jason Boisvert Bazinet: As Jason mentioned, the Oregon, <unk> is executing very well and that is showing up in our results in fiscal year 2023 revenue grew 64% versus 2022, and adjusted EBITDA improved year over year by nearly $600 million versus 2022, which resulted in year over year adjusted.
Jason Boisvert Bazinet: EBITDA flow through percentage of 40%.
Jason Boisvert Bazinet: Adjusted gross margin increased nearly 200 basis points as we delivered higher sports book hold percentage and improved our promotional reinvestment for OSB and I gave you.
Adjusted sales and marketing expense grew 3% as we reduced marketing in our more mature states and transition further into more efficient national marketing.
Jason Boisvert Bazinet: I am unbelievably excited about the plans we have in place to continue serving our customers and growing our business. Most importantly, I am excited about the quality of the team we have in place. And I have no doubt that we will continue to execute very effectively against our key priorities. We will work tirelessly to produce great results and build on the incredible momentum we generated in. With that, I will turn it over to Jason. I'll hit the highlights, including our full year 2023 and fourth quarter and our updated guidance for 2020. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP-adjusted EBITDA basis.
Jason Boisvert Bazinet: In the fourth quarter, we continued to generate great performance across our core value drivers and produce more than $1 2 billion of revenue and $151 million of positive adjusted EBITDA.
Jason Boisvert Bazinet: Better customer acquisition retention and engagement resulted in higher than expected handle for the quarter and positively impacted revenue and adjusted EBITDA by $93 million and $42 million respectively.
Jason Boisvert Bazinet: Structural sports book hold percentage was 10, 4% and well ahead of expectations as we continued to improve our parlay mix and optimize our trading capabilities. This trend positively impacted revenue and adjusted EBITDA by $53 billion and $38 million respectively.
Jason Boisvert Bazinet: As you are well aware of by now sport outcomes, we're very customer friendly in the fourth quarter, primarily in the final two weeks of November while December was consistent with expectations and our actual sports book hold percentage for the fourth quarter was nine 2% due to support outcomes, which were a headwind to revenue and adjusted EBITDA of 175.
Jason Boisvert Bazinet: As Jason mentioned, the organization is executing very well, and that is showing up in our report. In fiscal year 2023, revenue grew 64% versus 2022, and adjusted EBITDA improved year-over-year by nearly $600 million versus 2022, which resulted in a year-over-year adjusted EBITDA flow-through percentage of 40%. A jump to gross margin increased nearly 200 basis points as we delivered higher sportsbook hold percentage and improved our promotional reinvestment for OSB and IGAP. Adjusted sales and marketing expense grew 3% as we reduced marketing in our more mature states and transitioned further into more efficient national markets.
Jason Boisvert Bazinet: And $126 million, respectively compared to our expectations.
Jason Boisvert Bazinet: Moving onto our full year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth coupled with a scaled fixed cost structure in November of 2023, we guided fiscal year 2020 for revenue of $4 5 billion to $4 8 billion and adjusted EBITDA.
Jason Boisvert Bazinet: $350 million to $450 million.
Jason Boisvert Bazinet: Today, we are improving our fiscal year 2020 for revenue guidance range to $4 six 5 billion to $4 9 billion and our adjusted EBITDA guidance range to $410 million to $510 million.
Jason Boisvert Bazinet: Customer acquisition retention and engagement in Q4, and Q1 to date has continued to exceed expectations due to ongoing product innovation and marketing optimization initiatives. These trends account for $90 million of the revenue improvement and $35 million of the adjusted EBITDA improvement.
Jason Boisvert Bazinet: Higher structural sports book hold percentage as a result of continued year over year <unk> improvement as well as improvements in trading and risk management accounts for $35 million of the revenue improvement and $25 million of the adjusted EBITDA improvement.
Jason Boisvert Bazinet: In the fourth quarter, we continue to generate great performance across our core value drivers and produce more than 1.2 billion of revenue and 151 million of positive adjustments. Better customer acquisition, retention, and engagement resulted in higher than expected handle for the quarter and positively impacted revenue and adjusted EBITDA by $93 million and $42 million, respectively. Structural sportsbook hold percentage was 10.4% and well ahead of expectations as we continue to improve our parlay mix and optimize our trading. This trend positively impacted revenue and adjusted EBITDA by $53 million and $38 million, respectively.
Jason Boisvert Bazinet: From an intra year perspective in 2024.
Jason Boisvert Bazinet: First quarter revenue to increase approximately 45% year over year and second through fourth quarter revenue to each grow year over year in the 20% to 30% range. We expect adjusted EBITDA to be approximately breakeven in the first quarter nearly $150 million in the second quarter and above $300 million in the fourth quarter.
Jason Boisvert Bazinet: Importantly, we are also now guiding free cash flow, we expect to generate between $310 million and $410 million in free cash flow in 2024 based on approximately $120 million of annual Capex and capitalized software development costs as well as a modest source of cash from changes in net working capital.
Jason Boisvert Bazinet: And interest income therefore, we will end the year with approximately $1 6 billion of cash before using approximately $413 million to fund our proposed acquisition of Jack pocket.
Jason Boisvert Bazinet: Looking further ahead as discussed at our Investor day in the letter we released last night, we expect to generate positive and increasing free cash flow. Starting this year and are beginning to explore ways to optimize our capital structure, our expectation for sustainable revenue growth and adjusted EBITDA margin expansion over the next several years.
Jason Boisvert Bazinet: As you are well aware by now, sport outcomes were very customer-friendly in the fourth quarter, primarily in the final two weeks of November, while December was consistent with. Our actual sportsbook hold percentage for the fourth quarter was 9.2% due to sports outcomes, which were a headwind to revenue and adjusted EBITDA of $175 million and $126 million, respectively, compared to our expectations. Moving on to our full year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth coupled with a scaled fixed cost. In November of 2023, we guided fiscal year 2024 revenue of $4.5 billion to $4.8 billion and adjusted EBITDA of $350 million to $400 million.
Jason Boisvert Bazinet: <unk> a number of options to maximize long term returns for our shareholders.
Speaker Change: That concludes our remarks, and we'll now open the line for questions.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from David Katz with Jefferies. Your line is open.
David Brian Katz: Hi, Good morning, everyone. Thanks for taking my question.
David Brian Katz: What I wanted to good morning.
David Brian Katz: And congrats on the quarter. So I wanted to delve a little further into sort of what the next phase really looks like and if you could talk about the kinds of product advancement. The kinds of features and functionality where your focus is in play.
David Brian Katz: Part of what's next for domestic sports betting where is it.
Jason Boisvert Bazinet: Today, we are improving our fiscal year 2024 revenue guidance range to $4.65 billion to $4.9 billion and our adjusted EBITDA guidance range to $410 million to $510 million. Customer acquisition, retention, and engagement in Q4 and Q1 to date have continued to exceed expectations due to ongoing product innovation and marketing optimization. These trends account for $90 million of the revenue improvement and $35 million of the adjusted EBITDA improvement.
Where is it all going to come from.
David Brian Katz: Bose.
Speaker Change: Very good question.
Speaker Change: Very big picture I think.
Speaker Change: Sounds like product is sort of part of your question I definitely think in play it's a huge opportunity as you noted.
Speaker Change: Still very early stages of that developing and I think theres a lot both on the product side and also on the broadcast side that can be done to make that experience better.
Speaker Change: More accessible to or at least more interesting to a larger audience.
Speaker Change: I still think Theres a lot of room to move on just organic growth that parlays and other sorts of things I mean remember, we just launched progressive parlay recently that products still very early in its development and should continue to drive strong parlay mix increase.
Jason Boisvert Bazinet: Higher structural sports book hold percentage as a result of continued year over year bet mix improvement as well as improvements in trading and risk management accounts for $35 million of the revenue improvement and $25 million of the adjusted EBIT. From an intra-year perspective, in 2024, we expect first-quarter revenue to increase approximately 45% year-over-year, and second- through fourth-quarter revenue to each grow year-over-year in the 20- to 30-percent range. We expect adjusted EBITDA to be approximately breakeven in the first quarter, nearly $150 million in the second quarter, and above $300 million in the fourth. Importantly, we are also now guiding free cash. We expect to generate between $310 million and $410 million in free cash flow in 2025. Based on approximately $120 million of annual CapEx and capitalized software development costs, as well as a modest source of cash from changes in net working capital and interest. Therefore, we will end the year with approximately $1.6 billion in cash before using approximately $413 million to fund our proposed acquisition of Jack.
Speaker Change: And then there's a number of other initiatives that we have that we will be rolling out throughout the year that.
Speaker Change: I'm not going to steal my product teams Thunder on but we have lots of good stuff planned I think really key thing to remember is it's still super early days a lot of the things that we think will happen over the coming years will greatly change the way that the product and the customer experience works, it's going to evolve quite a bit.
Speaker Change: I think it's pretty exciting time.
Speaker Change: It's still very early stages, so lots of room to grow.
Speaker Change: Sure.
Speaker Change: Thank you and if I may just follow up quickly with respect to Jack buckets.
Speaker Change: It seems like a nice business that generates a little bit.
Speaker Change: A little bit of return, but more as a customer acquisition vehicle.
Speaker Change: As we think about these cash allocation decisions going forward are there more things like this that are contemplated or is it more a function of capital structure on the charts and that's it for me. Thanks.
Speaker Change: I think its more the ladder, there's all sorts of different options that we're looking at for how to maximize shareholder return with the capital will be accumulating on our balance sheet and what you will see though is we're going to stay very squarely on strategy, we talked about how priority a is winning in the U S and I think Jack pocketed apps.
Speaker Change: <unk> in line with that.
Speaker Change: Lottery is the oldest form of gaming in the U S. It's been around forever. The audience is massive.
Speaker Change: And as you noted it is a very efficient way to acquire customers in mass it extraordinarily lower tax than what we see in the other forms of online gaming and we know from overlap analysis that we did that those customers will cross sell very effectively to and from the overlap analysis. We did we saw that the customers that overlapped where about 50 per.
Operator: Looking further ahead, as discussed at our Investor Day and in the letter we released last night, we expect to generate positive and increasing free cash flow starting this year and are beginning to explore ways to optimize our capital. Our expectation of sustainable revenue growth and adjusted EBITDA margin expansion over the next several years offers us a number of options to maximize long-term returns for our shareholders. That concludes our remarks, and we will now open the line for questions. Thank you. If you'd like to ask a question, please press star 1 1. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again.
<unk> higher spend on draft Kings, OSB ni gaming products than customers, who didn't so lots of reason to believe that not only they are cheap acquisition, but there's also a high LTV customers that we can cross over and I think thats a really key.
Speaker Change: Sure thing that DFS provided for us as an advantage too. So if you look at kind of the playbook. That's worked for us entering new states, having a buildup database having.
Speaker Change: An active base of customers that we can cross sell I think this is doubling down on that.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Shaun Kelly with Bank of America. Your line is open.
Shaun Clisby Kelley: Hi, good morning, everyone.
Shaun Clisby Kelley: Hey, Jason Hey, Jason I was hoping you could comment a little bit on just how the fourth quarter played out from a promotional activity perspective. So overall, we didn't see quite the sequential improvement in promotions that we saw a year ago between the third quarter and the fourth quarter. So kind of what are we seeing as the business levels off there and just if you could characterize a little bit.
David Brian Katz: Our first question comes from David Katz with Jeffreys. Your line is open. Hi, good morning everyone.
Speaker Change: Given plenty of nail biting out there strategically about new customers launches support next changes obviously between NFL and NBA just help us kind of characterize the landscape as you saw it and we move through <unk> and into January.
Jason Robbins: Thanks for taking my question. Morning. What I wanted to do...
Jason Robbins: Morning, and congratulations on the court. So I wanted to delve a little further into sort of what the next phase really looks like, and if you could talk about the kinds of product advancements, the kinds of, you know, features and functionality where your focus is in play, you know, part of what's next for domestic sports betting. Where's it all going to come from, I suppose? It's a very good question, you know; a very big picture.
Jason: Yeah. So I mean, there's a couple of things at play here first for.
For a fixed amount of promotions, obviously lower whole due to sport outcomes and I mean, we had the worst two week stretch us support outcomes from a dollar cost basis that we've ever had as a public company. So that's going to just naturally makeup, but if you look at sort of the adjusted for outcomes numbers. It was down to 300 basis points year over year.
Jason: <unk> I think also we had a blowout quarter from a customer acquisition perspective, so youre going to have a little bit higher promotion rate when that happens and if you isolate to the retention side to existing customer promotion those were down even more significantly year over year. So we're actually seeing really good trends on that front.
Jason Robbins: I think, you know, it sounds like product is sort of part of your question. I definitely think in play is a huge opportunity, as you noted, still very early stages of that development, and I think there's a lot both on the product side and also on the broadcast side that can be done to make that experience better and more accessible to, or at least more interesting to, a larger audience. I still think there's a lot of room to move on just organic growth of parlays and other sorts of things. I mean, remember, we just launched Progressive Parlay recently, so that product's still very early in its development and should continue to drive strong parlay mix increases. And then there's a number of other initiatives that we have that we'll be rolling out throughout the year that I'm not going to steal my product team's thunder on, but we have lots of good stuff planned. I think the really key thing to remember is it's still super early days.
Jason: Playing out pretty much exactly as we expected and I think where youre seeing some noise is just from some of the outcomes and also a blowout quarter from customer acquisition, but even despite all of that when you adjust just for the outcomes and leave that the acquisition numbers in there. It was still two to 300 bps lower year over year.
Speaker Change: Very helpful and just for my follow up if we could talk about Jack pocket.
Speaker Change: Today.
Speaker Change: Our belief is it's probably losing a little bit just trying to kind of get a sense of contribution as we move out you actually.
Speaker Change: Consolidated this business probably more in 2025, what's your sort of risk tolerance about around what you'd be willing to invest or commit to this business again from a capital or loss perspective for those couple of years, while you want to ramp because it seems like at least in the forecast that you would get in there's a heck of a lot of organic growth that you can also attribute to this business so help us balance.
Jason Robbins: A lot of the things that we think, you know, will happen over the coming years will greatly change the way that the product and the customer experience works. It's going to evolve quite a bit, and I think it's a pretty exciting time and, you know, still very early stage, so lots of room to grow. And thank you.
Speaker Change: Those two and maybe losses or potential investments in 2025.
Speaker Change: First of all.
Speaker Change: Regardless of when this closes if it closes in 'twenty four it will not have a material impact it will not cause us to change our guide so let me be clear on that.
Speaker Change: We're talking low single digit losses, this year and I think next year will be a positive year I think the real question is how much depending on timing of close synergy can we realize next year and how much upside is there, but I don't expect this to be any sort of drag if anything it'll be I think some pleasant upside, but we're just hesitant to kind.
Jason Robbins: And if I may just follow up quickly, with respect to Jackpocket, seems like a nice business that generates a little bit of a little bit of return, but, you know, more as a customer acquisition vehicle. As we think about, you know, these cash allocation decisions going forward, are there more things like this that are contemplated? Or is it more a function of capital structure and returns?
Speaker Change: Commit the timing of synergies given that we don't have a definitive date of close yet so really I think thats. The question for 25 is is it going to be slightly positive or are we going to be able to capture real meaningful synergies and start to accelerate some of the <unk>.
Jason Robbins: And that's it for me. Thank you. Yeah, I think it's more the latter. There are all sorts of different options that we're looking at for how to maximize shareholder return with the capital we'll be accumulating on our balance sheet. But I think what you will see, though, is we're going to stay very squarely on strategy. We've talked about how Priority A is winning in the U.S., and I think Jackpocket is absolutely in line with that. Lottery is the oldest form of gaming in the U.S. It's been around forever.
Speaker Change: Expected synergies that we have pegged for 2026 currently and that's currently not something that we really can peg given we're not certain of the closing timing, but just to be completely clear. This will not change our guide regardless of when we close in 'twenty four and there should be if anything a positive certainly not a drag on EBITDA in 2025.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Jason Robbins: The audience is massive, and as you noted, it's a very efficient way to acquire customers in large numbers. It has extraordinarily lower costs than what we see in the other forms of online gaming. And we know from the overlap analysis that we did that those customers will cross sell very effectively, too. And from the overlap analysis we did, we saw that the customers that overlapped spent about 50% more on DraftKings, OSB, and iGaming products than customers who didn't. So lots of reason to believe that not only is there a cheap acquisition, but there's also high LTV customers that we can cross over. And I think that's a really core thing that DFS provided for us as an advantage, too. So if you look at kind of the playbook that's worked for us, entering new states, having a built-up database, having an active base of customers that we can cross sell, I think this is doubling down on that. Thank you. Thank you. Our next question comes from Shaun Kelley with Bank of America. Your line is open. Hi, good morning, everyone.
Speaker Change: Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Speaker Change: Our next question comes from Joe Greff with Morgan Stanley.
Speaker Change: Close as Joe Greff from JP Morgan Good morning, guys.
Speaker Change: Yeah.
Speaker Change: Hi.
Joe Stauff: Depending on how you want to answer this but what was the partly mix in the fourth quarter. If you want to look at it by handle or GTR a number of debt.
Joe Stauff: Whats the assumption for parlay mix growth.
Joe Stauff: 2024.
And then maybe another way to answer the question two if we look at Illinois, the only state that really details.
Joe Stauff: Parlay activity.
Joe Stauff: Yes.
Joe Stauff: How you cut it you had a huge spike in what was reported parlay that nets are partly handle mix in December versus November.
Joe Stauff: Specifically, what's going on there and is that representative of other dates with respect to.
Joe Stauff: Partly acid.
Yes, so for the fourth quarter were around 30%. We think there may have been on air in the Illinois are poor for December that overstated, that's something we're still digging into but.
Joe Stauff: Was around 30% for the fourth quarter and we expect continued to increase this year, we haven't put any exact numbers out for what we are forecasting parlay mix to be I think some of this you know somebody mentioned in game betting earlier theres. So many moving parts and people have to remember as different levers for monetization.
Jason Robbins: Jason or Jason, I was hoping you'd comment a little bit on just how the fourth quarter played out from a promotional activity perspective. So, you know, overall, we didn't see quite the sequential improvement in promotions that we saw a year ago between the third quarter and the fourth quarter. So, you know, kind of what are we seeing as the business levels off there? And just if you could characterize it a little bit given plenty of nail-biting out there strategically about new customers, launches, sport mix changes, obviously, between NFL and NBA, just help us kind of, you know, characterize the landscape as you see it as we move through Q and into January. Yeah, so I mean, there's a couple things at play here. First, you know, for a fixed amount of promotions, obviously lower hold due to sport outcomes. And I mean, we had the worst two weeks stretch of sports outcomes from a dollar cost basis that we've ever had as a public company.
Joe Stauff: We are increasingly being adopted by consumers youre going to see lots of things moving in game betting of course is going to have less parlay mix just because of the rapid nature of it and therefore may have lower hold but it's still a very.
Joe Stauff: Good thing for monetization. So there is something we have to always keep in mind, obviously hold and parlay mix or big levers, but it's not the only lever those are not the only levers that we have to increase monetization, but to answer your question for Q4 is 30%.
Joe Stauff: And where are you going to dig in and figure out what's going on with the Illinois data, but that looks a little off demand.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Robin Farley with UBS. Your line is open.
Robin Farley: Great. Thanks, I wanted to go back to the jackpot acquisition for a moment just to kind of understand.
Robin Farley: The opportunity it sounds like Theres already pretty significant overlap between the two customer bases. So is the idea that just the opportunity to penetrate even more than that significant amount or is it more in new states, where Jack pockets operating and youre not there yet although that would seem like a relatively small number of states. So.
Robin Farley: Just wondering if you could help us think about since there's already so much overlap where the incremental comes from thanks.
Jason Robbins: So that's going to just naturally make up for it. But if you look at sort of the adjusted for outcomes numbers, it was down to 300 basis points year over year. I think also, you know, we had a blowout quarter from a customer acquisition perspective. So you're going to have a little bit higher promotion rate when that happens. And if you isolate the retention side to existing customer promotions, those were down even more significantly year over year.
Speaker Change: Yes, it's a great question I mean first you know.
Speaker Change: The fact that there is overlap shows us that the customers are very similar type of customer and we've looked at a number of different data points to verify that from demographic data to other behavioral and psychographic of that.
Speaker Change: I think the idea is that overlap was with zero CRM or actual effort put towards cross sell and it's nowhere near the cross sell that we've been able to achieve from OSB to I gaming. So we think there's a ton of upside there with real meaningful effort put towards that and Thats something we do best we feel like.
Jason Robbins: So we're actually seeing really good trends on that front, playing out pretty much exactly as we expected. And I think where you're seeing some noise is just from some of the outcomes and also a blowout quarter from customer acquisition. But even despite all that, when you adjust just for the outcomes and leave the acquisition numbers in there, it was still 200 to 300 bips lower year over year.
We have the best in the industry cross sell rates and I think whether it's DFS OSB Nia gaming or OSP to I gaming or any of the above we have been able to achieve much higher cross sell rates do our effort. So I asked that imagine theres a ton of upside there.
Speaker Change: And the other thing is if we're seeing natural overlap with our audience probably many of those are still using competitor products and not us. So I think there's also an opportunity to market more effectively to customers in our database that may still be playing OSB ni gaming, but with competitors maybe in the JAK market database I should say.
Jason Robbins: Very helpful. And just for my follow-up, if we could, you know, talk about Jackpocket, the business today, our belief is it's probably losing a little bit, just trying to kind of get a sense of contribution as we move out and you actually, you know, consolidate this business more in 2025. What's your sort of risk tolerance around what you'd be willing to, you know, invest or commit to this business, again, from a capital or loss perspective for those couple of years while you want to ramp it? Because it seems like, at least in the forecast that you've given, there's a heck of a lot of organic growth that you can also attribute to this business. So help us balance those two and maybe losses or potential investment in 2025. Yeah, first of all, you know, regardless of when this closes, if it closes in 24, it will not have a material impact; it will not cause us to change our guide. So let me be clear on that. We're talking low single-digit losses this year.
Speaker Change: So I think that number one and then number two is youre right. Absolutely every new state that opened this is just like BFS has been for US. We have this built in customer base. We know that there is tons of people around the nation and play light with the great things about this too is unlike OSB in gaming you don't need legislative action in most states and.
Speaker Change: Order to get Lottery Courier lottery digital carrier lottery launch you need to get usually some kind of approval through the lottery director and the executive branch, but you don't need legislative action, which makes it a much lower hurdle to get up and running in new States and this is something of course that every state lottery, we think would want it'll grow the lottery market bring new customers.
Speaker Change: <unk>.
Speaker Change: So I think it's a great opportunity to get a product potentially in the vast majority of U S States.
Speaker Change: Youre absolutely right I think as time goes on if you like us believe that more and more states will continue to launch OSB Ni gaming then it'll be the gift that keeps on giving.
Jason Robbins: And I think next year will be a positive year. I think the real question, depending on the timing of close synergy, is how much we can realize next year and how much upside is there, but I don't expect this to be any sort of drag. If anything, it'll be, you know, I think some pleasant upside, but we're just hesitant to kind of commit to the timing of synergies given that we don't have a definitive date of close yet. So really, I think that's the question for 25 is, you know, is it going to be slightly positive? Or are we going to be able to capture real meaningful synergies and start to accelerate some of the expected synergies that we have pegged for 2026 currently, and that's currently not something that we really can peg given we're not certain of the closing timing. But just to be completely clear, this will not change our guidance regardless of when we close in 24. And this should be, if anything, a positive, certainly not a drag on EBITDA in 2025. Thank you very much.
Speaker Change: Okay, Thanks, very much and just.
Speaker Change: A follow up in terms of your acquisition philosophy overall are you more.
Speaker Change: Likely to do things related to technology for your product or are you looking more for things like this that has to do with customer acquisition. Thanks.
Speaker Change: I think we feel pretty good about our technology stack I think that there may be small bolt ons here and there that we think are helpful to enhance but.
Speaker Change: I really think it's more about these kind of strategic moves that are going to help us win in U S online gaming and I think we are going to be super disciplined.
Speaker Change: Disciplined on M&A I don't think Youll see US go on this rash of buying companies left and right.
Speaker Change: When we did a ton of diligence on we.
Speaker Change: Underwrote it very carefully with very conservative I think assumptions and.
Speaker Change: We feel like it has high potential to be a real homerun. So.
Speaker Change: I think youre going to see us pursuing things like that that really make a lot of sense. When you think about it and I think youre going to see us continue to be super disciplined and Youre going to see is look at all sorts of different ways to take the capital that we're accumulating and create shareholder value. This is M&A is not the only way to do it there are many others. So.
Jason Robbins: Thank you. The next question comes from Stephen Grambling with Morgan Stanley. Your line is open. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Speaker Change: I think thats, the best way I would describe it and I think it fits with how our disciplined in general as a company. If you look at the deals we do on the business development and partnership side. It's the same thing we use a lot of discretion, we're very careful when we underwrite with a very strong analytic process and thats exactly how we approach this M&A deal.
Jason Robbins: Our next question comes from Joe Greff with Morgan Stanley. Close to show graph from J.P. Morgan. Good morning, guys. Depending on how you want to answer this, what was the parlay mix in the fourth quarter, if you want to look at it by Handel or GGR or a number of vets? What's the assumption for Parley?
Speaker Change: Great. Thanks, very much thanks.
Speaker Change: Thank you. Our next question comes from Dan <unk> with Wells Fargo. Your line is open.
Dan: Hey, good morning, everyone and thanks for taking my questions.
Dan: First one just wanted to touch on structural hold I think you guided to 10 to 10, 5% for 2024.
Jason Robbins: And then maybe another way to answer the question, too, if we look at Illinois, the only state that really detailed... No matter how you cut it, you had a huge spike in what was reported for parlay bet mix or parlay handle mix in December versus November. What's going on there?
Dan: And I think that's about 50 basis points up year over year versus over 200 basis points in 2023, Alright, I get youre coming off of a higher days, but I guess to what extent does this.
Dan: It reflects some degree of conservatism and are you seeing more casual betters come into your system.
Jason Robbins: And is that representative of other states with respect? Partially. Yeah, so for the fourth quarter, we were around 30%. We think there may have been an error in the Illinois report for December that overstated it, so that's something we're still digging into, but it was around 30% for the fourth quarter.
Dan: Another competitor has launched and recently you talked about growing the market there.
Dan: I think.
Speaker Change: First I'm glad that you feel that there is some upside there I do too.
This earlier I think one of the reasons that we're a little cautious withhold that there are other things you can do to improve monetization like pushing live betting more that might actually not increased whole, but still be very good from an LTV standpoint.
Jason Robbins: And we expect it to continue to increase this year. We haven't put any exact numbers out for what we are forecasting Parlay Mix to be. I think some of this, you know, somebody mentioned in-game betting earlier. There are so many moving parts, and people have to remember, you know, as different levers for monetization are increasingly being adopted by consumers, you're going to see lots of things moving. In-game betting, of course, is going to have less Parlay Mix just because of the rapid nature of it, and therefore may have a lower hold, but it's still a So this is something we have to always keep in mind. Obviously, hold and Parlay Mix are big levers, but they're not the only levers.
Speaker Change: So we want to make sure that we leave some flexibility for all sorts of different levers.
Speaker Change: At the same time, I do think Youre right Theres, probably some upside there.
Speaker Change: Really for us.
Speaker Change: We've always had a nice mix of customers across the spectrum.
Speaker Change: I do think in the last few months there has been.
Speaker Change: More casual customers coming in but theres been more customers of all sorts of spin.
Speaker Change: And sort of across.
Speaker Change: Across the spectrum of spend so.
Speaker Change: Really not seeing anything tremendously different other than just really strong customer acquisition across the board, but I can't look at it and say, it's skewing more casual or anything like that it just seems like overall customer acquisition is just really strong right now.
Speaker Change: I'll just add Dan our philosophy on guiding to hold rate has been that we should commit to something that we are empirically realized as you saw structural hold in Q4 was better than we thought and that gave us conviction to increase the embedded hold rate in our 2024 guide, but but to Jason's point.
Jason Robbins: Those are not the only levers that we have to increase monetization. But to answer your question, for Q4, it's 30%, and we're going to dig in and figure out what's going on with the Illinois data, but that looks a little off to me. Thank you. Thank you. Our next question comes from Robin Farley with UBS. Your line is open. Great, thanks. I wanted to go back to the jackpocket exhibition for a moment just to kind of understand the opportunity.
Speaker Change: We've got a lot of work going on to improve that but our philosophy has been only to commit to what we've been perfectly actualized.
Speaker Change: Got it that's helpful. And then just for my follow up.
You alluded to some comments in the prepared remarks on optimizing capital structure.
Speaker Change: How should we interpret that.
Speaker Change: Are you kind of referring to maybe encourage some debt and maybe long term as you think about the company and maturing and becoming cash flow positive. How do you think about a healthy leverage ratio.
Jason Robbins: It sounds like there's already pretty significant overlap between the two customer bases. So is the idea that it's the opportunity to penetrate even more than that significant amount, or is it more in new states where jackpockets are operating and you're not there yet, although that would seem like a relatively small number of states. So just wondering if you could help us think about, since there's already so much overlap, where the incremental comes from. Thanks. Yeah, it's a great question.
What that might look like.
Speaker Change: I mean that is something that we're actively looking at right now.
Speaker Change: So we are still.
Speaker Change: Doing our work, but we will have more to say on that.
Speaker Change: In the coming months.
Speaker Change: Thanks, Yes, I would just add I mean.
Speaker Change: If you look at our cash balance that we forecasted $1 6 billion at the end of this year before including the $400 million roughly for the acquisition of Jack Pocket and then our multi year plan that we outlined in November we're obviously going to be accumulating cash very quickly. So it's a great position to be in and we're exploring all those options.
Speaker Change: Dan.
Speaker Change: I appreciate all the detail thanks.
Speaker Change: Thank you. Our next question comes from Robert Fishman with Moffat Nathanson. Your line is open.
Jason Robbins: I mean, first, you know, the fact that there's overlap shows us that the customers are a very similar type of customers. And we looked at a number of different data points to verify that, from demographic data to other behavioral and psychographical stuff. You know, I think the idea is that overlap was with zero CRM or, you know, actual effort put towards cross-cell. And it's nowhere near the cross-cell that we've been able to achieve from OSB to iGaming.
Robert S. Fishman: Good morning.
Robert S. Fishman: Curious can you talk about the recent hiring of Murray Donahue, Chief business and growth officer.
Robert S. Fishman: I'm wondering how does her prior experience at Amazon sport.
Robert S. Fishman: Potentially impact draft kings appetite to explore our sports rights down the road.
Speaker Change: Yeah, we're really excited MRE onboard I mean, <unk> not only is it Amazon that yet.
For many years and has an incredible reputation in really strong relationships throughout our ecosystem in industry. So very excited to bring her on.
Speaker Change: I wouldn't say this is anyway, a signal that we're looking at live sports rights, that's not something that right now is on our mind, but.
Jason Robbins: So we think there's a ton of upside there with real meaningful effort put towards that. And that's something we do best. We feel like we have the best cross-cell rates in the industry.
Speaker Change: She brings a number of different experiences and skill sets that will help us understand all parts of the ecosystem and we do a lot of business with folks who owned by sports right. So having that understanding from the other side of the table I think we are very very helpful. In future opportunities that we explore in future negotiations so very excited to bring.
Jason Robbins: And I think whether it's DFS to OSB and iGaming, or OSB to iGaming, or any of the above, we've been able to achieve much higher cross-cell rates through our efforts. So I have to imagine there's a ton of upside there. And, you know, the other thing is that if we're seeing natural overlap with our audience, probably many of those are probably still using competitor products and not us. So I think there's also an opportunity to market more effectively to customers in our database that may still be playing OSB and iGaming but with competitors, maybe in the jackpocket database, I should say. So I think that's number one.
Speaker Change: We are on and I think she is going to bring a lot of real depth of experience as well as a unique perspective to the team.
Speaker Change: Okay, cool and maybe just switching gears here.
Speaker Change: Discuss any more detail around the growth that you mentioned, an increase that frequency versus the bet size averages in 'twenty, three and how youre prioritizing one over the other to drive the 24 results. Thank you.
Speaker Change: We really look at both I mean for US it's about how do we first engaged the customer if we have the customer engage that that's table Stakes you can't do anything if you don't have that so we start there and then we really try to meet them, where they are at if theyre looking for.
Jason Robbins: And then number two is, you're right, absolutely every new state that opens is just like DFS has been for us. We have this built-in customer base. We know that there are tons of people around the nation that play a lot. One of the great things about this, too, is unlike OSB and iGaming, you don't need legislative action in most states in order to get a career lottery, or a digital career lottery launch. You need to get, usually, some kind of approval through the lottery director and the executive branch, but you don't need legislative action, which makes it a much lower hurdle to get up and running in new states.
Speaker Change: New types of bats, and that makes sense.
Speaker Change: More interesting and great if they're looking to try new sports then we try to provide that to them.
Speaker Change: Really I think for us it's about taking that.
Speaker Change: Customer and personalizing the experience so they're sticky and they feel like it's easy and comfortable to use the app. So if youre always betting on.
Speaker Change: Basketball, we're going to show your basketball, but we might also show you other interesting basketball bets that we think you might find intriguing so.
Speaker Change: It's really something that I think it starts with the customer and.
Speaker Change: There's all sorts of different levers that you can pull in.
Speaker Change: The important thing is not to force anything to try to just get the right products in front of the right customers and I think we've done a good job doing that.
Speaker Change: Great. Thank you guys.
Speaker Change: Thank you. Our next question comes from Joe Stauff with <unk>. Your line is open.
Jason Robbins: And this is something, of course, that every state lottery, we think, would want. It'll grow the lottery market, and bring new customers in. So I think it's a great opportunity to get a product, potentially in the vast majority of U.S. states. And you're absolutely right. I think as time goes on, if you, like us, believe that more and more states will continue to launch OSB and iGaming, then it'll be the gift that keeps on giving. Okay, thanks very much.
Joe Stauff: Thanks, Good morning.
Joe Stauff: Jason I was wondering if you could I don't know size or discuss the North Carolina opportunity do you see that similar to maybe an Ohio or Massachusetts or do you see it.
Joe Stauff: Maybe.
Joe Stauff: One of the maybe smaller.
Joe Stauff: A new state launches and then the second question I had was.
Joe Stauff: I'm wondering if you could discuss just the differences in partly penetration rate between the new and say older States.
Jason Robbins: And just a follow-up, in terms of your acquisition philosophy overall, are you more likely to do things related to technology for your product, or are you looking more for things like this that have to do with customer acquisition? Thanks. You know, I think we feel pretty good about our technology stack. I think that, you know, there may be small bolt-ons here and there that we think are helpful to enhance, but I really think it's more about these kind of strategic moves that are going to help us win in U.S. online gaming. And, you know, I think we're going to be super disciplined on M&A. I don't think you'll see us go on this rash of buying companies left and right.
Joe Stauff: And especially.
Joe Stauff: With that partly penetration being lower and the older States is how easy is that to <unk>.
Joe Stauff: Ratchet that higher.
Joe Stauff: And is it reasonable that it can get to the same levels that you see in the newer states hopefully that makes sense.
Speaker Change: Yeah. So on the first question I mean, I think Youre right North Carolina will be similar it's a little smaller population wise in Ohio, but at the top 10 state and we expect it to be a great launch and contribute.
Speaker Change: <unk> it'll be pretty standard I mean at this point, our playbooks honed. So we're not going to approach North Carolina any differently than I do.
Speaker Change: Other than a few optimizations that we always make around the edges, but I think youre going to see North Carolina it'd be a very similar state launch to the ones that you mentioned that we did last year.
Jason Robbins: This is one we did a ton of diligence on. We underwrote it very carefully with very conservative, I think, assumptions, and we feel like it has the high potential to be a real home run. So I think you're going to see us pursuing things like that that really, you know, make a lot of sense when you think about it, and I think you're going to see us continue to be super disciplined, and you're going to see us look at all sorts of different ways to take the capital that we're accumulating and create shareholder value. This is, you know, M&A is not the only way to do it. There are many others. So, you know, that's the best way I'd describe it, and I think it fits with how we're disciplined in general as a company.
Speaker Change: As far as parlay mix, yes, youre, absolutely right newer states.
Speaker Change: It's always easier when you have a product that you are introducing customers to for the first time to.
Speaker Change: Get them to try new things and harder to get them, if they've been using the product in a certain way for years to change behavior.
Speaker Change: So it's more of a grind, but the trends are absolutely continuing every single year and the oldest states that we have from a product mix perspective, the trends are continuing to move in the right direction. So.
Speaker Change: I think thats. Another one that will just be a continuous tailwind for us over time and eventually they will converge with what we're seeing in the new states that will just take a little longer.
Jason Robbins: If you look at the deals we do on the business development and partnership side, it's the same thing. We use a lot of discretion, we're very careful, and we underwrite, you know, with a very strong analytic process, and that's exactly how we approach this M&A deal. Great. Thanks very much.
Speaker Change: Thanks, a lot.
Thank you. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Stephen White Grambling: Hi, there can you hear me.
Stephen White Grambling: An area.
Stephen White Grambling: Excellent. Thank you apologies for that so on jackpot I guess one.
Stephen White Grambling: Question, just is that going to stay a single app or be folded into the drafting that or both and does the ramp to $60 million to $100 million and 26 assume any new states get approved.
Speaker Change: So for us.
Jason Boisvert Bazinet: Our next question comes from Dan Pulitzer with Wells Fargo. Your line is open. Hey, good morning, everyone.
Speaker Change: A lot of the questions around branding and product we're still in the early stages, but the current plan is to keep it as its own brand and App I think they've built a strong audience and a good brand and I think that we want to keep it but obviously, we're going to explore opportunity to integrate ecosystems have all products available across all brands just like.
Jason Robbins: And thanks for taking my questions. First one, just want to touch on structural hold. I think you got it to 10 to 10.5% for 2024. And I think that's about 50 basis points up year over year versus over 200 basis points in 2023. Now, I understand you're coming off a higher base, but I guess, to what extent does this reflect some degree of conservatism?
Speaker Change: We do with <unk> and I think.
Speaker Change: Jack Pocket has a casino that.
Speaker Change: Theres a lot to do there I think with their brand and we will see how that all evolves over time, but thats the current plan.
Speaker Change: And then I'm sorry, what was the second question.
Speaker Change: Doug.
Jason Robbins: And are you seeing more casual bettors come into your system? Just as you know, another competitor has launched and recently talked about growing the market there. I think, you know, first, I'm glad that you feel that there's some upside there. I do too.
Speaker Change: Targets.
Speaker Change: As we look out to 2026.
Speaker Change: Hey, good evening.
Doug: Yeah, So no new OSB Eni gaming States are included in our synergy or any other assumption. So we're just assuming current footprint. So a lot of upside if theres more OSB ni gaming states and cross selling more customers, we do assume that some.
Jason Boisvert Bazinet: You know, I noted this earlier. I think one of the reasons that we're a little cautious with hold is that there are other things you can do to improve monetization, like pushing live betting more, that might actually not increase hold but still be very good from an LTV standpoint. So, you know, we want to make sure that we leave some flexibility for all sorts of different levers. And at the same time, I do think you're right, there's probably some upside there, you know, really, for us. We've always had a nice mix of customers across the spectrum, and I do think in the last few months, there's been more casual customers coming in, but there have been more customers of all sorts of spend and sort of, you know, across the spectrum of spend, so really not seeing anything tremendously different other than really I would just add, Dan, our philosophy on guiding to hold rates has been that we should commit to something that we have empirically realized.
Doug: Some more lottery states launch.
Doug: As I noted earlier it is.
Doug: A lot more.
Doug: Seamless to launch a lottery state you don't need to go through the legislative process, it's really more of going and working out a deal directly with the state. So I think that that's something that we feel a lot of confidence in and if you look at their ramp over the last few years, they've launched a number of different states.
Doug: I think the hardest part really is because there is no legislative process. The hardest part is when they've already solved which is building a technology solution that will scale, we'll be able to service multiple states and lots of customers at the same time and of course remember Theres already states that they are in that are big States, Texas is a huge.
Doug: Revenue state for them and as we know, Texas came very close last year to passing OSB and we're very hopeful. They will this year New York is a huge state for them I think New York could do I gaming and the next year or so so that's another big opportunity.
Doug: So really I think the best is yet to come and as I said earlier.
Jason Robbins: So, as you saw, structural hold in Q4 was better than we thought, and that gave us conviction to increase the embedded hold rate in our 2024 guide. But to Jason's point, we've got a lot of work going on to improve that, but our philosophy has been only to commit to what we've empirically actualized.
Doug: This is this is an asset that we believe will just continue to increase in value because if you're a believer, which I hope. We all are that there will be more and more OSB ni gaming states. None of that is baked into any of our synergy assumptions. That's just all upside.
Speaker Change: That's super helpful and maybe looping adjacent park here on free cash flow as we look further out how do you generally anticipate free cash flow conversion evolving.
Speaker Change: Yes, so we outlined that for 2020 for the free cash flow the delta between adjusted EBITDA and free cash flow net.
Jason Robbins: That's, that's helpful. And then, just for my follow-up, you alluded to some comments and prepared remarks on optimizing capital structure. I mean, how should we interpret that? You know, are you kind of referring to maybe, you know, incurring some debt and maybe for the long term as you think about the company, maturing, and becoming cash flow positive? How do you think about, you know, a healthy leverage ratio? What might that look like?
Speaker Change: Impact of Capex cap software plus some.
Speaker Change: Cumulative good guides across working capital and interest income is about 100 $100 million. So.
Speaker Change: That's a free cash flow.
Speaker Change: Yield on the adjusted EBITDA.
Speaker Change: I think about the components between adjusted EBITDA and free cash flow as being more steady over time, so with adjusted EBITDA growth free cash flow conversion percentage is going to go up Steven.
Jason Robbins: I mean, that is something that we're actively looking at right now. So, you know, we're still doing our work, but we'll have more to say on that in the coming months. www. DraftKings.co.uk, I would just add, I mean, if you look at our cash balance that we forecasted, $1.6 billion at the end of this year, including the $400 million roughly for the acquisition of Jack Pocket, and then our multi-year plan that we outlined in November, we're obviously going to be accumulating cash very quickly. So it's a great position to be in, and we're exploring all those Thanks.
Steven: Perfect. Thanks, so much for giving me back Ed.
Speaker Change: You got it.
Thank You: Thank you. Our next question comes from Bernie Mcternan with Needham <unk> Company. Your line is open.
Bernie Mcternan: Thank you for taking the questions just to start Jason in the letter you said, 87% customer retention over a five year period on average I think that was better than what was quoted in the Investor day. A couple of years ago is that is that true that retention is improving that much or a number is not apples to apples.
Yes.
Yes, I think that is true.
I'm not sure if it's exactly apples to apples I have to go back and check but absolutely retention is improving.
Okay any any drivers to Cogs are those typically yes, I mean, I think it's largely product.
Jason Robbins: Thank you. Our next question comes from Robert Fishman with Moffitt Nathanson. Your line is open. Good morning.
Bernie Mcternan: That's the biggest one I also think that.
Bernie Mcternan: Youre, just seeing more and more natural organic growth as customers adopt more sports and things like that which just keeps them more sticky inactive on the product, but it's really just the product advancement more than anything else. We also are constantly optimizing our CRM. So thats a big lever too I should mention we are testing all the time and.
Jason Robbins: I'm curious, can you talk about the recent hiring of Marie Donahue as Chief Business and Growth Officer? I'm wondering how her prior experience at Amazon Sports potentially impacts DraftKings' appetite to explore sports rights down the road? Yeah, we're really excited to have Marie on board. I mean, she not only was at Amazon, she was at ESPN for many years, and has an incredible reputation and really strong relationships throughout our ecosystem and industry. I am so very excited to bring her on board.
Bernie Mcternan: Finding wins, so I think between the product improving greatly over the last couple of years and our marketing team continuing to test and learn.
Bernie Mcternan: The biggest drivers, but theres a lot of things right I think our customer service has improved.
Bernie Mcternan: I think theres, just so many different dimensions across the product and across the entire customer experience.
Bernie Mcternan: That have helped us improve our retention.
Bernie Mcternan: Great.
Jason Robbins: You know, I wouldn't say this is, in any way, a signal that we're looking at live sports rights. That's not something that, right now, is on our mind. But I think she brings a number of different experiences and skill sets that will help us understand all parts of the ecosystem. And we do a lot of business with folks who own live sports rights. So having that understanding from the other side of the table, I think it will be very helpful in future opportunities that we explore in future negotiations. I am very excited to bring her on board.
I know, it's early days, but just wanted to get your thoughts on barstool and what that could be as a customer acquisition and retention vehicle for you guys.
We are very excited about that and we've worked with barstool many times over the years.
Bernie Mcternan: I'm really thrilled to be working with them again.
Bernie Mcternan: The partner that we know very well and a ton of data on so we felt really good I mean this is about as good as it gets in terms of us having a historical data and being able to underwrite this deal.
Bernie Mcternan: So it's really exciting and we believe it will be a strong performer for us.
Speaker Change: Great. Thanks, Jason.
Speaker Change: Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open.
Chad Beynon: Good morning, Thanks for taking my question.
Jason Robbins: And I think she's going to bring a lot of real depth of experience as well as a unique perspective. Cool, and maybe just switching gears, can you discuss any more detail around the growth that you mentioned in increased bet frequency versus the bet size averages in 23 and how you're prioritizing one over the other to drive the 24 results? Thank you. We really look at both.
Chad Beynon: With respect to the gross margin guidance improvement for 2024 should we think about the 250 to 450 basis point improvement more of just kind of a factor of the scale and the growth that youre going to have or some of the I guess variable fees coming down and we should.
Chad Beynon: For that to continue.
Jason Robbins: I mean, for us, it's about how do we first engage the customer? If we have the customer engaged, that's table stakes; you can't do anything if you don't have that. So we start there. And then we really try to meet them where they are, if they're looking for, you know, new types of vets.
Chad Beynon: Just given some of your partnerships and what Youre able to do with payment processing and the like.
Speaker Change: Yes, I mean I think it is.
Speaker Change: A number of different things that come with scale certainly their discount that come with volume and scale on things like payment processing also <unk>.
Jason Robbins: And that makes it, you know, more interesting than great. If they're looking to try new sports, then we try to provide that to them. And, you know, really, I think for us, it's about taking that customer and personalizing the experience. So they're stickier, and they feel like it's easy and comfortable to use the app.
Speaker Change: Promotional mix continues to trend down as we increase the ratio of existing to new customers.
Speaker Change: Those things I think are the largest drivers yes.
Speaker Change: I agree I think it's all of the above Chad, we're improving promotional and reinvestment rate due to our mix of existing versus new customers, our improving hold rate and then just ongoing optimization of our Cogs vendors are all driving that.
Jason Robbins: So, you know, if you're always betting on basketball, we're going to show you basketball, but we might also show you other interesting basketball bets that we think you might find intriguing. So, you know, it's really something that starts with the customer. And, you know, there's all sorts of different levers that you can pull.
Speaker Change: <unk> gross margin rate.
Speaker Change: Okay, great. Thanks, and then we'll probably see the public release at least from New York I believe later today with respect to the Super Bowl all come in kind of a hold rates there but.
Speaker Change: Could you maybe give us a little preview in terms of how that fit into the Q1 guidance how are you.
Jason Robbins: And, you know, the important thing is not to force anything to try to just get the right products in front of the right customers. And I think we've done a good job doing that. Great. Thank you, guys.
Speaker Change: Guys did in the Super Bowl from a hold standpoint.
Yeah. So.
Speaker Change: Speaks to the power of our work that we've done over the last few years to build out the same game parlay product and improve player props and really diversify the bet that despite the fact that the game outcome did not go our way at all with the chiefs, winning we ended up actually holding right in line with what we thought.
Jason Robbins: Thank you. Our next question comes from Joe Stauff with SIG. Your line is open. Thanks, Jason. Good morning. Jason, I was wondering if you could, I don't know, size up or discuss the North Carolina opportunity.
Speaker Change: We would from a whole rate perspective so.
Speaker Change: That was really I think a testament to the great work. The team has done over the last few years to drive more diversified that some more parlays.
Jason Robbins: Do you see that similar to maybe in Ohio or Massachusetts, or do you see it, maybe, like one of the maybe smaller, you know, new state launches? And then the second question I had was, I'm wondering if you could discuss just the differences in parlay penetration, right, between the new and, say, older states, and especially, you know, with that parlay penetration being lower in the older states, how easy is it to ratchet that higher, and is it reasonable that it can get to those same levels that you see in the newer states? Hopefully, that makes sense. Yeah, So on the first question, I mean, I think you're right. North Carolina will be similar.
Speaker Change: Impressive. Thank you very much appreciate it.
Thank you. Our next question comes from Barry Jonas with true Securities. Your line is open.
Barry Jonas: Can you talk about whole trend in gaming do you think there's maybe a path to higher structural hold over time there.
Barry Jonas: Yes, I think gaming is a little bit different because it's so high frequency, it's really whole rate matters of course, if you look at the math, but if you think about kind of a customer and how they behave.
Barry Jonas: Most people say and they play for some period of time.
Barry Jonas: And they have a budget and.
Barry Jonas: I think the hold rate generally doesn't move more than one or 200 bps up or down in any given day is much more stable than sports all right because it's not outcome dependent at all.
Jason Robbins: It's a little smaller population-wise in Ohio, but it's a top-10 state, and we expect it to be a great launch and contribute in a meaningful way. And it will be pretty standard. I mean, at this point, our playbook's honed.
Barry Jonas: It's always something to look at but I think it's just a fundamentally different product.
Barry Jonas: At the same thing with live betting in game, if somebody's betting on every play of the game.
Barry Jonas: Taking a super high margin doesn't necessarily make.
Barry Jonas: That person thick for as long as you can so it is very different and I think somebody who's making one or two bets pre game or maybe they're making a lot of that's pre game, but theyre betting sort of on a much longer cycle and the money isn't churning as quickly.
Jason Robbins: So, you know, we're not going to approach North Carolina any differently, other than a few optimizations that we always make around the edges. But I think you're going to see North Carolina be a very similar state launch to the ones that you mentioned that we did last year. And, you know, as far as parlay mix is concerned, yeah, you're absolutely right about the newer states. I think it's always easier when you have a product that you're introducing customers to for the first time to, you know, get them to try new things and harder to get them if they've been using the product in a certain way for years to change behavior.
Speaker Change: That makes sense and then just a follow up on Jack pocket.
Speaker Change: I guess I'm trying to understand the risks to Jack market and the broader Carryall Courier model, how do you see the potential for more states to legalize I lottery over time, which would effectively remove the need for service fees.
Speaker Change: Well I think that the real question is what can jackpot that contribute to the overall lottery ecosystem in regardless of how it evolves I think their products their customers are going to have a role to play and this is something that any lottery would want right I mean, it would certainly make.
Speaker Change: And I would think I shouldn't say any I'm sure. There is some around the country that for whatever reason don't but.
Jason Robbins: So it's more of a grind, but the trends are absolutely continuing every single year in the oldest states that we have. From a parlay mix perspective, the trends are continuing to move in the right direction. So I think that's another one that'll just be a continuous tailwind for us over time, and eventually, it'll converge with what we're seeing in the new states. It just takes a little longer. Thanks a lot
Speaker Change: Increases the lottery market and increases sales. So it should be a no brainer I would think for the vast majority of state lotteries and.
Speaker Change: I think Jack pocket is very well positioned for however, it evolves deny lottery and other things I mean, they have an incredible customer base of brand.
Speaker Change: This is I think something that actually could be a real tailwind for them, depending on how it evolves, but whether it continues to be the current model or whether it changes I think that chat pocket is extremely well positioned and it is a very unique asset.
Jason Robbins: Thank you. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open. Hey there, can you hear me?
Speaker Change: Thanks, so much.
Stephen White Grambling: I can hear you. Excellent. Thank you. Apologies for that.
Speaker Change: Yes, one other thing worth, noting too is I lottery requires legislative action. Unlike.
Jason Robbins: So on Jackpot, I guess one question is, just is that going to stay a single app or be folded into the DraftKings app, or both? And does the ramp to 60 to 100 million in 26 assume any new states get approved? So for us, a lot of the questions around branding and product are still in the early stages, but the current plan is to keep it as its own brand and app. I think they've built a strong audience and a good brand, and I think that we want to keep it. But obviously, we're going to explore opportunities to integrate ecosystems, have all products available across all brands, just like we do with GNOG. And I think Jack Pocket has a casino, so there's a lot to do there, I think, with their brand. And we'll see how that all evolves over time, but that's the current plan. And then, I'm sorry, what was the second question?
Speaker Change: <unk> pocket does so.
Speaker Change: I think while it could happen, it's going to be a much slower burn and I think the ability to get there.
Speaker Change: Digital lottery products that Jack pocket offers up and running in a number of states quickly is just much more seamless.
Speaker Change: Thank you. Our next question comes from Jordan Bender with citizens JMP. Your line is open.
Jordan Bender: Hey, Thanks for taking my question. So the barstool partnership kind of highlights it seem of past years of using your marketing budget in your AD spend can you maybe help us think about some of the higher cost legacy partnerships, making a roll off this year versus some of the opportunity for incremental marketing agreements like a bar stool maybe into 'twenty.
Jordan Bender: <unk> to 'twenty five.
Jordan Bender: A positive ROI you might see off of those thank you.
Jason Robbins: Does the targets, as we look at 2026, include any new states? Yeah, so no new OSB and iGaming states are included in our Synergy or any other assumption. So we're just assuming the current footprint.
Speaker Change: Sure I mean as you know.
Speaker Change: Our relationship with ESPN ended late last year, so that is certainly one.
Speaker Change: But I wouldn't say, there's like any one thing we're constantly optimizing in and out and actually most of our spend is not committed most of our spend.
Speaker Change: It is done through buying that we can pull in and out of it any various points of time. So there is a ton of different levers that we can pull as we think about funding different agreements.
Jason Robbins: So a lot of upside if there are more OSB and iGaming states and cross-selling more customers. We do assume that some more lottery states will launch. As I noted earlier, it's a lot more seamless to launch a lottery state. You don't need to go through the legislative process.
Speaker Change: Right now I think given sort of the pace and cadence of what we expect state launches to be in 2024.
Jason Robbins: It's really more of going in and working out a deal directly with the state. So I think that that's something that we feel a lot of confidence in. And if you look at their growth over the last few years, they've launched in a number of different states. I think the hardest part really is because there's no legislative process; the hardest part is one they've already solved, which is building a technology solution that will scale and will be able to serve multiple states and lots of customers at the same time. And, of course, remember, there are already states that they're in that are big states. I mean, Texas is a huge revenue state for them. And as we know, Texas came very close last year to passing OSB, and we're very hopeful they will this year. New York is a huge state for them.
Speaker Change: Barring some big surprise I don't think youre going to see an increase in marketing this year, it's going to be much more of a focus on deploying our dollars much more effectively and I think barstool is a great example of that.
Speaker Change: Great and then on the follow up on Jack pocket with costs going down and LTV is going up does the acquisition help your margin targets long term just for the core business I think it's around 30% still like should we expect any incremental lift through this acquisition.
Yes, that's a great question.
Speaker Change: At this point, we haven't dug in as much on that but I think it's certainly something that you could see.
Speaker Change: I think that what we get with Jack pocket is the ability to acquire a lot of customers at a fraction, it's about 10% to 15% of our current customer acquisition cost and.
Jason Robbins: I think New York could do iGaming in the next year or so. So that's another big opportunity. So really, I think the best is yet to come. And as I said earlier, this is an asset that we believe will just continue to increase in value because if you're a believer, which I hope we all are, that there will be more and more OSB and iGaming states. None of that is baked into any of our synergy assumptions, so it's just all upside. That's super helpful.
Speaker Change: That's something that.
Speaker Change: Obviously, we will provide a lot of levers for being able to optimize margin over the long run assuming that we can continue to do that which I have no reason to believe we can't and.
Speaker Change: I think on the other side of it being able to cross sell and it'll provide some revenue lift.
Speaker Change: Don't view this necessarily it's more like DFS rate.
<unk> is a nice little product makes money for us, but it's not something that is going to drive the massive topline growth that's really the OSP ni gaming and it's more of a vehicle to be able to continue to acquire customers and engage customers in states that don't have that yet and I think Jack pocket much like DFS will do the same thing and also I think in states that.
Jason Boisvert Bazinet: And maybe looping in Jason Park here on free cash flow, as we look further out, how do you generally anticipate free cash flow conversion evolving? Yeah, so we outlined that for 2024, the free cash flow, you know, the delta between adjusted EBITDA and free cash flow net impact of CAPEX, CAP software, plus some, you know, cumulative good guys across working capital and interest income is about $100 million. So, you know, that's the free cash flow yield on the adjusted EBITDA.
Speaker Change: <unk> gaming it will provide us another vehicle to acquire cheaply and one of the cool things I think is if you look at sort of where a lot of customer acquisition happens now. It's during these big moments, whether that's the Super Bowl or March madness coming up of any of those things as those big Tentpole moments and what Jack pocket does is it creates more of those.
Jason Boisvert Bazinet: You know, I think about the components between adjusted EBITDA and free cash flow as being more steady. Over time, as adjusted EBITDA grows, the free cash flow conversion percentage is going to go up. Perfect. Thanks so much.
Speaker Change: Big mass chief customer acquisition opportunities during the year.
Speaker Change: And it could be anytime right could be the middle.
August when there is suddenly a $1 billion jackpot and we're the only ones who are able to actually acquire and mass right before the NFL season start. So it's those types of advantages I think that youre going to see really pay off over time.
Jason Robbins: We're going to be back in. You got it. Thank you. Our next question comes from Bernie McTernan with Needham & Company. Your line is open.
Jason Robbins: Great. Thank you for taking the questions. Just to start, Jason, in the letter you said 87% customer retention over a five-year period on average. I think that was better than what was quoted at Investor Day a couple of years ago. Is that true that retention is improving that much, or are the numbers not apples to apples? Yeah, I think that is true. I mean, I'm not sure if it's exactly apples to apples. I have to go back and check. But absolutely, retention is important. Okay, any drivers to call out specifically?
Jason: Great. Thanks, Jason.
Jason: Thank you. Our next question comes from Jed Kelly with Oppenheimer <unk> Company. Your line is open.
Jed Kelly: Great great. Thanks for taking my question.
Jed Kelly: Has your structural hold improve theoretically youre going to be able to promote at a higher incremental gross dollar. So can you talk about what that does for retention.
Jed Kelly: And then my follow up is we're seeing these new streaming services start to pop up can you talk about where the category leading gaming companies are going to be in terms of.
Jed Kelly: And this new streaming wave in sort of helping around the distribution.
Speaker Change: Yeah, Great question, So I think on the first one.
Jason Robbins: Yeah, I mean, I think it's largely the product. That's the biggest one. I also think that you're just seeing more and more natural, organic growth as customers adopt more sports and things like that, which just keeps them more sticky and active on the product. But it's really just the product advancement more than anything else. We also are constantly optimizing our CRM. So that's a big lever too.
Speaker Change: It gives you the ability to do that doesn't mean, we will I think for US right now we feel there's a lot of room.
Speaker Change: To just continue to drive engagement through product and customer service and other things, but certainly having a little bit more cushion to be able to find other new sorts of promotions that works is another advantage in.
Speaker Change: It doesn't necessarily mean that that's going to be something we're looking to do but I do think it provides an ability to do so which is certainly an advantage over time.
Jason Robbins: I should mention we're testing all the time and finding wins. So I think between the product improving greatly over the last couple of years and our marketing and team continuing to test and learn, that's probably the biggest driver. But there are a lot of things, right?
Speaker Change: And then on the streaming side I think it's early to say Theres a lot of moving parts right now.
Speaker Change: At the same time.
Speaker Change: We know obviously that there's a lot of disruption going on.
Speaker Change: And sports media.
Jason Robbins: I think our customer service has improved. I think there are just so many different dimensions across the product and across the entire customer experience that have helped us improve our retention. Great. And I know it's early days, but just wanted to get your thoughts on Barstool and what that could be as a customer acquisition and retention vehicle for you. You know, we're very excited about that one. We've worked with Barstool many times over the years, and we're really thrilled to be working with them again.
Speaker Change: Obviously, we've seen a ton of disruption <unk> seen kind of how the evolution of non sports media and sports is still very much right in the thick.
Speaker Change: The evolution that's occurring in.
Speaker Change: And it'll be interesting to see how it plays out in no doubt there'll be opportunities created and we're always looking for new partners in interesting ways that we can take advantage of any disruption happening in an adjacent market to us.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Brian <unk> with Barclays. Your line is open.
Brian: Hey, good morning, everybody. Thanks for taking my question.
Jason Robbins: It's a partner that we know very well and have a ton of data on, so we felt really good. I mean, this is about as good as it gets in terms of us having historical data and being able to underwrite this deal. So it's really exciting, and we believe it'll be a strong performer for us. Great, thanks.
Brian: The first one another one on Jack pocket.
Brian: Just thinking about the non overlap portion of the database.
Brian: We think about lottery and think of sort of a very wide.
Brian: Diversified range of demographic and income levels and I'm just curious if you've done any work on the non overlapping piece you give us a sense on.
Brian: Who those folks are older older.
Jason Robbins: Thank you. Our next question comes from Chad Bainin with Macquarie. Your line is open. Good morning.
Brian: Older people is it matter of women and is that a richer cross sell opportunities for I gaming our OSB in your mind, how do you compare that.
Jason Robbins: Thanks for taking my question. With respect to the gross margin guidance improvement for 2024, should we think about the 250 to 450 basis points improvement more of just kind of a factor of the scale and the growth that you're going to have, or are some of the, I guess, variable fees coming down, and we should expect for that to continue, just given some of your partnerships and what you're able to do with payment processing and the like? Thanks. Yeah, I mean, I think there are a number of different things that come with scale.
Speaker Change: Yes, great questions I mean, so we did a ton of work on the overall customer base.
Speaker Change: And also on the general lottery market and what we find is that the people that are buying lottery tickets on Jack pocket. They are using mobile devices to do so they're younger they're attacker and more tech savvy customer.
Speaker Change: It's a different demographic I think and the average lottery customer and Thats part of why it's growing the market, which is which is great.
Speaker Change: So similar to kind of the online better versus the retail better. It's just it's different person.
Jason Robbins: Certainly, there are discounts that come with volume and scale and things like payment processing. Also, promotional mix continues to trend down as we, you know, increase the ratio of existing to new customers. And, you know, those things I think are the biggest drivers. Yeah, I agree. I think it's all of the above, Chad, where the improving promotional reinvestment rate due to our mix of existing versus new customers, our improving hold rate, and then just ongoing optimization of our COGS vendors are all driving that improvement in gross margin rate.
Speaker Change: Willing and also.
Speaker Change: It Hasnt, an iPhone and that sort of thing.
And I think really.
Speaker Change: That's kind of what the appeal is is that this is a disruptive new thing in a market that really.
Speaker Change: The customer wants this right I mean people don't buy lottery tickets today sometime.
Speaker Change: Sometimes I think due to convenience and just like being able to make a bet on your phone.
Speaker Change: Shooting I mean, if you look at anywhere right now thats legalized betting.
Speaker Change: Online bedding makes up a much larger portion of the handle than retail betting. It just makes sense. When you give people a digital and mobile option that youre going to grow the market and also reach a new demographic of a person so.
Jason Robbins: Okay, great. Thanks. And then we'll probably see the public release, at least from New York, I believe, later today, with respect to the Super Bowl outcome and kind of the hold rates there. But could you maybe give us a little preview in terms of how that fits into the Q1 guidance, how you guys did in the Super Bowl from a hold standpoint? Yeah, so I think this speaks to the power of our work that we've done over the last few years to build out the Same Game Parlay product and improve player props and really diversify the bets so, despite the fact that the game outcome did not go our way at all with the Chiefs winning, we ended up actually holding right in line with what we thought we would from a hold rate perspective. So that was really, I think, a testament Impressive. Thank you very much.
Speaker Change: Thats really what we found when we dug in there and I'm sorry, what was the second part of the question.
Speaker Change: I gave me OSB. So actually another interesting thing we saw I had gone in thinking this is going to be much more propensity to cross sell to I gaming this type of customer, but when we did the overlap analysis is actually quite similar the overlap between OSB customers and gaming customers. So that gave us great confidence.
Speaker Change: That which makes sense in some ways right because the overlap between gaming in OSB in the cross sell rates are so high so it kind of makes sense. When you think about it but I would have gone and probably think it would skew a little more I gaming I know, it's actually very similar.
Speaker Change: That's really interesting thanks for that and then.
Speaker Change: Maybe more on the sort of maybe competitive landscape. This is a disruptive.
Jason Robbins: I appreciate it. Thank you. Our next question comes from Barry Jonas with True Securities. Your line is open.
Speaker Change: Technology service.
Speaker Change: That is growing based on penetration and I think this is the number one player in the space, but you guys mentioned that regulatory the regulatory structure wasn't exactly.
Jason Robbins: Thanks. Can you talk about the hold trend in iGaming? Do you think there's maybe a path to higher structural hold over time there? You know, I think iGaming's a little bit different because it's so high-frequency that it's really, you know, hold rate matters, of course, if you look at the math, but if you think about kind of a customer and how they behave, you know, most people sit and they play for some period of time, and they It's much more stable than the sports hold rate because it's not outcome dependent at all.
Speaker Change: Hi.
Speaker Change: Our problem and so and so maybe we wonder about barrier to entry in and if that's sort of low.
Speaker Change: Is there are there are there sort of second third fourth sort of App apps out there significant at the heels of this one and what's the competitive landscape looks like.
Speaker Change: Well no doubt I think there will be more.
Speaker Change: I think what you really have to think about is you are right from a regulatory perspective. There are other it's not as hard, but I think really as hard as the technology side.
Speaker Change: A very complicated fulfillment process and every state is a little bit different CF to build a solution that can be flexible and it's actually quite similar to what we've built in terms of our multi state regulatory structure.
Jason Robbins: So, you know, it's always something to look at, but I think it's just a fundamentally different product. And, you know, it's the same thing with like live betting in the game. If somebody's betting on every play of a game, you know, taking a super-high margin doesn't necessarily make that person stick for as long as you can. So it's very different than I think somebody who's making one or two bets pregame, or maybe they're making a lot of bets pregame, but they're betting sort of on a much longer cycle, and the money isn't churning as quickly.
Speaker Change: <unk> gaming, but I think the added piece for them is that fulfillment and that's very complicated to do that at scale in a cost effective manner and have a technology system their patent as well on various pieces that they've created to have a technology system that can support rapid launch of states is not something that you can.
Speaker Change: Build right overnight so.
Speaker Change: No doubt there'll be more competition over time, but I think these guys have a big head start and while the barriers to entry it may not be Super high I think that headstart Israel.
Jason Robbins: That makes sense. Then just to follow up on Jackpocket, you know, I guess I'm trying to understand the risks to Jackpocket and the broader courier model. How do you see the potential for more states to legalize iLottery over time, which would effectively remove the need for service fees? Well, I think that the real question is, what can Jackpot contribute to the overall lottery ecosystem and regardless of how it evolves, I think that their products, their customers are going to have a role to play and, you know, this is something that any lottery would want, right? I mean, it would certainly make, you know, any, I would think, I shouldn't say any, I'm sure there's some around the country that for whatever reason don't, but it increases the lottery market, it increases sales, so it should be a no-brainer, I would think, for the vast majority of state lotteries and I think Jackpot is very well positioned for however it evolves in iLottery and other things.
Speaker Change: Helpful. Thanks, Jason.
Speaker Change: Thank you. Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Your line is open.
Ryan: Thanks, Good morning, guys, just staying on Jack pocket curious I get all the cross synergies you've mentioned, but are there any features that Jack pocket has that could potentially be useful whether it be OSB right gaming thinking.
Ryan: We'll play where they split winnings theres, an auto play feature so on.
Yes.
Speaker Change: Didn't really thought as much about that.
Speaker Change: They do have a lot of interesting things they've worked I know they have a bingo product.
Speaker Change: They recently launched so there could be some leverages both things there for sure definitely thought about it more as.
Speaker Change: They are building out a great.
Speaker Change: Lottery experience and by plugging in the gaming experience that we've been able to build out in the OSB experience that we've been able to build out to the lottery experienced they've been able to build out I think thats, where the real power is but there also might be youre right. Some good nuggets. There in terms of features and other things that a repurpose ball across other products, that's something that we'll have to look.
Jason Robbins: I mean, they have an incredible customer base, and a brand. This is, I think, something that actually could be a real tailwind for them, depending on how it evolves, but whether it continues to be the current model or whether, you know, it changes, I think that Jackpot is extremely well positioned and is a very unique asset. Thanks so much.
Speaker Change: Until a little bit more.
Speaker Change: Great and then just as a.
Speaker Change: Follow up on DFS, any early metrics and thoughts on the <unk> product.
Speaker Change: And then how should we think about that okay, great gross margins et cetera relative to your traditional DFS business.
Speaker Change: Well, that's the product we're very excited about we haven't talked as much about it because it just launched but it's something that we think could really reinvigorate DFS growth and real meaningful way.
Jason Robbins: One other thing worth noting, too, is iLottery requires legislative action, unlike what JackPocket does, so I think while it could happen, it's going to be a much slower burn, and I think the ability to get the digital lottery products that JackPocket offers up and running in a number of states quickly is just much more seamless. Thank you. Our next question comes from Jordan Bender with Citizens JMP. Your line is open.
Speaker Change: Right now we're seeing really good early signal very strong retention numbers good monetization.
Speaker Change: The fees that we take their guarantee prize pools are actually higher than the average DFS fees. So that's good too.
Speaker Change: So a lot of things to like about that product and I think it's something that we could really be a meaningful contributor in the future.
Speaker Change: Thanks, Jason and good luck guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from John Decree with CBRE. Your line is open.
Jason Robbins: Thanks for taking my question. So the Barstool partnership kind of highlights the theme of the past years of using your marketing budget and your ad spend. Can you maybe help us think about some of the higher cost legacy partnerships that are going to roll off this year versus some of the opportunity for incremental marketing agreements like a Barstool maybe into 24 and to 25 and the positive ROI you might see from those? Thanks. Sure, I mean, as you know, our relationship with ESPN ended late last year.
John Decree: Good morning, everyone. Thanks for taking my questions.
John Decree: Covered a lot of ground, but.
John Decree: Maybe a high level question on gaming.
John Decree: So a lot of success for you over the past year.
John Decree: Can you talk a little bit about if we talk sports and Jack pocket, but no doubt some of the stuff you have planned for I gaming I think your proprietary content has been a big driver of your success, because we think about 2024, and where youre going to get out of gaming.
John Decree: High level, what should we think about.
Speaker Change: Yes, I mean first we are just in the process of completing the migration on <unk>. So.
Jason Robbins: So that is certainly one. But you know, I wouldn't say there's like any one thing; we're constantly optimizing in and out. And actually, most of our spend is not committed; most of our spend is done through, you know, buying that we can pull in and out of at various points in time.
Speaker Change: That's going to be a real exciting one and really just at the very early stages of deploying our multi brand strategy.
Speaker Change: That's going to be a real tailwind for US. We also have a number of product features and new games that we're working on as well as things that we're working to increase in build out like our jackpots offering, which I think is a real differentiator for us so.
Jason Robbins: So there's a ton of different levers that we can pull as we think about funding different agreements. And, you know, right now, I think given the pace and cadence of what we expect state launches to be in 2024, barring some big surprise, I don't think you're going to see an increase in marketing. This year, we're going to be much more of a focus on deploying our dollars much more effectively, and I think Barstool is a great example of that.
Speaker Change: Yes, there is a lot going on in that space, we're working on a lot of new gamification stuff.
Speaker Change: There's just a lot and I think really front and center is that Gina migration and having those products become.
On the same platform I think will allow us to really get even more leverage out of each additional feature and game that we launch.
Speaker Change: Got it. Thanks, Thanks, you touched on a little earlier gaming.
Jason Robbins: Great. And then on the follow-up on Jackpocket, with CACs going down and LTVs going up, does the acquisition help your margin targets long term just for the core business? I think it's around 30% still. Should we expect any incremental lift through this acquisition? You know, it's a great question.
Speaker Change: Your view on New York, perhaps getting close and we probably feel the same way.
There's quite a few bills circulating out there for gaming.
Speaker Change: Shouldnt, but cure.
Speaker Change: Curious if you have a view of your team has a view on at least directionally over the last couple of months or quarters, if you've seen.
Speaker Change: Greater progress at the state legislative level level or if there is maybe anything out there that people aren't thinking about it it's not major headlines like New York that might be interesting over the next kind of one or two years on the gaming regulatory front.
Jason Robbins: At this point, we haven't dug in as much on that, but I think it's certainly something that you could see. You know, I think that what we get with Jackpocket is the ability to acquire a lot of customers at a fraction of the cost; it's about 10 to 15% of our current customer acquisition costs. And that's something that, you know, obviously, will provide a lot of levers for being able to optimize margin over the long run, assuming that we can continue to do that, which I have no reason to believe we can't. And, you know, I think on the other side of it, being able to cross sell, it'll provide some revenue lift. We don't view this necessarily that way, it's more like DFS, right? DFS is a nice little product that makes money for us. But it's not something that is going to drive massive top-line growth.
Speaker Change: Yes, there's a few states that I think are getting momentum on <unk> gaming now and.
Speaker Change: It'll be hard to say, but I think we're going to get at least one or two this year, if I had to guess.
Speaker Change: Some of the states I'm hearing some momentum in include Maryland.
Speaker Change: Wyoming is one.
Speaker Change: So I think there's a few states that could consider it I think a dark horses, Illinois.
Speaker Change: Really what I think you saw and Theres kind of two things that I think are playing out here one is.
Speaker Change: A number of different state wanted to do OSB first and see how that went and that's still ramping for them and so the draw for that reason of new tax revenues from online gaming isn't as strong. If you just launched online sports betting and Youre waiting to see how it's ramping and youre still getting more and more accustomed to income.
Jason Robbins: That's really the OSB and iGaming, and it's more of a vehicle to be able to continue to acquire customers and engage customers in states that don't have that yet. And I think Jackpocket, much like DFS, will do the same thing.
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Speaker Change: We talked a few years ago about.
Speaker Change: Post COVID-19 and how that was going to be a real.
Speaker Change: Catalysts, given states would need tax revenue, what we ended up seeing was it so much federal money was pumped into the state's coffers that that really drag over the next few years it kind of extended that timeline a bit but now that I think coming to an end in many states youre starting to see budgets that really.
Jason Robbins: And also, I think in states that do have OSB and iGaming, it'll provide us another vehicle to acquire customers cheaply. And one of the cool things I think is if you look at sort of where a lot of customer acquisition happens now, it's during these big moments, whether that's the Super Bowl or March Madness coming up or any of those things, it's those big tentpole moments. And what Jackpocket does is it creates more of those big, cheap customer acquisition opportunities during the year. And it could be any time; it could be the middle of, you know, August when there's suddenly a billion dollar jackpot. And we're the only ones who are able to actually acquire them in mass right before the NFL season starts.
Speaker Change: Look a lot like the budgets for five years ago in many states in the surpluses in some of these states are no longer there and so I think thats going to also just sort of changed the dynamic in the coming years between people getting comfortable that the regulatory and responsible gaming pieces that we can put in place are robust and really do a great job.
Jason Robbins: So it's those types of advantages that I think that you're going to see really pay off over time. Great. Thank you. Thank you. Our next question comes from Jed Kelly with Oppenheimer and Company. Your line is open.
Speaker Change: <unk> people understanding there actually isn't a legal online casino market I gaming market and the much like with sports betting disrupting that illegal market that had no consumer protections paying no tax revenue.
Speaker Change: Actually is a real priority that states should have and then of course the amount of programs, whether it be educational or otherwise that the revenues can fund I think are also going to be real catalysts behind and it's kind of as we expected maybe not exactly as we expected, but we thought there'd be a lot of momentum initially on OSB is actually <unk>.
Jason Robbins: Hey, hey, great, great. Thanks for taking my question. Has your structural hold improved? Theoretically, you're going to be able to promote at a higher incremental gross dollar. So can you talk about what that does for retention?
Jason Robbins: And then my follow-up question is we're seeing these new streaming services start to pop up. Can you talk about where the category leading gaming companies are going to be in terms of this new streaming wave and sort of helping around distribution? Thanks.
Speaker Change: Suddenly surprise as many states as they did ended up doing I gaming at the same time.
Speaker Change: And I think as OSB legislation continues to move through the states I think youre going to see a wave of I gaming legislation start to materialize over the course of the next year or two.
Thanks, Jason can we agree that's all helpful commentary and congratulations to you and the team on a great 2023.
Jason Robbins: Yeah, great question. So, I think on the first one, it gives you the ability to do that, but it doesn't mean we will. I think, you know, for us right now, we feel there's a lot of room to just continue to drive engagement through product and customer service and other things. But certainly having a little bit more cushion to be able to find other new sorts of promotions that work is another advantage. And doesn't necessarily mean that that's going to be, you know, something we're looking to do. But I do think it provides an ability to do so, which is certainly an advantage over time.
Jason: Thank you so much really appreciate it.
Jason: Thank you there are no further questions at this time I would like to turn the call back over to Jason Robins for any closing remarks.
Well first thank you all for joining us on today's call really 2023 was an excellent year for dropping and we're so excited about the opportunities in 2024 and beyond I think 2024 is going to be even a bigger year for us I hope, everyone stays safe and well and look forward to chatting with you in the future. Thank you.
Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
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Jason Robbins: And then, you know, on the streaming side, I think it's early to say there's a lot of moving parts right now. And, you know, at the same time, we know, obviously, that there's a lot of disruption going on in sports media. You know, obviously, we've seen a ton of disruption and have seen kind of how the evolution of non-sports media and sports are still very much right in the thick of, you know, the evolution that's occurring. And it'll be interesting to see how it plays out.
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Jason Robbins: And no doubt there will be opportunities created. And we're always looking for new partners and interesting ways that we can take advantage of any disruption happening in an adjacent market to us. Thank you. Thank you. Our next question comes from Brant Montour with Barclays. Your line is open. Hey, good morning, everybody.
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Jason Robbins: Thanks for taking my question. So the first one is another one on jackpocket. I'm just thinking about the non-overlap portion of the database. You know, I think we think about lottery and think of, you know, sort of, a very wide, diversified range of demographic and income levels. And I'm just curious, if you've done any work on the non-overlapping piece, give us a sense of, you know, who those folks are. Are they older people? Is it men or women? And is that a richer cross-sell opportunity for iGaming or OSB in your mind? And how do you compare?
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Jason Robbins: Yeah, great questions. I mean, we did a ton of work on the overall customer base and also on the general lottery market. And, you know, what we find is that the people that are buying lottery tickets on jackpocket are using mobile devices to do so; they're younger, they're a tech or more tech savvy customer. It's a different demographic, I think, than the average lottery customer. And that's part of why it's growing the market, which is great. You know, so, you know, similar to kind of the online better versus the retail better. It's just, it's different people that are willing and also, you know, that he has an iPhone and that sort of thing. And, you know, I think really, that's kind of what the appeal is, is that this is a disruptive new thing in a market that really, the customer wants this, right? I mean, people don't buy lottery tickets anymore today.
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Jason Robbins: Sometimes I think due to convenience, and just like being able to make a bet on your phone, shooting, I mean, if you look at anywhere that's legalized betting right now, online betting makes up a much larger portion of the handles than retail betting, it just makes sense when you give people a digital and mobile option that you're going to grow the market and also reach a new demographic of people. So that's really what we found when we dug in there. And I'm sorry. What was the second part of the question? Oh, iGaming or OSB? So actually, another interesting thing we saw. I had gone in thinking this was going to be much more propensity to cross-sell to iGaming this type of customer. But when we did the overlap analysis, it was actually quite similar, the overlap between OSB customers and iGaming customers. So that gave us great confidence that which makes sense in some ways, right? Because the overlap between iGaming and OSB and the cross-sell rates are so high. So it kind of makes sense when you think about it.
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Jason Robbins: But I would have gone in probably thinking it would skew a little more towards iGaming, and it was actually very similar. That's really interesting. Thanks for that. And then maybe more on this sort of competitive landscape. This is a disruptive technology service that is growing based on penetration, and I think this is the number one player in the space.
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Jason Robbins: But you guys mentioned that regulatory structure wasn't exactly a problem. And so maybe we wonder about the barrier to entry and if that's sort of low. And so are there sort of second, third, fourth sort of apps out there nipping at the heels of this one?
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Jason Robbins: And what's the competitive landscape? Well, no doubt I think there will be more, and I think what you really have to think about is, you're right, from a regulatory perspective, there are other, it's not as hard, but I think that what really is hard is the technology side. It's a very complicated fulfillment process, and every state is a little bit different, so you have to build a solution that can be flexible, and it's actually quite similar to what we've built in terms of our multi-state regulatory structure in OSB and iGaming, but I think the added piece for them is the fulfillment, and that's very complicated to do that at scale in a cost-effective manner, and to have a technology system, they have patents as well on various pieces that they've created, to have a technology system that can support rapid launch of states is not something that you can build right overnight, so no doubt there will be more competition over time, but I think these guys have a big head start, and while the barriers to entry may not be super high, I think that head start is real, helpful. Thanks, Jason.
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Jason Robbins: Thank you. Our next question comes from Ryan Sigdahl with Craig Hallam Capital Group. Your line is open. Thanks. Morning, guys. Just staying on Jackpocket.
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Jason Robbins: Curious. I get all the cross synergies you've mentioned. But are there any features that Jackpocket has that could potentially be useful, whether it be OSD or iGaming, think pool play where they split winnings, there's an autoplay feature, so on.
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Jason Robbins: Yeah, you know, I haven't really thought as much about that. They do have a lot of interesting things they've worked on. I know they have a bingo product that, you know, they recently launched.
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Jason Robbins: So, you know, there could be some leverageable things there for sure. Definitely have thought about it more. They're building out a great lottery experience. And by plugging in the iGaming experience that we've been able to build out and the OSB experience that we've been able to build out to the lottery experience they've been able to build out, I think that's where the real power is.
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Jason Robbins: But there also might be, you're right, some good nuggets there in terms of features and other things that are repurposable across other products. That's something that we'll have to look into a little bit more. Great. Then, just as a follow-up on DFS, any early metrics and thoughts on the PIC6 product? And then how should we think about that take rate, gross margins, etc., relative to your traditional DFS business?
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Jason Robbins: Well, that's a product we're very excited about. We haven't talked about it as much because it just launched, but it's something that we think could really reinvigorate DFS growth in a really meaningful way. You know, right now we're seeing really good early signals, very strong retention numbers, and good monetization. The fees that we take, they're guaranteed prize pools, are actually higher than the average DFS fee, so that's good too.
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Jason Robbins: So there are a lot of things to like about that product, and I think it's something that we could really see as a meaningful contributor in the future. Thanks, Jason. Good luck, guys. Thank you. Thank you. Our next question comes from John Decree with CBRE. Your line is open. Good morning, everyone.
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John Decree: Thanks for taking my questions. I covered a lot of ground, but maybe a high-level question on iGaming. I've seen a lot of success for you over the past year. Can you talk a little bit about, I think we talked about sports and Jackpocket, but about some of the stuff you have planned for iGaming?
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Jason Robbins: I think your proprietary content has been a big driver of some of your success. But as we think about 2024 and where you're going in iGaming at a high level, what should we think about? Yeah, I mean, first, we are just in the process of completing the migration to GNOC, so that's going to be a real exciting one, and we are really just at the very early stages of deploying our multi-brand strategy, and I think that's going to be a real tailwind for us. We also have a number of product features and new games that we're working on, as well as things that we're working to increase and build out, like our jackpots offering, which I think is a real differentiator for us.
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Jason Robbins: So, you know, there's a lot going on in that space. We're working on a lot of new gamification stuff, you know, just a lot, and I think really front and center is that GNOC migration and having those products become, you know, on the same platform, I think will allow us to really get even more leverage out of each additional feature and game that we launch. You touched on a little earlier, iGaming, your view on New York perhaps getting close and we probably feel the same way. There's quite a few bills circulating out there for gaming this session, but, you know, curious if you have a view, if your team has a view on, at least directionally over the last couple of months or quarters, if you've seen, you know, greater progress at the state legislative level or if there's maybe anything out there that people aren't thinking about that's not, you know, major headlines like New York that, you know, might be interesting over the next kind of one or two years on the iGaming regulatory front.
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Jason Robbins: Yeah, there's a few states that I think are getting momentum on iGaming now. And, you know, it'll be hard to say, but I think we're going to get at least one or two this year, if I had to guess. You know, some of the states I'm hearing some momentum in include Maryland and Wyoming. So, you know, I think there are a few states that could consider it. I think a dark horse is Illinois. There are a number of different states, you know, that wanted to do OSB first and see how that went. And that's still ramping up for them.
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Jason Robbins: And so, you know, the draw for that reason of new tax revenues from online gaming isn't as strong if you just launched online sports betting and you're waiting to see how it's going, and you're still getting more and more accustomed to and comfortable with it. The second thing is that, you know, we talked a few years ago about post-COVID and how that was going to be a real catalyst given states would need tax revenue. What we ended up seeing was that so much federal money was pumped into the state's coffers that it really dragged, you know, over the next few years; it kind of extended that timeline a bit. But now that I think the recession is coming to an end in many states, you're starting to see budgets that really look a lot like the budgets four or five years ago in many states, and the surpluses in some of these states are no longer there.
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Jason Robbins: And so I think that's going to also just sort of change the dynamic in the coming years between, you know, people getting comfortable that the regulatory and responsible gaming pieces that we can put in place are robust and really do a great job protecting people, and understanding there actually isn't a legal online casino market or iGaming market. And that, you know, much like with sports betting, disrupting that illegal market that has no consumer protections and pays no tax revenue is actually a real priority that states should have. And then, of course, the amount of programs, whether educational or otherwise, that the revenues can fund, I think, are also going to be real catalysts. And, you know, it's kind of as we expected, maybe not exactly as we expected, but we thought there'd be a lot of momentum initially on OSB. I was actually pleasantly surprised that as many states as they did end up doing iGaming at the same time. And, you know, I think as OSB legislation continues to move through the states, I think you're going to see a wave of iGaming legislation start to materialize over the course of the next year or two.
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Jason Robbins: Thanks, Jason. We agree. That's all helpful commentary, and congratulations to you and the team on a great 2023. Thank you so much. I really appreciate it. Thank you. There are no further questions at this time. I'd like to turn the call back over to Jason Robbins for any closing remarks. Well, first, thank you all for joining us on today's call. Really, 2023 was an excellent year for DraftKings, and we're so excited about the opportunities in 2024 and beyond. I think 2024 is going to be an even bigger year for us.
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I hope everyone stays safe and well and look forward to chatting with you in the future. Thank you. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??
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