Q2 2024 DraftKings Inc Earnings Call - Q&A
Good day, and thank you for standing by and welcome to <unk> first quarter 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you I Didnt hear an automated message advising youre, having just raised to withdraw your question. Please.
Operator: Good day, and thank you for standing by. Welcome to DraftKings' first quarter 2024 earnings call. At this time, all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message device, and your hand is raised. To withdraw your question, please press star 11 again. Please be advised that this conference is being recorded. I would like to turn the call over to your speaker today, Alan Ellingson, DraftKings Chief Financial Officer. Please press 1. Good morning, everyone, and thank you for joining us today.
Speaker Change: Starwood in one again, please be advised today's conference is being recorded I would like to turn the call over to your speaker today, Alex and drafting Chief Financial Officer. Please proceed.
Alex: 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.
Operator: Certain statements we made 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.
Alex: We assume no responsibility to update forward looking statements other than as required by law during.
Alan Ellingson: 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 quarterly report on Form 10-Q filed with the SEC.
Alex: During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating tracking operating performance.
Alex: Measures should not be considered in isolation or as a substitute for <unk> 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 quarterly report on Form 10-Q filed with the SEC.
Operator: Hosting the call today, we have Jason Robins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on the business. Following Jason's remarks, I will provide a review of our financials, and we will then open the line to questions. I will now turn the call over to Jason Robins. Good morning, and thank you all for joining.
Alex: Hosting the call today, we have Jason Robins, co founder and Chief Executive Officer <unk> <unk>.
Speaker Change: Sure some opening remarks, and an update on the business.
Speaker Change: Following <unk> remarks, I will provide a review of our financials. We will then open the lines for questions.
Speaker Change: I will now turn the call over to Jason Robins.
Jason Robins: Good morning, and thank you all for joining.
Jason Robins: There are five key points that I'd like to focus on during our call today. First, we are achieving strong and efficient customer acquisition. New OSB and iGaming customers increased nearly 80% year-over-year, while revenue declined more than 40% year-over-year in the second quarter, a period with no new state launch. We anticipate the healthy customer acquisition environment to continue through the back half of the year and possibly beyond, which may indicate that the U.S. online gaming opportunity could be even larger than we previously thought. Second, we believe we have a reasonable solution for high-tax states, including Illinois.
Jason Robins: There are five key points that I'd like to focus on during our call today.
Jason Robins: First we are achieving strong and efficient customer acquisition.
Jason Robins: SB and gaming customers increased nearly 80% year over year, while cap declined more than 40% year over year in the second quarter, a period with no new state launches.
Jason Robins: We anticipate the healthy customer acquisition environment to continue through the back half of the year and possibly beyond which may indicate that the U S online gaming opportunity it could be even larger than we previously thought.
Jason Robins: We believe we have a reasonable solution for high tax states, including Illinois, We plan to implement the gaming tax surcharge in the four states that have multiple sports betting operators in tax rate about 20% starting January one 2025.
Jason Robins: We plan to implement a gaming tax surcharge in the four states that have multiple sports betting operators and tax rates above 20% starting January 1, 2025. We believe additional upside potentially exists for adjusted EBITDA in 2025 and beyond from this gaming tax surcharge. Third, the Jaft Pocket integration is off to a great start. We are on track to hit the multi-year guidance for the transaction that we provided in the announcement and expect the deal to generate positive adjusted EBITDA in the fiscal year 2025.
We believe additional upside potentially desperate adjusted EBITDA in 2025 and beyond from this gaming tax surcharge.
Jason Robins: Third the Jeff pocket integration is off to a great start.
Jason Robins: We are on track to hit the multiyear guidance for the transaction that we provided an announcement and expect the deal to generate positive adjusted EBITDA in fiscal year 2025.
Fourth we are excited about the future and are reiterating our expectation for $900 million to $1 billion in adjusted EBITDA in fiscal year 2025.
Jason Robins: Fourth, we are excited about the future and are reiterating our expectation for $900 million to $1 billion of adjusted EBITDA in fiscal year 2025. Finally, we said last quarter that we would provide an update on capital allocation. We are pleased to announce that our board has authorized the share repurchase of up to $1 billion of our Class A common stock.
Jason Robins: Finally, we said last quarter that we would provide an update on capital allocation. We are pleased to announce that our board authorized share repurchase of up to $1 billion of our class a common stock.
Jason Robins: This inaugural authorization reflects our conviction in the strong trajectory of our business and our expectation that we will generate significant free cash flow in the coming. I'd also like to emphasize that all of us at DraftKings are very excited for the start of football. Our product is in a great position as we are continuing to differentiate ourselves by investing in new features and functionality for Sportsbook and iCloud and Sportsbook. We recently launched in-house player prop wagers for NFL, NBA, MLB, NHL, college football, college basketball, and tennis.
Jason Robins: Overall authorization reflects our conviction and the strong trajectory of our business and our expectation that we will generate significant free cash flow in the coming years.
Speaker Change: I'd also like to emphasize that all of us attracting theyre very excited with the start of football season, our product is in a great position as we are continuing to differentiate ourselves by investing in new features and functionality for sports book in hygiene.
Speaker Change: Sportswear, we recently launched in half player prop wagers for NFL, NBA, MLB NHL College football College basketball and tenant.
Jason Robins: We also broadened our progressive parlay to include spread and total wages. In addition, we plan to integrate a bet and watch experience with NFL Stream. In iGaming, the DraftKings and Golden Nugget online gaming apps were ranked number one and number two overall in a recent third-party survey.
Speaker Change: We also broadened our progressive parlays to include spread in total waitress.
Speaker Change: In addition, we plan to integrate a bet and watch experience with NFL streaming.
Speaker Change: And I gaming, the drafting and Golden Nugget online gaming apps were ranked number one and number two overall and a recent third party survey we are on track to double the number of new games released this year compared to last year and recently improved our interface to promote game discover ability.
Jason Robins: We are on track to double the number of new games we will release this year compared to last year and recently improved our interface to promote game discoverability. In closing, our business fundamentals are very healthy, and we are excited about the second half of 2024 and beyond. With that, I will turn it over to Alan Ellingson. Thank you, Jason. I'll hit the financial highlights, including our second quarter 2024 performance and our updated guidance. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP-adjusted EBITDA basis.
Speaker Change: In closing our business fundamentals are very healthy and we are excited about the second half of 2024 and beyond with that I will turn it over to Alan.
Alan: Thank you, Jason I will hit the financial highlights, including our second quarter 2024 performance and our updated guidance. Please note that all income statement measures discuss except for revenue are on a non-GAAP adjusted EBITDA basis.
Alan Ellingson: As Jason mentioned, our business fundamentals were strong in the second quarter; we generated $1,104,000,000 of revenue, representing 26% year-over-year growth and $128,000,000 of adjusted EBITDA. Importantly, customer acquisition exceeded our expectations, as new customers to DraftKings, OSB, and iGaming increased nearly 80% year-over-year. Customer attention and engagement were healthy and resulted in a handle that exceeded our expectations; the panel was strong, even with fewer than anticipated NBA playoff games. Structural sports for cold percent improved year over year in line with our expectations to approximately 10%. Adjusted gross margin for the second quarter was 43%, primarily due to better-than-expected customer acquisition and the corresponding promotional reinvestment.
Alan: As Jason mentioned, our business fundamentals were strong in the second quarter, we generated $1 billion $104 million of revenue, representing 26% year over year growth and $128 million of adjusted EBITDA.
Alan: Importantly, customer acquisition exceeded our expectations as new detracting, OSB and gaming customers increased nearly 80% year over year custom.
Speaker Change: Customer retention and engagement were healthy and results and handle that exceeded our expectations.
Speaker Change: Handel was strong even with fewer than anticipated NBA playoff games.
Speaker Change: <unk> sports for colt percent improved year over year in line with our expectations to approximately 10%.
Speaker Change: Adjusted gross margin for the second quarter was 43%, primarily due to better than expected customer acquisition and the corresponding promotional reinvestment operating.
Alan Ellingson: Operating expenses, including sales and marketing, products and technology, and general and administrative expenses, were consistent with our expectations as we continue to balance revenue growth with operating efficiency across the organization. Moving on to our fiscal year 2024 guidance, we now expect revenue in the range of $5,050,000,000 to $5,250,000,000, from a range of $4,800,000,000 to $5,000,000,000. The updated range equates to year-over-year growth of 38 to 43%.
Speaker Change: Operating expenses, including sales and marketing product and technology and general and administrative expenses were consistent with our expectations as we continue to balance revenue growth with operating efficiency across the organization.
Alan Ellingson: The increase in revenue guidance is driven by strong customer acquisition, engagement, and retention trends for existing customers, as well as the inclusion of Jackpocket and our recent launch of Sportsbook in Washington, D.C. We are also revising our fiscal year 2024 Adjusted EBITDA guidance to $340 million to $420 million from the range of $460 million to $540 million. The revision takes into account Illinois raising its sportsbook tax rate, strong new customer acquisition expectations, as well as the prior mentioned inclusion of Jackpocket in our recent sportsbook launch in Washington, D.C. For fiscal year 2024, we now expect our adjusted gross margin to increase modestly. We expect sales and marketing expenses to increase at a mid to high single-digit rate year over year.
Moving onto our fiscal year 2020 for guidance.
Speaker Change: We now expect revenue in the range of $5 $50 million to $5 billion and $250 million from a range of $4 billion $800 to $5 billion.
Speaker Change: The updated range equates to year over year growth of 38% to 43%.
Speaker Change: The increase in revenue guidance is driven by strong customer acquisition engagement and retention trends for our existing customers as well as the inclusion of Jack market. Our recent launch of sports books in Washington D C.
Speaker Change: We are also revising our fiscal year 2024, adjusted EBITDA guidance to $340 million to $420 million from the range of $460 million to $540 million.
Speaker Change: The revision takes into account, Illinois racing and sports book tax rate strong new customer acquisition expectations as well as the prior mentioned inclusion of Jack market because of our recent sports book launch in Washington DC.
Speaker Change: For fiscal year 2020 core we now expect our adjusted gross margin to increase modestly.
Alan Ellingson: The increase is primarily due to the investments in jackpocket brands. We continue to expect the bridge between the justity of the dollar and pre-cash flow to be approximately $100 million based on approximately $120 million of annual capital expenditure and capitalized software development costs, as well as a modest source of cash from changes in networking capital combined with interest-aimed, And we continue to expect 2024 stock-based compensation expense to be flat to down in dollar terms on a year-over-year basis and to represent approximately 7% of revenue in fiscal year 2024.
Speaker Change: We expect sales and marketing expense to increase at a mid to high single digit rate year over year. The increase was primarily due to the investments Jack pocket brand.
Speaker Change: We continue to expect the bridge between adjusted EBITDA and free cash flow to be approximately $100 million based on approximately $120 million of annual capital expenditure and capitalized software development costs as well as a modest source of cash from changes in net working capital combined with interest income.
Speaker Change: And we continue to expect 2020 for stock based compensation expense to be flat to down in dollar terms on a year over year basis and represent approximately 7% of revenue in fiscal year 2024.
Alan Ellingson: Looking ahead to fiscal year 2025, we continue to expect adjusted EBITDA in the range of $900 million to $1 billion due to our underlying business momentum, including the benefit of higher customer acquisitions in the second half of 2024. We believe additional upside potential exists when we apply the gaming tax surcharge in those noted high-tax states that have multiple online sportsbook operators, which we are not including at this time. We expect to provide more details on our fiscal year 2025 guidance with our next earnings report in November.
Speaker Change: Looking ahead to fiscal year 2025, we continue to expect adjusted EBITDA in the range of $900 to 1 billion.
Speaker Change: Due to our underlying business momentum, including the benefit of higher customer acquisitions in the second half of 2024.
Speaker Change: We believe additional upside potential exists when we apply the gaming tax surcharge in those noted high tax states that have multiple online sports book operators, which we are not including at this time.
Speaker Change: We expect to provide more details on our fiscal year 2025 guidance with our next earnings report in November.
Operator: That concludes our remarks. We will now open the line for questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one on your telephone. If your question has been answered and you wish to unmute yourself from the queue, please press star 11 again.
Speaker Change: That concludes our remarks, we will now open the line for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again.
Operator: We'll pause for a moment while we compile our Q&A room. Our first question comes from David Katz with Jeffries. Your line is open.
Speaker Change: Pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from David Katz with Jefferies. Your line is open.
David Katz: Thank you and good morning.
David Katz: I appreciate all the information what I was really hoping to do was just talk about the surcharge for a moment.
Speaker Change: Which is.
Speaker Change: An interesting strategy and how you've thought about.
Speaker Change: And the degree to which competitors may or may not follow.
Speaker Change: And how you react.
Speaker Change: Under those circumstances.
Speaker Change: Just flushing out the strategy a bit more would be really helpful.
Jason Robins: Thank you, David. A great question. You know, I think every company has to do what's best for their own business. I think we believe this is what's best for us, and I would imagine that, you know, if that's our calculus, then others would come to the same conclusion, but we really don't know, and we'll have to see. And obviously, you know, there might be other ways, too, that other ideas for how to implement something like this that might be better than what we came up with. We thought through this quite a bit, but you never know.
Speaker Change: Thank you David Great question.
Speaker Change: I think every company has to do what's best for their own business. I think we believe this is what's best for us.
Speaker Change: I would imagine.
Speaker Change: Sure.
Speaker Change: If that's our calculus than others would come to the same conclusion, but we really don't know and we will have to see.
Obviously, there might be other ways to the other.
Speaker Change: Other ideas for how to implement something like this that might be better than what we came up with we thought through this quite a bit but you never know so we do have some time between now and Jan first.
Jason Robins: So we do have some time between now and Jan 1st, and we'll see what happens. Right? Interesting. And as a quick follow-up, just with respect to putting the surcharge aside, if we think about, you know, the impact that we should be reflecting in our models for Illinois, you know, assuming no surcharge, any help, you know, Alan, as to how we might sort of think through that impact and include it for, you know, the future. There is just a lot going on in there.
Speaker Change: And we will see what happens.
Speaker Change: Right interesting and as a quick follow up just with respect to putting the surcharge aside if we think about the.
Speaker Change: The impact that we should be reflecting in our models for Illinois.
Speaker Change: Assuming no surcharge.
Speaker Change: Any help Alan as to how we might sort of think through.
Speaker Change: That impact and included for.
Speaker Change: The future.
Speaker Change: Just a lot going on in there.
Jason Robins: I'll answer quickly, and then Alan can add any detail, but I think the best way to think about it is that the overperformance that we are seeing with, you know, customer acquisition, the launch of Washington, DC, our expectation for Jackpocket to deliver positive EBITDA next year, as well as underlying trends with our existing customers and outperformance on the handle side, should all offset the Illinois tax increase next year. So even if we don't get any benefit from the fee, we will see, you know, still $900 to $1 billion in adjusted EBITDA next year. Okay, thank you very much. One moment for our... Our next question comes from Shaun Kelley with B of A. Your line is open. Hi, good morning, everyone.
Speaker Change: I'll answer quickly and then Alan.
Alan: But I think the best way to think about it is the over performance that we are seeing.
Speaker Change: With customer acquisition and the launch of Washington D C. Our expectation for Jack pocket to deliver positive EBIT next EBITDA next year as well as underlying trends of our existing customers and outperformance on the handle side all should offset.
Speaker Change: The Illinois tax increase next year.
Speaker Change: So even if we don't get any benefit from the fee. We will see still 902 1 billion and adjusted EBITDA next year. Okay. Okay. Thank you very much.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Shaun Kelley with Bofa. Your line is open.
Shaun Kelley: Hi, good morning, everyone.
Jason Robins: Jason or Alan, I think a lot of the rest of the subject of the sort of update here is about the increased customer acquisition environment and, obviously, some of the continued investments you're making. So, you know, the impact here seems to be the net effect of obviously higher revenue expectations and lower profit flow throughs. Specifically asking about kind of 2025 to start, just the implied guidance right now implies some reacceleration. You haven't given explicit revenue guidance, but that seems to be kind of the undertone here. So, what in your mind would kind of cause the environment to change from where we are today?
Shaun Kelley: Jason Alan I think a lot of the rest of the subject of the sort of update here is about the.
Speaker Change: Increased customer acquisition environment, obviously, some of the continued investments you are making so.
Speaker Change: The impact to your seems to be the net is obviously higher revenue expectations and lower profit flow through is.
Speaker Change: Specifically asking about kind of 2025 to start just the implied.
Speaker Change: Implied.
Speaker Change: The implied guidance right now implies some reacceleration you haven't I don't think you've given explicit revenue guidance that seems to be kind of the undertone here. So what in your mind would kind of caused the environment to change from where we're at today.
Jason Robins: And if it doesn't, what would some of the offsets potentially be for DraftKings as we kind of move into next year? And let's say the customer acquisition environment remains rich, and you continue to see strong ads there. Thanks.
Speaker Change: It doesn't what would some of the offsets potentially be for draft kings as we kind of move into next year, and let's say the customer acquisition environment remains rich and you continue to see strong adds there. Thanks.
Speaker Change: Yeah, It's a great question.
Jason Robins: Yeah, it's a great question. You know, just to explain a little bit about what's going on. One, even if we didn't spend another dime on marketing, new customers get new customer promotion. So you're right, that adds a drag on revenue and EBITDA. And we're seeing enough outperformance on the revenue side elsewhere that while it certainly hits the bottom line a little bit, or will for the remainder of the year, it didn't actually, we're still seeing improved revenue.
Speaker Change: Just explain a little bit about what's going on one even if we didn't spend another dime of marketing new customers get new customer promotion. So youre right that is a drag on revenue and EBITDA and we are seeing enough outperformance on the revenue side elsewhere that well it certainly hit the bottom line, a little better well through the remainder of the year.
Speaker Change: <unk>.
Speaker Change: It didn't actually we're still seeing improved revenue so.
Speaker Change: That just kind of demonstrates I think the underlying strength of the business and the customers that we're seeing so.
Jason Robins: So, you know, that just kind of demonstrates, I think, the underlying strengths of the business and the customers that we're seeing. So, you know, when you kind of put all that together next year, we do expect to get a little bit more revenue because we'll need that to offset or in order to make the math work that's needed to offset the Illinois gaming tax increase. So that's kind of how you get to the 900 to a billion.
Speaker Change: When you kind of put all that together next year, we do expect to get a little bit more revenue, because we will need that to offset in.
Speaker Change: In order to make the math work that's needed to offset the Illinois gaming tax increase so that's kind of how you get to the 900 to a $1 billion and then any additional upside beyond that Illinois gaming tax amount would be the revenue driven or from the impact of the fee that we're instituting in those four states.
Jason Robins: And then any additional upside beyond that Illinois gaming tax amount would be either revenue driven or from the impact of the fee that we're instituting in those four states. And then as far as the potential for hot customer acquisition next year, that can always happen. You know, right now, we feel we've built in some degree of the increased trends we're seeing. And obviously, a lot of that will depend on whether there are more state launches and things like that. So, you know, I think you could sort of think of this as a same-state basis type of thing again.
Speaker Change: And then as far as the potential for hot customer acquisition next year that can always happen.
Speaker Change: Right now we feel we built in.
Speaker Change: Some degree of the increased trends, we're seeing and obviously a lot of that will depend on if theres more state launches and things like that so.
Operator: And obviously, if there are more state launches next year and more customer acquisition investment, then that might change things a bit. But, you know, that just means bigger numbers in the longer term over the following year. So I think that's the right way to think about it. But as of today, I see no reason to think that, on a same-state basis, we wouldn't be able to deliver 900 to a billion and adjusted EBITDA next year. Thank you.
I think you could sort of think of this as a same state basis type of thing again, and obviously, if theres more state launches next year and more customer acquisition investment and that might change things a bit but that just means bigger numbers longer term over the following years. So.
Speaker Change: Thats the right way to think about it but as of today I see no reason to think data on a same state basis, we wouldn't be able to deliver 900 to a $1 billion in EBIT and adjusted EBITDA next year.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: One of them for our next question.
Operator: One moment for our next question. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Speaker Change: Yes.
Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Stephen Grambling: Hi, Thanks, I just wanted to maybe follow up on Sean's question, but asking it a different way are you seeing any change in the cost to sustain and engage existing players and also on the new customer acquisition is that primarily coming from new states or are you still seeing even greater uptick from existing states.
Jason Robins: Hi, thanks. I just want to maybe follow up on Shaun's question, but ask it in a different way. Are you seeing any change in the cost to sustain and engage existing players and also on new customer acquisition? Is that primarily coming from new states? Are you still seeing an even greater uptick from existing states? So we are not seeing an increase in existing player costs. It's all new player driven and mixed driven, so meaning a mix of new players with existing players. And interestingly, it really is across the board.
Speaker Change: So we are not seeing an increase in the existing player cost, it's all new player driven or mix, driven so meaning mix of new players to the existing.
Jason Robins: So certainly, we got some boost from North Carolina having launched in late Q1. But if you remember, last year, we had two big states, Ohio and Massachusetts, launching in Q1. You know, so this year, there were fewer new state launches around this timeframe and none in Q2. We did have a DC launch recently, but that didn't affect the Q2 numbers that were in July. So really, it has to come from existing states if you look at it that way.
Speaker Change: And interestingly it really is across the board so.
Speaker Change: Certainly we got some boost from North Carolina, having launched in late Q1, but if you remember last year, we had two big States, Ohio, and Massachusetts launch in Q1.
Speaker Change: So this year there were less new state launches around this timeframe and none in Q2.
Speaker Change: We did have DC launched recently, but that didn't affect the Q2 numbers that was in July so really it has to come from existing state. If you look at it that way and then it's really across products too.
Operator: And then, you know, it's really across products, too. We did see some particular strength in the Golden Nugget brand, but as we migrated on to the DraftKings platform and product, we definitely saw a boost in conversion and got some lift there. But really, it's been across states across products. Thank you.
Speaker Change: Did see some particular strength in the Golden Nugget brand as we migrated onto the draft Kings platform and product, we definitely saw a boost in conversion and got some lift on there, but really it's been across states across products.
Thank you.
Operator: One moment for our next question. Our next question comes from Joe Greff with J.P. Morgan. Your line is open. Good morning, everybody.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from Joe Greff with Jpmorgan. Your line is open.
Joe Greff: Good morning, everybody.
Jason Robins: Jason, just wanted to ask on the Hire New User Acquisition Cost Plan for the second half of this year, how much of this is offense, meaning to grow the new user base versus defense, versus impacting the competition. And then my follow-up to that is, you mentioned that presently the customer acquisition environment is healthy. What if that environment changes to the downside? How do you react? How do you pivot?
Joe Greff: Jason I just wanted to ask on the hiring new user acquisition cost planned in the second half of this year.
Joe Greff: How much of this is often meaning to grow user base versus defense.
Speaker Change: Versus impacting the competition and then my follow up to that is.
Speaker Change: And in that presently the customer acquisition environment is healthy.
Speaker Change: What if that environment changes to the downside how do you react how do you pivot.
Jason Robins: Yeah, great questions. I mean, we have been very consistent in that we don't react competitively. We make decisions based on our three-year payback rule and what our data says our customer acquisition spend is returning. So, you know, as we noted, we had an over 80% increase, an almost, excuse me, 80% increase in new players in Q2 year over year and an over 40% CAC decline. I mean, those are just massive numbers, right?
Speaker Change: Yes, great questions I mean, we I think have been very consistent in that we don't react competitively.
Speaker Change: We make decisions based on our three year payback rule and what our data says our customer acquisition spend is returning so.
Speaker Change: As we noted we added over 80% increase in almost accuse me, 80% increase in new players in Q2 year over year and an over 40% cash decline I mean, those are just massive numbers right. So when youre looking at those numbers and your marketing team is coming to you and saying we can deliver more productive spend with the same type of results.
Jason Robins: So when you're looking at those numbers, your marketing team is coming to you and saying, we can deliver more productive spend with, you know, the same type of results. You know, it's hard to say no to that, right? And we've been monitoring cohort quality closely. I mean, everything looks really, really solid.
Speaker Change: It's hard to say no to that right and we've been monitoring cohort quality closely I mean, everything looks really really solid. So I think it's just a particularly strong environment right now the market is growing quickly.
Jason Robins: So I think it's just a particularly strong environment right now; the market is growing quickly. You know, I think it's just really you got to fish when the fish are biting, so to speak. So I think that's the way to think about it. It's absolutely outrageous and really, you know, more so just kind of following the data.
Speaker Change: I think it's just really you got to Fisher and Fisher are biting so to speak. So I think that's the way to think about it is absolutely offensive and really more so just kind of following the data and by the same token to your second question. If it goes the other way we will follow it back the other way so.
Jason Robins: And by the same token, to answer your second question, if it goes the other way, we'll follow it back the other way. So, you know, the good news for us is that the vast majority of our marketing spend is flexible. We can move in and out of it very quickly. A lot of it's digital; even TV, we can move out of in a matter of days, usually.
Speaker Change: The good news for US is the vast majority of our marketing spend as flexible we can move in and out of it very quickly a lot of its digital even the television we can move out in a matter of days usually so.
Jason Robins: So really, it's quite easy for us to make adjustments as we see what's working and at what levels. And, you know, the same way that when the data is telling us we should be investing deeper because the paybacks are really strong. If we start to see the opposite, or if we start to see a decline in cohort quality, we can easily adjust there. And Alan, when do you start becoming a cash taxpayer with the gaming, with the corporate tax, cash corporate tax rate in 2026?
Speaker Change: Really it's quite easy for us to make adjustments as we see what's working and at what levels.
Speaker Change: Same way that when the data is telling us we should be investing deeper because the paybacks are really strong if we start to see the opposite or if we start to see a decline in cohort quality, we can easily adjust there.
Alan: And Alan when do you start becoming a cash taxpayer listed gaming Elisa.
Alan: Corporate tax.
Alan: Cash corporate tax rate in 2026.
Jason Robins: We'll probably start paying a minimum amount of cash taxes in 25 and 26, but we don't we don't expect to run through all of our NOLs until 27 or 28 as soon as, One moment for our next question. Our next question comes from Clark Lampen with VTIG. Your line is open. Morning, everyone.
Alan: We will probably start paying a minimum amount of cash taxes in 2005, and 2006, but we don't expect to run through all of our Nols until 'twenty seven or 28 at the soonest.
Ed: Thanks, Ed.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Clark <unk> with <unk>. Your line is open.
Operator: Thanks for taking the question. Jason, I want to come back to the sort of customer acquisition topic and the comments you made around existing state performance. I'm curious, I guess, in the absence of obvious changes, I guess, from last quarter to this one, you know, from like a launch dynamic standpoint, what's creating, I guess, the sort of more favorable environment that you're leaning into? You know, is it sort of more of a push factor where caps have come down enough where it makes sense to spend more and you can actually reach customer cohorts that you weren't previously
Clark: Good morning, everyone. Thanks for taking the question.
Clark: Morning, Jason I want to come back to the sort of customer acquisition.
Clark: Topic and the comments you made around existing state performance I'm curious I guess.
Speaker Change: Essence of obvious changes I guess from last quarter to this one.
Speaker Change: Unlike a launch dynamic standpoint, whats, creating I guess theres sort of a more favorable environment that you are leaning into.
Speaker Change: It sort of more of a push factor where caps have come down enough, where it makes sense to spend more and can actually reach customer cohorts that you werent previously addressing or something sort of ticked up in terms of interest that suggests the Tam maybe really is expanding at a faster pace than we expected right now.
Operator: Or is something sort of picked up in terms of interest that suggests that TAM, you know, maybe really is expanding at a faster pace than we expected right now? Yeah, it's a great question. And you know, hard to exactly pinpoint, but I think it's a combination of both the things that you said, primarily.
Speaker Change: Yes, it's a great question and hard to exactly pinpoint, but I think it's a combination of both the things that you said, primarily so one is we've increased our state footprint. We've talked about this for years now how this is kind of a gift that keeps on giving we see the same.
Operator: So one, as we've, you know, increased our state footprint, we've talked about this for years now, how this is kind of the gift that keeps on giving. We see the same cost from a national marketing perspective, regardless of how many states we're operating in, but the bigger your footprint, the more bang for your buck you're getting for it. So as we've grown our state footprint, you're absolutely right. It just continues to improve our efficiency, which allows us to unlock the ability to, you know, reach a little bit deeper and spend a little bit more in pockets that weren't meeting our payback thresholds previously.
Speaker Change: Cost from a national marketing perspective, regardless of how many states are operating in but the bigger footprint and more bang for your Buck Youre getting for it so as we've grown our state footprint Youre absolutely right. It just continues to improve our efficiency, which allows us to unlock the ability to reach a little bit deeper and spend a little bit more in pockets that werent.
Operator: Secondly, I do think that there's just a ton of momentum in the industry right now. You know, lots of buzz coming up with the NFL season, and it's only going to get bigger, because this is the busiest time of year for us, typically, from a customer acquisition perspective. I guess the Super Bowl, but the whole NFL and NBA kind of thing, you know, that whole fall timeframe is usually the biggest overall period.
Speaker Change: Meeting our payback thresholds previously secondly, I do think that there's just a ton of momentum in the industry right now.
Speaker Change: Lots of Buzz coming up with NFL season, it's only going to get bigger because this is the most busy time of year for us typically from a customer acquisition perspective, I guess, the Super Bowl, but the whole NFL kind of MBA that whole fall timeframe is usually the biggest overall period.
Jason Robins: And, you know, really, I see no reason to think that that's going to slow down. Obviously, as noted earlier, we're going to be very closely monitoring the data. And if we see any changes, we'll adjust our spend and adjust our approach. But right now, I think, if anything, you'd expect it to build because we're in really the least busy time of year.
Speaker Change: And really I see no reason to think that that's going to slow down obviously as noted earlier, we're going to be very closely monitoring the data and if we see any changes, we'll adjust our spend and adjust our approach, but right now I think if anything you would expect it to build because we're in really the least busy time of year.
Speaker Change: And we're still seeing very strong customer acquisition. So I don't know why that would slow down going into the busiest time of year.
Speaker Change: Understood.
Jason Robins: And we're still seeing very strong customer acquisition, so I don't know why that would slow down going into the busiest time of year. Okay. I have a follow-up for Alan, I guess, on the repurchase that was announced today. Alan, you guys just wrote a fairly large check for Jackpocket.
Allan: Also for Allan I guess on the repurchase that was announced today. Alan you guys. Just wrote a fairly large tech project pocket there have been some rumors of other sort of smaller scale deals.
Alan Ellingson: There have been some rumors, you know, of other sort of smaller-scale deals. Football season last year was a pretty good reminder of result swings and the potential for sort of inter-quarter outflows. Is it fair to think that, I guess, utilization of that buyback authorization might be more of a 25 event? And, you know, if so, is this something that's going to be more formulaic in nature, or would you hope to be a little bit more tactical and take advantage of bigger dislocations, I guess, in the stock price? Thank you.
Football season last year was a pretty good reminder.
Speaker Change: Of results swings and the potential for sort of intra quarter outflows is it fair to say that I guess utilization of that buyback authorization might be more of a <unk> 25 of them.
Speaker Change: If so is this something that's going to be more formulaic in nature or would you hope to be a little bit more tactical and take advantage of the bigger dislocations I guess in the stock price. Thank you.
Alan Ellingson: I think we anticipate being able to buy back the billion dollars of Class A shares over the next two to three years. We would like to ideally be formulaic with it, create some consistency, but I do expect it to take more than just the next little while to get fully finalized. Yeah, it'll be a mix.
Speaker Change: I think we anticipate being able to buyback the $1 billion.
Speaker Change: Class a shares over the next two to three years.
Speaker Change: We would like to be ideally be formulary equivalent.
Speaker Change: Create some consistency, but I do expect it to take more than just the next little while to get it fully.
Okay.
Speaker Change: Analyzed and it'll be a mix I mean, we will have certainly some flexibility as you noted to take advantage of any dislocations in the share price but.
Operator: I mean, we'll certainly have some flexibility, as you noted, to take advantage of any dislocations in the share price. But, as Alan noted, I think that the bulk of it will be formulated. One moment for our next question. Our next question comes from Robert Fishman with Moffitt & Nathanson. Your line is open. Hi, good morning.
Speaker Change: As Alan noted I think the bulk of it will be formulaic.
Speaker Change: Thank you.
Speaker Change: For our next question.
Speaker Change: Our next question comes from Robert Fishman with <unk>.
Jason Robins: I'm curious, are you guys seeing any signs of consumer weakness in some of your older states, maybe? And how would you think about the impact on OSB and iGaming if we see any more macro headwinds in the next couple quarters? And then, shifting gears a little bit, given the expected integration of the bet and wash experience with the NFL streaming. Curious, did you see anything last year; some of your competitors did, I think, have this functionality? So, anything that you learned last year about the NFL season that pushed you into this product enhancement? And any early thoughts about exploring these rights for the NBA?
Speaker Change: Nathan Your line is open.
Robert Fishman: Hi, good morning.
Robert Fishman: Curious are you guys seeing any signs of consumer weakness in your some of your older States, maybe and how would you think about the impact on OSP anti gaming if we see any more of a macro headwinds in the next couple of quarters, and then shifting gears a little bit.
Speaker Change: Given the expected integration of the bedroom loss experienced with the NFL screaming.
Speaker Change: Im curious did you see anything last year some of your competitors I think have the functionality.
Speaker Change: That you learned last year about the NFL season that pushed you into this product enhancement and any.
Speaker Change: Early thoughts about exploring these rights for the MBA. Thank you.
Speaker Change: Yeah I think.
Jason Robins: Thank you. Yeah, I think, you know, in your first question, we're seeing absolutely no signs of any weakness in the consumer whatsoever. Hard to know how much of that is unique to our industry versus macro. But really, on our end, we're seeing super strong, healthy cohort behavior across the board. And as noted, customer acquisition is really at an all-time high as well. So everything looks really good on that front for us. On the bet and watch side, you know, it wasn't really that we saw anything last year and nothing our competitors did.
Your first question, we're seeing absolutely no signs of any weakness in the consumer whatsoever.
Speaker Change: To know how much of that is unique to our industry versus macro.
Speaker Change: But really on our end, we're seeing super strong healthy cohort behavior across the board and as noted our customer acquisition is really at an all time high as well so everything looks really good on that front for us.
Speaker Change: On the Baton watch side it wasn't really that we saw anything last year and anything our competitors did it was more that we wanted to do this all along it's a great thing that we think will add a lot of value to our customers doing live betting.
Jason Robins: It was more that we wanted to do this all along. It's a great thing that we think will add a lot of value to our customers doing live betting, but it just didn't make the cut.
Speaker Change: It didn't make the cut we had so many other great things that we're trying to get done last year and I think to do it and it's sort of haphazard way within our style, we want to do it right. So we really wanted to make sure. It wasn't just.
Jason Robins: We had so many other great things that we were trying to get done last year, and I think doing it, you know, in a sort of haphazard way wasn't our style. We want to do it right, so we really wanted to make sure it wasn't just some kind of, you know, packed together integration of a video feed, but it was a true experience that we were creating. Because, you know, if somebody tries it, we want them to say it is great and come back. And you only get one shot at a first impression.
Speaker Change: Some kind of hack together integration of a video feed but it was a true experience that we're creating because if somebody tries it we want them to say this is great and come back and get one shot at a first impression. So I think we felt like between.
Operator: So I think we felt like, between the other things that we had on our roadmap and our desire to make sure we did this in the right way, we decided it would be better for this company. Thank you. One moment for our next question. Our next question comes from Ben Miller with Goldman Sachs. Your line is open.
The other things that we had on our road map and our desire to make sure. We did this in the right way, we decided it would be better off with this coming season.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Ben Miller with Goldman Sachs. Your line is open.
Jason Robins: Thanks for taking the questions. I guess just back on the gaming tax surcharge, can you just talk about the thought process behind using a surcharge as the mitigation measure as opposed to a more discreet lever? And then are there any insights you can share around customer behavior from any A-B testing that you might have done in advance of announcing this? Thanks.
Ben Miller: Thanks for taking the questions I guess just back on the gaming tax surcharge can.
Ben Miller: Can you just talk about the thought process behind using a surcharge.
Speaker Change: Mitigation measure as opposed to a more discreet lever and then are there any insights you can share around customer behavior from any AB testing that you might have done.
Ben Miller: <unk> of announcing this thanks.
Jason Robins: Sure. We definitely discussed and thought through a lot of different ways of doing it. And as I said, if some better idea comes along, we're open to it. But I think the important thing is that, you know, if you look at the way it's typically done in other industries, whether it be hotel taxes or even the sales tax that you pay when you buy something at the store, taxis, you name it, it's typically line itemed out separately.
Speaker Change: Sure so.
Ben Miller: Definitely discussed and thought there are a lot of different ways of doing it and as I said.
Ben Miller: Some better idea comes along we are open to it I think the important thing is that.
Speaker Change: If you look at sort of the way, it's typically done in other industries, whether it be hotel taxes or even the sales tax that you pay when you buy something at the store.
Speaker Change: <unk> you name it it's typically line items out separately.
Jason Robins: And, you know, usually 100% passed along to the consumer. In this case, we're obviously subsidizing a chunk of it. So, you know, we just thought that was sort of in line with how it's typically done versus trying to obfuscate it, which also isn't consistent with our commitment to be transparent to our customers and be very customer-friendly in everything we do. So, you know, I know there's maybe a benefit to hiding it, because maybe people don't notice, but I think, over the long term, customers appreciate transparency.
Speaker Change: Usually a 100% passed along to the consumer in this case, we're obviously subsidizing a chunk of it so.
Speaker Change: We just thought that it was most sort of in line with how it's typically done versus trying to operate the <unk>, which also isn't consistent with our commitment to be transparent to our customers and be very customer friendly in everything we do so.
Speaker Change: I know theres, maybe benefit hiding it because many people don't notice, but I think over the long term customers appreciate transparency, even if they don't love the state implemented a high tax and some of that is being passed along I think they prefer that not.
Speaker Change: Knowing if it were buried in the pricing or something else.
Speaker Change: Was there any AB testing that you guys done.
Jason Robins: And even if they don't love that, you know, their state implemented a high tax, and some of that is being passed along, I think they prefer that to not knowing if it was buried in the pricing or something else. Was there any A B testing that you guys did that, you know, you could share any customer behavior from that? No, we haven't. We actually still have some work to do to implement it. And, you know, I think it's hard to AB test something like that.
Speaker Change: That you could share any any customer behavior from that.
Jason Robins: What we are doing is launching in four states, so we'll certainly see the impact there. And obviously, you know, it won't be a perfect AB test.
Speaker Change: No we haven't we actually still there's work to do to implement it and I think it's hard to test something like that what we are doing we are launching in four states. So we will certainly see the impact there and obviously wont be a perfect AB tests, but.
Speaker Change: Think that we have enough comparable data from other states and enough of an understanding of what we would expect from consumer behavior that I think we'll have a pretty clean read on the impact.
Speaker Change: It is a nominal amount if you look at the materials, we provided in the investor presentation.
Jason Robins: But I think that we have enough comparable data from other states and enough of an understanding of what we would expect from consumer behavior that I think we'll have a pretty clear read on the impact. But you know, it is a nominal amount. If you look at the materials we provided in the investor presentation, you know, for Illinois, for example, if you made a $10 bet to win $20, it would be a 37 ish 30 something cent charge. I forget the exact number.
Speaker Change: For Illinois for example of EMEA $10 back to win $20. It would be at 37 ish 30, something sand I forget the exact number of charge. So obviously some people might just react negatively to the idea of being charged at all but it's really fairly nominal and it makes a huge difference in our ability to make a reasonable margin and also.
Speaker Change: More importantly to compete with the illegal market, which paid no taxes and has the ability to invest a 100% of their revenue into profit product and other things so for us to be able to be competitive with the illegal market and invest properly in product and customer experience in a state that has a very high tax rate. We feel is an important step.
Jason Robins: So obviously, some people might just react negatively to the idea of being charged at all, but it's really fairly nominal. And it makes a huge difference in our ability to make, you know, a reasonable margin. And also, more importantly, to compete with the illegal market, which pays no taxes and has, you know, the ability to invest 100% of their revenue into product and other things.
Speaker Change: <unk> will ultimately understand and if they feel the product and experience is better than they'd rather pay for that in somewhere else that maybe doesn't have as stronger product.
Jason Robins: So, you know, for us to be able to be competitive with the illegal market and invest properly in product and customer experience in a state that has a very high tax rate, we feel this is an important step that consumers will ultimately understand. And if they feel the product and experience is better, they'd rather pay for that than somewhere else that maybe doesn't have as strong a product. Great, thanks so much.
Speaker Change: Great. Thanks, so much.
Speaker Change: One of them for next question.
Operator: One moment for our next question. Our next question comes from Robin Farley with UBS. Your line is open.
Speaker Change: Our next question comes from Robin Farley with UBS. Your line is open.
Jason Robins: Thanks. Yeah, I wanted to ask, when you think about strategy in Latin America, is that something you would pursue sort of organically, or something that you might look to use M&A to get a stake in that market? And then just a quick follow-up question on the earlier commentary about the increased acquisition, customer acquisition; your market share looked pretty consistent year over year. I guess how should we think about the time lag between the higher customer acquisition and that showing up in the market share numbers? Thank you. So, a couple things. One, to answer your question on Latin America, we would probably not do it organically.
Thanks, Yes, I wanted to ask when you think about strategy and Latin America is that something you would pursue sort of organically or something that you might look to use M&A to get.
Speaker Change: Do you guys take in that market and then just a quick follow up question on the earlier commentary about the increased acquisition customer acquisition.
Speaker Change: Your market share looks pretty consistent year over year, I guess, how should we think about what's the time lag between the higher customer acquisition and that showing up in the market share numbers. Thank you.
Speaker Change: So couple of things one answer to your question on Latin America, we would probably not do it organically. If we were to pursue would be through M&A that said.
Jason Robins: If we were to pursue it, it would be through M&A. That said, we don't currently have any plans to do that either. I think we're really focused, as we've noted in the past, on winning the U.S. online gaming opportunity. In fact, just in the last couple months, we divested VESIN, and we shuttered Rainmakers.
Speaker Change: We don't currently have any plans to do that either I think we're really focused as we've noted in the past on winning in the U S online gaming opportunity in fact.
Speaker Change: Just in the last couple of months.
Speaker Change: Divested reason, we shuttered rainmakers. So I mean, we're more focused than ever on our core and I think thats just been a mantra and a theme throughout the company is focus focus focus so definitely want to make that point, but were we to do something I think it would likely be through M&A for that very reason, we don't want to take a big chunk of our.
Jason Robins: So I mean, we're more focused than ever on our core. And I think that's just been a mantra and a theme throughout the company: focus, focus, focus. So definitely want to make that point. But were we to do something, I think it would likely be through M&A. For that very reason, we don't want to take a big chunk of our brain trust here and distract them with something like that.
Speaker Change: The brain trust here and distract them with something like that.
Speaker Change: And then.
Speaker Change: Sorry second question on share so hard to know exactly because I would assume that if we're seeing robust customer acquisition and our competitors are as well so.
Jason Robins: And then, sorry, oh, second question on share. So, you know, hard to know exactly. Because, you know, I would assume that if we're seeing robust customer acquisition, then our competitors are as well. So I don't know if that's unique to us.
Speaker Change: I don't know if thats unique to us if it were a unique to us that should show up pretty quickly within a quarter or two of acquiring the customers but.
Speaker Change: I think the caveat is my guess is that the entire market. The entire industry is experiencing very strong customer acquisition right now because.
Speaker Change: Well I guess, there could be some things like in the case of the Golden Nugget migration that we're getting a little bit of an extra boost from but for the most part we're seeing it across states across products. So I think it's more of a macro industry trend as much as anything else.
Jason Robins: If it were unique to us, it should show up pretty quickly, you know, within a quarter or two of acquiring the customers. But, you know, my guess is that the entire market, the entire industry, is experiencing very strong customer acquisition right now. Because, you know, well, I guess there could be some things, like in the case of the Golden Nugget migration, that we're getting a little bit of an extra boost from. But for the most part, we're seeing it across states, across products. So I think it's more of a macro industry trend as much as anything else. Okay, great. Thank you very much.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: One moment for our next question.
Dan <unk>: Our next question comes from Dan <unk> with Wells Fargo. Your line is open.
Operator: One moment for our next question. Our next question comes from Dan Politzer with Wells Fargo. Your line is open. Hey, good morning, everyone.
Jason Robins: First one, in terms of that stronger customer acquisition, retention, and engagement, if I just look at your slide deck in the, you know, positive revenue of about $177 million, but a drag in terms of EBITDA. But, you know, that compares with your first quarter, where both of those figures were positive, right? They would add the incremental adjusted EBITDA.
Dan <unk>: Hey, good morning, everyone first of all in terms of that stronger customer acquisition retention and engagement. If I just look at your slide deck.
Speaker Change: Our positive revenue of about $177 million, but a drag in terms of EBITDA.
Dan <unk>: That compares with your first quarter, where.
Speaker Change: Are those figures were positive rate that would add incremental adjusted EBITDA. So I guess the question is is there any way to kind of break out this.
Jason Robins: So I guess the question is, is there any way to kind of break out this $23 million EBITDA loss as part of your bridge as it relates to better monetization of existing customers versus maybe the drag of acquiring new customers? Yeah, it's a great question. I mean, I think that the best way to think about it is if you assume that the incremental revenue from existing customers flows through somewhere in the 50 ish percent range, maybe a little bit higher, but somewhere around there, then you can kind of back into what comes from each. Got it.
Speaker Change: The $23 million EBITDA loss.
As part of your bridge as it relates to better monetization of existing customers versus maybe the drag of acquiring new customers.
Speaker Change: Yes, it's a great question I mean, I think that the.
Speaker Change #100: The best way to think about it is if you assume that the incremental revenue from existing customers flows through somewhere in the 50 ish percent range.
Speaker Change #100: Maybe a little bit higher but somewhere around there then you can kind of back into what.
Speaker Change #100: What comes from each.
Speaker Change #100: Got it and then and the other thing I would note too and I just wanted to make sure people understand this as well because I think it's an important point.
Jason Robins: And the other thing I'd note too, and I just want to make sure people understand this as well, because I think it's an important point. When, you know, we talk about revising EBITDA guidance and incremental customer acquisition costs, even if we didn't spend any more money on marketing, new customer promos come from just more customers coming in. So if we under-forecast, which in this case we did, the number of new customers that we expect to acquire this year, then even if we spent zero more dollars on advertising or on marketing, we would still see a headwind, which is, you know, in that line you're mentioning about new customer promos because just more people signing up means more new customer promos. So that's a good thing. It's not a bad thing.
Speaker Change #100: When we talk about revising EBITA guidance and incremental customer acquisition cost.
Speaker Change #100: Even if we didn't spend any more money on marketing new customer promos come from just more customers coming in so if we under forecasted which in this case, we did a number of new customers that work, we expect to acquire this year and even if we spent zero more dollars on advertising on marketing, we would still see a headwind which is.
Speaker Change #101: That line, you're mentioning from from new customer promos, because just more people signing up means more new customer promo. So thats a good thing not a bad thing obviously it creates more profit over the long term.
Jason Robins: It creates more profit over the long term, but, you know, it's something that really is not within our control and I think a good, you know, long-term element of what we believe is a large and growing TAM, but in the end, you know, unless we took away new customer offers, which we would never do, that's something that we can't really control. Got it. And then just quickly for my follow up on the surcharge, in those states that you're going to implement that, are there additional steps that you're going to implement as well, such as marketing reductions or, you know, any other levers you can pull in Illinois, New York, Pennsylvania, to maybe offset some of the higher tax, Yeah, you know, I think part of the idea is to do this in place of that, so we can continue to invest in the state.
Speaker Change #101: But.
Speaker Change #102: And that really is not within our control.
Speaker Change #103: I think a good long term element of what we believe is a large and growing Tam.
Speaker Change #103: In the end unless we took away new customer offers which we would never do that.
Speaker Change #103: Thats something that we can't really control.
Speaker Change #104: Got it and then just quickly for my follow up on the on the surcharge.
Speaker Change #105: In those states that youre going to implement that are there additional steps that youre going to implement as well such as marketing reductions or any any other levers you can pull in Illinois, and New York, Pennsylvania to maybe offset some of the higher taxes.
Jason Robins: I think New York's a great example where everyone, you know, all companies, including DraftKings, have pulled back heavily on promotions and in-state marketing investment. And, you know, I think that's fine. That's one way of doing it. But another way is to say, look, I'm going to adjust so that we're effectively at a 20% tax rate, which is in line with a lot of other states, and I'm going to invest at the level that I would invest in a 20% tax rate state.
Speaker Change #106: Yes, I think part of the idea is to do this in place of that so we can continue to invest in the state.
Speaker Change #107: I think New York is a great example, where everyone all companies have including draft Kings have pulled back heavily on promotions and state marketing investment and <unk>.
Speaker Change #107: I think that's fine that's one way of doing it but another way to say look I'm going to adjust so that we're effectively at a 20% tax rate, which is in line with a lot of other states.
Jason Robins: You know, we'll have to see which one works better, but my guess is that it's going to work better because it allows us to make the investments in product and promotion and marketing and all the other things that should continue to create long-term growth. Thanks so much for all the detail.
Speaker Change #107: At the level that I would invest in a 20% tax rate state.
Speaker Change #107: We'll have to see which one works better but my guess is that thats going to work better because it allows us to make the investments in product and promotions and marketing and all the other things that should continue to create long term growth.
Speaker Change #108: Thanks, so much for all the detail.
One moment for our next question.
Jason Robins: One moment for our next question. Our next question comes from Joseph Stauff with SIG. Your line is open. Okay, thanks. Good morning, Jason and Alan.
Speaker Change #109: Our next question comes from Joe Stauff with <unk>. Your line is open.
Jason Robins: Two questions, please. I wanted to see if you could, Jason, sort of describe, say, the iCasino first opportunity at this point when you have GNOG fully ramped out and launched. And, you know, in particular, was it a material contributor to your MUP growth?
Joe Stauff: Thanks, Good morning, Jason Alan two questions. Please.
Joe Stauff: Wanted to see if you could Jason described say the.
Jason Alan: Casino first opportunity at this point.
Joe Stauff: Gina.
Speaker Change #112: <unk> fully ramped up.
Speaker Change #113: And and launched and in particular was it a material contributor to your growth.
Speaker Change #112: And then the second piece is.
Speaker Change #114: Just wanted to ask about the economics of customer acquisition in existing states.
Jason Robins: And then the second piece is, just wanted to ask about, say, the economics of customer acquisition. In existing states, you know, we're aware, obviously, of that initial golden cohort. But just wondering how and what you've seen in terms of the economics and the LTVs for all the cohorts after that, whether it be year two versus year three, and so forth.
Speaker Change #115: We're aware obviously of the initial golden cohort, but just wondering how.
And what you've seen in terms of the economics and the Ltvs for all the cohorts after that whether it be year two versus year, three and so forth.
Speaker Change #115: I guess the main question is like in year, two and year three based on what you can observe are the economics very different between them.
Speaker Change #116: I would think over time, it would be lower but I was just wondering what you are observing.
Speaker Change #117: Yes, it's great great questions, so starting off.
Jason Robins: I guess the main question is, like, in year two and year three, based on what you can observe, are the economics very different between them? One would think that, over time, it'd be lower, but I was just wondering what you're observing. Yeah, it's a great, great question. So starting off, you know, as we noted, we're seeing customer acquisition outperform really across the board, really, states and products alike. That said, GNOG has been a bright spot ever since we migrated on to the DraftKings product and platform, which is a much more, you know, positive customer experience, better conversion flows, all those sorts of things. We have definitely seen GNOG spike.
Speaker Change #117: As we noted we're seeing customer acquisition outperform really across the board really states and products alike.
Speaker Change #117: That said <unk> has been a bright spot ever since we migrated onto the drafting processing platform, which is a much more.
Speaker Change #117: Positive customer experience better conversion flows are those sorts of things we have definitely seen jinan spike so.
Speaker Change #117: There was a material contributor for sure it's still relatively small compared to draft kings, but we're very excited about the potential for that brand and the growth that we're going to see there so more to come there, but definitely an important contributor to the outperformance on customer acquisition and then.
Jason Robins: So that was a material contributor for sure; it's still relatively small compared to DraftKings, but we're very excited about the potential for that brand and the growth that we're going to see there. So more to come there, but definitely an important contributor to the outperformance in customer acquisition. And then, you know, the cohort question, we've noted this in the past as well, for sure, as time goes on, you see some decline in cohort quality. There are a number of different factors that we have noted that definitely drive differential LTVs, obviously, the state that they're acquired and play in based on tax rates and other elements like whether there's iGaming.
Speaker Change #117: The cohort question. We've noted this in the past as well for sure.
Speaker Change #117: As time goes on you see some decline in cohort quality.
Speaker Change #117: It's the thing that we look at every single day and it's not just a matter of time, obviously time is one factor, but you also see different ltvs based on what sport you acquire a player on or whether a player gets acquired under I gaming versus onto OSB first there is a number of different factors that we have noted that they're definitely drive.
Speaker Change #117: <unk> Ltvs, obviously the state that they are acquired and play in based on tax rates and other elements like whether theres I gaming. So lots of complex variables that go into how we look at LTV, but certainly one of them is that.
Jason Robins: So there are lots of complex variables that go into how we look at LTV, but certainly one of them is that, you know, there is an underlying quality of the player that declines as time goes on because, of course, you're going to get your strongest players in the first year or two of a state launch. So that is something that we factor in. We closely monitor it. It tends to level off after a little bit of time, so it's not like it just perpetually declines.
Speaker Change #117: There is an underlying quality of the player that declines as time goes on because of course youre going to get your strongest players in the first year or two of our state launch. So that is something that we factor in we closely monitor it tends to asymptote out after a little bit of time. So it's not like it just perpetually declines usually you kind of get that first year or two depending on the state.
Jason Robins: Usually, you know, you kind of get that first year or two depending on the state where you get the strongest players, and then it kind of flattens out. But, no doubt, players you're getting a few years in are weaker than the players you get on day one.
Speaker Change #117: When you get the strongest players and then it kind of flattens out but.
Speaker Change #117: No doubt players are getting a few years and are weaker than the players you get day one.
Speaker Change #120: Thank you.
Speaker Change #121: One moment for our next question.
Speaker Change #121: Our next question comes from Carlo Santarelli with DB. Your line is open.
Operator: Thank you. One moment for our next question. Our next question comes from Carlo Santarelli with DB. Your line is open. Hey everybody, good morning.
Jason Robins: First off, I just wanted to clarify something as it pertains to the 80%. The 80% growth in customers, does that include the jackpocket customer base? No, that's just new customers on to the DraftKings brand. Oh, and GNOC as well.
Carlo Santarelli: Hey, everybody good morning.
Carlo Santarelli: First off I just wanted to two two.
Carlo Santarelli: To clarify some as it pertains to the 80% 80% growth in customers does that include the dress the JAK pocket customer base.
Carlo Santarelli: No.
Speaker Change #126: It's just new customers onto the draft Kings brand on genome.
Jason Robins: Okay, that's helpful. And then secondly, just to follow up, Jason, on your response to I believe it was Dan's question around the $177 million of net revenue in the, And I know you said 50% flow through on existing customers. Is it fair to [inaudible] The math is kind of like 200 to 300 from new customers. And then you look at it the other way, take 50% flow through for EBITDA and look at what the delta is on the acquired customers. Is that accurate? That's close.
Speaker Change #123: Okay. That's helpful. And then secondly, just just a follow up Jason on your response to I believe it was Dan's question.
Speaker Change #123: Around the $177 million.
Speaker Change #125: Net revenue in the <unk>.
Speaker Change #126: I know you said, 50% flow through on the existing customers is it fair to that.
Speaker Change #124: More or less.
Speaker Change #128: <unk> made that the existing customers are likely generating call it more than $177 million of incremental net revenue as the new customers would carry kind of negative net revenues through the rest of this year.
Speaker Change #124: Through the payback period, and hence the math is kind of like 200 to 300 from new customers and then looked at the other way take 50% flow through for the EBITDA and look at what the Delta is on the on the the acquired customers is that accurate.
Speaker Change #130: That's closed so new customers that we acquired say in Q2 will definitely generate positive revenue by the end of the year.
Jason Robins: So new customers that we acquired, say in Q2, will definitely generate positive revenue by the end of the year. But their new customer promo will also be a significant chunk of the play. What is it, about three or four months after a customer is acquired?
Speaker Change #124: But.
Speaker Change #130: There are new customer promo will also be a significant chunk of the play it what is it about three or four months after a customer's acquired that they start yet so.
Jason Robins: That they start, yeah, that they, depending on the timing, many of them would be negative this year, but some would turn positive. So it's a little bit complicated to think about, but the best way that I would think about it is to separate out, instead of thinking of it as a customer level, think of it as we're spending X more promotion dollars because of new customers. And those promotion dollars are gonna flow through at around 90% to the bottom line. And that's how you can back it, and then the rest of the revenue, the positive revenue flows through in the 50s, and that's how you can back into it. Got it, okay, that makes sense, thank you.
Speaker Change #131: Depending on the timing.
Speaker Change #124: Any of them will be negative this year, but some will get positive.
Speaker Change #124: So it's a little bit complicated to think about but the best way that I would think about it is.
Speaker Change #124: Operate out instead of thinking of it at the customer level think of it as we're spending X more promo dollars because of new customers and those promo dollars are going to flow through somewhere around 90% to the bottom line and Thats. How you came back and then the rest of the revenue the positive revenue flows through into <unk>.
Speaker Change #124: And that's how you can back into it.
Speaker Change #134: Got it okay that makes sense. Thank you.
Speaker Change #133: One of them before our next question.
Speaker Change #133: Our next question comes from Bernie Mcternan with Needham <unk> Company. Your line is open.
Operator: One moment for our next question. Our next question comes from Bernie McTernan with Native & Company. Your line is open. Good. Good morning.
Jason Robins: Thanks for taking questions. Maybe just start sticking on the EBITDA bridge for 25, or moving over to 25. How much of the stronger customer acquisition, retention, and engagement line that's offsetting Illinois, how much of that is really, truly existing customers versus customers that you've acquired this year? Sorry, say it one more time.
Bernie Mcternan: Good morning, Thanks for taking the questions.
Bernie Mcternan: Maybe just to start sticking on the EBITDA bridge for 'twenty five.
Bernie Mcternan: Over 25%, how much of the stronger customer acquisition retention and engagement that line, that's offsetting the Illinois, how much of that is really truly existing customers versus customers that you've acquired this year.
Speaker Change #137: Sorry say it one more time, yes.
Jason Robins: Yeah, in the EBITDA bridge, so Illinois is the big negative, and then the big offset is the customer retention engagement line. So I wanted to know how much of that is driven by truly existing customers that you acquired before this year and better, you know, outperformance there versus the customers that you have been and expect to acquire this year. This is 2025, right? Yeah, for the two of them. Okay, yeah. I don't know proportionally how it breaks out, do you know the answer to that?
Speaker Change #137: EBITDA bridge, so, Illinois, the big negative and then the big offset is.
Speaker Change #137: As the customer retention engagement line.
Speaker Change #137: The line so want to know how much of that is driven by truly existing customers that you acquired before this year and better outperformance there versus versus the customers that you have been and expect to acquire this year.
Speaker Change #137: Through 2025 right.
Speaker Change #137: Yes.
Speaker Change #137: Okay.
Speaker Change #139: I don't know proportionally how it breaks out.
Speaker Change #137: Do you know the answer to that.
Jason Robins: We won't break it out for this call, but a disproportionate amount of it is for existing customers. New customers tend to ramp up over time, so you can assume that it's a little bit heavier on the existing customers and their performance on retention and engagement of our existing customers and less on the new customers, which we're still exploring the value of. Okay, perfect. And then, just given the focus on higher tax rate states, is the contribution profit margin significantly different in those high tax rate states versus the lower ones?
Speaker Change #140: We won't break it out for this call, but disproportionate amount of it is to existing customers new customers tend to ramp up over time.
Speaker Change #137: So you can assume that it's a little bit heavier on the existing customers and the performance on the retention and the engagement of our existing customers.
Speaker Change #137: On the new customers, which we are still exploring the value of.
Speaker Change #141: Okay, perfect and then.
Speaker Change #146: Just given the focus on higher tax rate states.
Speaker Change #142: Contribution profit margin significantly different in those high Tech high tax rate states versus the lower ones.
Speaker Change #137: Well.
Jason Robins: Well... Pre-instituting the fee, definitely, the contribution margin is different because even with reduced promotion and marketing, you still can't like it. I mean, it depends on the state, right? I guess New York's probably the one I'm thinking of when I'm answering your question.
Speaker Change #142: Pre instituting the fee.
Speaker Change #142: Definitely the contribution margin is different because even with reduced promo and marketing you still can't make any I mean, it depends on the state right.
Speaker Change #137: New York is probably the one I'm thinking of when Im answering your question 50.
Jason Robins: 51% tax on gross revenue is just too much. You can't overcome it to a point where it's going to be in line with the other states margin-wise. Obviously, it depends on the state and some states that are closer to that 20%. We can call back most of it through promotion and reduced advertising. Okay. Thanks, Chase.
Speaker Change #142: <unk>, 51% tax on gross revenue is just you can't overcome it to a point, where it's going to be in line with the other states margin wise.
Speaker Change #137: But obviously it depends on the state in some states that are.
Speaker Change #142: Closer to that 20%, we can claw back most of it through promo and reduced advertising.
Speaker Change #137: Okay. Thanks, Jason Thanks, Alan.
Operator: One moment for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is open. Hey, great.
Speaker Change #143: One moment for our next question.
Speaker Change #142: Okay.
Jason Robins: Thanks for taking my question. Just circling back on the surcharge, maybe a different way to ask it. What would cause you not to potentially implement it?
Speaker Change #142: Our next question comes from Jed Kelly with Oppenheimer. Your line is open.
Jed Kelly: Hey, great. Thanks for taking my question just circling back on the surcharge, maybe a different way to ask it.
Jed Kelly: What would cause you not to potentially implement it and then just real quickly on hold.
Jason Robins: And then just real quickly on hold, you know, some of the whole trends are obviously different. But have you seen any change in how you view your structural hold or, you know, your parlay mix? Or are you changing like, hey, you know, it's more important to drive engagement than to maximize hold? Thanks.
Speaker Change #147: Yes, some of the whole trends are obviously different.
Speaker Change #143: Have you seen any change in how you view your structural hold or.
Speaker Change #153: Parlay mix or are you changing like hey, it's.
Speaker Change #146: It's more important to drive engagement and to maximize hold thanks.
Speaker Change #143: Yes, great question so.
Jason Robins: Yeah, great question. So, you know, as of now, I don't think there would be any reason that we wouldn't implement it. But obviously, we're paying close attention to customer feedback. And, you know, if we hear anything that makes us change our mind, we'll certainly let you know. I think on the whole side, we continue to focus very much there. I think it's, you know, largely still a bet mix thing.
Speaker Change #149: As of now I don't think there would be any reason that we went and implement it but obviously we are paying close attention to customer feedback.
Speaker Change #146: If we hear anything that makes us change our mind, we'll certainly let you know.
Speaker Change #143: I think on the hold side, we continue to focus very much there I think.
Speaker Change #143: Largely still of that mix thing certainly we feel like there's a ton of room to increase our parlay mix and increased our average lead count still so team is very focused on that I think we're also focusing on other parts of the bedding.
Jason Robins: Certainly, we feel like there's a ton of room to increase our parlay mix and increase our average leg count still, so the team is very focused on that. I think we're also focusing, though, on other parts of the betting platform as well, such as live betting. So it's a little bit more balanced, probably, than I think maybe last year, where it was just all about whole rate and bet mix, but we're still very focused on that. And then, just real quick, anything to call out on shutting down rate grain makers in terms of even a drag or headwind thing? Yeah, Rainmakers is fairly immaterial.
Speaker Change #143: Platform as well such as live betting so it's a little bit more balanced probably than I think maybe last year, where it was just all about whole right in that mix, but we're still very focused on that mix.
Speaker Change #147: And then just real quick any anything to call out on shutting down right green acres in terms of EBIT drag or headwind. Thanks.
Jason Robins: So I wouldn't, you know, factor it in in any way. I think for us, it's much more it's really just about eliminating a distraction and potential risk. And, you know, as I said earlier, I think the mantra around the company has been focus, focus, focus, let's go win the US online gaming opportunity and maximize the amount of profit we're driving in that space. And I think that's what we're focusing on right now. Thank you.
Speaker Change #151: Yes, rainmakers, it's fairly immaterial, so I wouldnt factor in any way I think for US. It's it's really just about.
Speaker Change #142: Eliminating a distraction and potential risk in.
Speaker Change #143: As I said earlier I think the mantra around the company has been focus focus focus let's go when the U S online gaming opportunity and maximize the amount of profit we are driving in that space and I think thats what were focusing on right now.
Speaker Change #150: Thank you.
Speaker Change #149: Again, ladies and gentlemen, just as a friendly reminder, we ask that you keep yourself to one question one moment for our next question.
Operator: Again, ladies and gentlemen, just as a friendly reminder, we ask that you keep yourself to one question. Please take a moment for our next question. Our next question comes from Barry Jonas with Truist Securities. Your line is open.
Speaker Change #150: Our next question comes from Barry Jonas with true Securities. Your line is open.
Jason Robins: Hey guys, we've seen a number of states starting to react to the offshore market by banning it in Nevada. Do you see these actions as meaningful to combat the illegal market? Oh, I think so. I mean, you know, right now, the illegal market, particularly in the iGaming space, ironically, is bigger than ever. I think consumers don't often know what's legal and what's not; they don't know if it's legal in their state. And, you know, there's just zero controls put on these companies to make sure that they're not marketing to minors and other sorts of things.
Barry Jonas: Hey, guys, we've seen a number of states starting to react to the offshore market by banning Nevada do you see these actions as meaningful to combat the illegal market.
Jason Robins: So I do think it's a big issue, and it's good to see the regulators starting to focus on it. And you know, the thing is that there's so much pent-up demand, and there are so many people that would prefer to bet on the legal market that I think you're seeing growth, despite the fact that there's still a rampant illegal market. But for sure, a lot of the current TAM is still tied up there.
Speaker Change #152: I think so I mean.
Speaker Change #152: Right now the illegal market, particularly in the gaming space Ironically is bigger than ever.
Speaker Change #153: I think consumers don't know oftentimes, what's legal and what's not they don't know if it's legal in their state.
Speaker Change #143: And there's just.
Barry Jonas: Zero controls put on these companies that make sure that theyre not marketing to miners and other sorts of things. So I do think it is a big issue and it's good to see the regulators starting to focus on it and.
Jason Robins: And, you know, both for the long-term health of the industry and for, you know, making sure that states are maximizing their revenues and their purpose for doing this, which is to regulate and protect consumers. I think it's absolutely essential.
Speaker Change #152: The thing is that there is so much pent up demand and there is so many people that would prefer to bat in the legal market that I think youre seeing growth. Despite the fact that theres still a ramp into the legal market, but for sure a lot of the current Tam is still tied up there.
Speaker Change #155: Both for the long term health of the industry as well as for.
Speaker Change #152: Making sure that states are maximizing their revenues and their purpose for doing this which is to regulate and protect consumers.
Barry Jonas: Absolutely essential that that continues to be a focus so I'm happy to see it and hopefully we will see more of it.
Jason Robins: That continues to be a focus, so I'm happy to see it. And hopefully, we'll see more of it.
Speaker Change #153: Great. Thank you.
Jason Robins: Great, thank you. One moment for our next question. Our next question comes from Ben Chaiken with Mizzou Hill. Your line is open. Hey, thanks for taking my question. Two very quick product questions. I guess on integration. I would imagine integrating JackPocket into the DraftKings app would be another significant customer acquisition opportunity. One, do you agree? And two, if so, any color on timing?
Speaker Change #155: One moment for our next question.
Ben <unk>: Our next question comes from Ben <unk> with Mizuho. Your line is open.
Ben <unk>: Hi, Thanks for taking the question two very quick product questions I guess on integrating I would imagine integrating Jack pocket into the.
Jason Robins: And then on the bet and watch integration, will that require users to have access to the games themselves, or will you have an opportunity to kind of tactically subsidize that? Anyway, thanks. I think the bet and watch are just included. So is that correct? It's not Yes, there's no additional charge for it. So it's a feature that customers will have just by being a part of the DraftKings user base. And then, sorry, what was it? Oh, Jackpocket. Yes.
Speaker Change #159: Dropping the App would be another significant customer acquisition opportunity I guess, one jewelry in too.
Speaker Change #152: So any color on timing and then on the button watch integration will that require users to have access to the games themselves or will you have an opportunity to kind of tactically subsidize that in any way. Thanks.
Speaker Change #155: I think the Baton watch is just included so is that correct. It's not yes. There is no additional charge for it. So it's a feature that customers will have just by being a part of the draft King's user base.
Speaker Change #153: And then sorry, what was the first question Jack.
Jason Robins: So we do plan on integrating those products into DraftKings, as well as integrating DraftKings Casino and OSB products into Jackpocket. You know, timing, we haven't quite determined yet. You know, in the past, we've said, and, you know, I kind of echo that, we long-term want to have all of our products available through all of our brands, and exactly when we implement those things directly versus when we have more linkage through brand to brand cross sell, it will depend on other priorities and how that slots into our product roadmap.
Jack: Yes, so we do plan on integrating those products into draft kings as well as integrating draft Kings casino in OSB products into Jack pocket.
Speaker Change #157: Timing, we haven't quite determined yet.
Speaker Change #218: I think in the past that we said in.
Speaker Change #155: I would kind of echo as well.
Speaker Change #155: We long term want to have all of our products available through all of our brands.
Speaker Change #155: Exactly when we implement those things directly versus when we have more linkage through brand to brand cross sell will depend on other priorities and how that fits into our product roadmap, but we definitely do plan to do that at some point.
Jason Robins: But we definitely do plan to do that at some point. I guess, just as a very quick follow-up, would you agree that integrating it would be a significant kind of customer acquisition catalyst for other portions of the business? Or do you think you've already acquired this?
Speaker Change #165: I guess just as a very quick follow up would you agree that integrating it would be a significant kind of customer acquisition.
Speaker Change #155: As for other portions of the business or do you think you've already acquired those customers. If that makes sense no. We definitely have an acquired all those customers. So I agree it would be and that's the reason we're planning to do it.
Speaker Change #155: I also think that in the interim we continue to see.
Speaker Change #165: Pocket is a great vehicle for acquiring those customers and cross selling them into draft kings, but we know from experience that having a fully integrated product is always going to yield stronger conversion and stronger cross sell so no doubt you are correct that that will be a boost.
Speaker Change #176: One of them for next question.
Speaker Change #155: Our next question comes from Brent Mantra with Barclays. Your line is open.
Jason Robins: Unknown Speaker No, we definitely haven't acquired all those customers, so I agree it would be, and that's the reason we're planning to do it. I also think that in the interim, we continue to see, you know, Jackpocket is a great vehicle for acquiring those customers and cross-selling them into DraftKings, but we know from experience that having a fully integrated product is always going to yield stronger conversion and stronger cross- So no doubt you're correct that that will be a One moment for our next question. Our next question comes from Brandt Montour with Barclays. Your line is open. Hi, good morning, everybody.
Jason Robins: Thanks for taking my question. So one more on the surcharge, just thinking through the potential outcomes of that plan, especially if nobody follows suit. You know, we would think that it would affect the larger players, the VIPs more. And at the same time, you're accelerating your customer acquisition and penetrating more customers in your existing states. Is there a thought that this would potentially move you more to a recreational mix? And could that actually help hold longer term?
Brent Mantra: Hi, good morning, everybody and thanks for taking my question so.
Brent Mantra: So one more on the surcharge just thinking through the.
Speaker Change #170: The potential outcomes.
Speaker Change #161: That plan, especially if.
Speaker Change #173: Nobody follows suit.
Speaker Change #165: We would think that.
Speaker Change #165: We would think that would affect the larger players the VIP is more.
Speaker Change #165: And at the same time.
Speaker Change #165: Sure.
Speaker Change #176: Celebrating your customer acquisition and penetrating more customers in your existing states is there a thought that this would this wood.
Speaker Change #176: Potentially move you more of a recreational mix and could that actually help hold longer term.
Jason Robins: Yeah, it's a great question. You know, certainly, I think that players betting on multi-leg parlays and things like that are going to be less sensitive because, you know, the payout is already very large. So I understand that.
Speaker Change #177: Yes, it's a great question.
Speaker Change #168: Certainly I think the players betting multi leg parlays and things like that are going to be less sensitive because.
Speaker Change #175: The payout is already very large so I get that.
Speaker Change #165: I hadn't really thought about how it might affect I mean, we're hopeful that our product and the investment we're making our customer experience is strong enough that.
Speaker Change #165: We have players across the spectrum and they view us as being worth maybe paying a few extra cents on a bit but certainly we'll have to see how that plays out.
Jason Robins: I hadn't really thought about how it might affect us. I mean, we're hopeful that our product and the investment we're making in our customer experience is strong enough that we get players across the spectrum, and they view us as being worth maybe paying a few extra cents on a bet. But certainly, we'll have to see how that plays out. And, you know, it'll be It'll be something just like everything where we look at the data, and we decide what we do accordingly.
Speaker Change #165: It'll be it'll be something just like everything where we look at the data and we decide what we do accordingly, I do think that if you run the math it would take quite a bit of top line deterioration to make it not worthwhile from a bottomline perspective so.
Speaker Change #165: Im optimistic, but we'll have to see and we'll have to follow whatever the data and analytics tell us.
Jason Robins: I do think that if you run the math, it would take quite a bit of top line deterioration to make it not worthwhile from a bottom line perspective. So I'm optimistic, but we'll have to see, and we'll have to follow whatever the data and analytics tell us to do. Oh, great. Thanks for that, Jason. And then just to follow up on Jackpocket, just piecing together some of your comments, you're investing more in marketing this year for Jackpocket, the integration sounds like a little bit more longer term. So what gives you confidence that you're going to inflect positive in your 25 guide to your life that you laid out in your deck? Yeah, just trying to understand some of the drivers out there.
Speaker Change #176: Great. Thanks for that Jason and then just to follow up on Jack Pocket, just piecing together. Some of your comments you are investing more in marketing this year in Jack pocket the integration it sounds like a little bit more longer term. So what gives you confidence that youre going to inflect positive in your <unk> guide.
Speaker Change #181: In your in that you laid out in your deck I, just trying to understand some of the drivers there.
Jason Robins: Well, really, it's the revenue growth we're seeing right now on Jackpocket that gives us confidence we'll be able to achieve adjusted positive EBITDA in 2025. So they've been, you know, really doing well from that standpoint. Also, as a reminder, they have an extremely low CAC.
Speaker Change #180: Well really it's the revenue growth, we're seeing right now on Jack pocket that gives us confidence, we'll be able to achieve adjusted positive EBITDA in 2025. So.
Speaker Change #176: They have been.
Speaker Change #176: Really doing well from that standpoint also as a reminder, they are an extremely low CAC so well.
Speaker Change #176: While we are investing more and we get a lot of customers for that so definitely it makes a big difference in their revenue ramp as well.
Speaker Change #176: So I think all signs point towards them being a positive contributor to adjusted EBITDA in 2025 and beyond but obviously, we'll have to see how the back half of the year plays out and we'll have more of an update on that in November.
Jason Robins: So while we are investing more in, we get a lot of customers for that, so it definitely makes a big difference in their revenue ramp as well. So, you know, I think all signs point toward them being a positive contributor to adjusted EBITDA in 2025 and beyond. But obviously, we'll have to see how the back half of the year plays out.
Speaker Change #183: Great. Thanks, everyone one of them before the next question.
Jason Robins: And we'll have more of an update on that in November. Great. Thanks, everyone.
Operator: One moment for our next question. Our next question comes from Jason Bender with Citizens JMP. Your line is open.
Speaker Change #188: Our next question comes from Jason Bender with citizens JMP. Your line is open.
Jordan: Hey, its Jordan.
Jason Robins: Hey Jordan, thanks for taking my questions. I want to talk about your market access agreements. There's obviously not much room to move in some states, like New York and Oregon, but has the supply-demand dynamic changed to the point that states with unused skins can maybe act as a renegotiation tool and be a serious lever to drive cost savings over the long term? Thank you. You know? I think there's probably some room there.
Jordan: For taking my questions I wanted to talk on your market access agreement, there's obviously not much room to move in some states like New York and Oregon, but is the supply.
Speaker Change #185: Supply demand dynamic changed to the point that states with our youth skins can maybe al is that renegotiation tool LP a serious lever to drive cost savings over the long term. Thank you.
Speaker Change #188: You know.
Speaker Change #188: I think there's probably some room there.
Speaker Change #186: Most states, we feel we have pretty good deals and already so.
Jason Robins: Most states we feel we have pretty good deals in already, so I don't think there's a ton where we feel there's a lot of optimization, but I think there's probably some optimization. And, you know, it'll be a little bit longer term because most of the deals we struck are, you know, very long-term deals, so like 7 to 10-year deals. But I do think as they start to come up, there will be states that have a lot of open skins, and just like anything, it's a supply-demand thing.
Speaker Change #188: I don't think Theres, a ton where we feel there is a lot of optimization, but I think theres, probably some optimization.
Speaker Change #188: It'll be a little bit longer term because most of the deals we struck or very long term deal. So.
Speaker Change #176: Seven to 10 year deals, but I do think as they start to come up there will be states that have a lot of open skins.
Speaker Change #176: Just like anything it's a supply demand thing and I think also even though we got great rates.
Jason Robins: I think also, even though we got great rates, many of the early states were before. I think we really established the level of, you know, place in the industry that we have, so I think that'll hopefully help a little bit. Thank you very much.
Speaker Change #188: Many of the early states, where before I think we really establish the level of.
Speaker Change #176: Place in the industry that we have so I think that will hopefully hopefully help a little bit too.
Speaker Change #176: Thank you very much.
Operator: One moment for our next question. Our next question comes from Ryan Sigdahl with Craig Hallam Capital Group. Your line is open.
Speaker Change #186: One moment for our next question.
Ryan <unk>: Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Your line is open.
Jason Robins: Hey, good morning, guys. Looking at slide 10, the MUP increased sequentially, normally kind of a flat-ish quarter given seasonality, up almost a million. Are you able to break out how much that was jackpocket versus just organic DraftKings and Golden Nugget acquisitions? It was mostly jackpocket.
Ryan: Hey, good morning, guys looking at slide 10, the mop increased sequentially normally kind of a flattish quarter given seasonality.
Ryan <unk>: Up almost 1 million are you able to break out how much of that was Jack pocket versus just organic draft Kings and Golden Nugget acquisition.
Jason Robins: Obviously, the new customer acquisition boosted it too. But given the substantial size of their database, it was mostly a jackpocket. No? No. Oh, I'm sorry. It was not.
Speaker Change #193: Was mostly Jack pocket, obviously, the new customer acquisition boosted it too but.
Speaker Change #193: Given the substantial size of their of their database it was mostly jackpot.
Speaker Change #193: Oh Im sorry.
Speaker Change #209: It was not I got that wrong.
Jason Robins: I got that wrong. Half and half. Okay, I stand corrected. Thankfully, I have people with better data than I have in my brain apparently next to me. So it's about half and half. Thank you. Good luck, guys. One moment for our next question. Our next question comes from Michael Graham with Canada Cordialine is open. Thank you, Jason.
Speaker Change #176: Half and half Okay stand corrected thankfully have people with better data than I have in my brain apparently next to me. So it was about half and half.
Speaker Change #193: Thank you good luck guys.
Speaker Change #176: One moment for our next question.
Speaker Change #194: Our next question comes from Michael Graham with Canaccord. Your line is open.
Michael Graham: Thank you Jason I, just wanted to ask about your thoughts on the product and the platform as we head into the NFL season, obviously.
Jason Robins: I just wanted to ask you about your thoughts on the product and the platform as we head into the NFL season. You know, obviously, you don't have the tremendous upside from introducing the same game parlays that you had, but you have the bed and watch feature. But just wanted to kind of hear any comments you're willing to share on how you think the product will perform, you know, in this important seasonal period here coming up.
Michael Graham: You don't have the tremendous upside from introducing the same game, partly is that you had but you have the bedroom watch feature but just wanted to kind of hear.
Speaker Change #206: Here any comments you're willing to share on how you think the.
Speaker Change #210: The product will perform and most important seasonal period here coming up.
Speaker Change #194: I think I.
Jason Robins: And I think I feel really excited about the product we have going into the NFL. A lot of the work we've been doing over the last several months has been more backend performance stuff. So things that maybe aren't as immediately obvious because they don't show up like front-end features, but things like making sure that pages load faster, making sure that the app crashes less, making sure markets are up for longer, and we have less time where markets are locked or unavailable.
Speaker Change #193: Feel really excited about product, we are going to NFL a lot of the work we've been doing over the last several months has been more backend performance stuff. So things that maybe aren't as immediately obvious because they don't show up at front end features but things like making sure that pages load faster and making sure that the app crashes less making sure markets.
Speaker Change #193: Theyre up for longer and we have less time, where markets are locked or unavailable, adding new bed types, bringing in house our <unk>.
Jason Robins: Adding new bed types, bringing in house our pricing and trading for many new sports, and also launching things like cash out for same game parlay. So we have a lot of really exciting new stuff. We expanded progressive parlay to include new types of bets as well. And, you know, and more to come. Obviously, bet and watch hasn't launched yet.
Speaker Change #176: Pricing and trading for many new sports and <unk>.
Speaker Change #193: Also launching things like cash out for same game parlay. So we have a lot of really exciting new stuff, we expanded progressive parlays to include new types of beds as well.
Speaker Change #176: So more.
Speaker Change #193: More to come obviously baton watch hasn't launched yet and we have a number of other features that we haven't announced that we have planned for the coming months a lot of what we do really all of what we do revolves around a calendar starting in the fall so.
Jason Robins: And we have a number of other features that we haven't announced that we have planned for the coming months. A lot of what we do, really all of what we do, revolves around a calendar, you know, starting in fall. So the team thinks about it as, what do we want to ship in the August-September timeframe? And how do we then, you know, starting at the beginning of the year, orient our entire product roadmap and calendar around that?
Speaker Change #193: The team thinks about it as what do we want to ship in the August September timeframe and how do we then starting at the beginning of the year Orient, our entire product road map and calendar around that.
Speaker Change #176: So a lot of the product that we ship is going to be done over the next three to six weeks.
Speaker Change #176: I think you'll see a lot of new stuff pop up as the season approaches.
Jason Robins: So a lot of the product that we ship is going to be done in the next three to six weeks, and I think you'll see a lot of new stuff pop up as the season approaches. All right, that's exciting. Thank you.
Speaker Change #211: Alright, thank you.
Operator: One moment for the next question. Our next question comes from Chad Beynon from Macquarie. Your line is open.
Speaker Change #209: Enrollment for next question.
Speaker Change #176: Yeah.
Speaker Change #176: Our next question comes from Chad Beynon with Macquarie. Your line is open.
Chad Beynon: Good morning, Thanks for taking my question, Jason I wanted to ask about I.
Jason Robins: Morning, thanks for taking my question. Jason, I wanted to ask about, I guess, the temperature of some of the tribal news that's been out there. Obviously, a big decision that we learned about a few months ago in Florida. Does this change the landscape of other tribal states in terms of what you believe they could offer? And then, more importantly, your ability to partner with these companies could accelerate some of the TAM if they decide to move forward on digital? Thanks.
Chad Beynon: I guess the temperature of of some of the tribal news that's been out there obviously, a big decision that we learned a few months ago in Florida does this change the landscape of other tribal states in terms of what you believe they could offer and then more importantly, your ability to partner with these companies.
Speaker Change #193: That.
Speaker Change #193: To accelerate some of the Tam.
Speaker Change #193: Sure.
Speaker Change #209: If they decide to move forward on digital thanks.
Jason Robins: Yeah, you know, I do think that there is some momentum in tribal communities now. And obviously, DraftKings already has a number of partners that are tribal in various states, including Foxwoods, the Pequot tribe in Connecticut, Pascomootie in Maine, Bay Mills in Michigan, several others. I don't want to leave any out, but I probably left a few out. But you know, we continue to believe that we are the partner of choice.
Speaker Change #218: Yes, I do think that.
Speaker Change #209: There is some momentum in travel communities now.
Speaker Change #217: Obviously draft Kings already has a number of partners that are tribes in various states.
Speaker Change #193: Including Foxwoods Pequot tribe.
Speaker Change #209: In Connecticut passed committee in Maine, They mills in Michigan, several others I don't want to leave any out, but probably left a few out but we continue to believe that.
Speaker Change #193: We are the partner of choice and also that we've got a great track record. If you talk to any of our travel partners have been great partners.
Jason Robins: And also that we have a great track record, if you talk to any of our tribal partners, of being great partners. And, you know, I think, just like anything, it takes time and education sometimes. In some states like California, where there are over 70 tribal communities, I think that, you know, there, it's obviously about getting alignment, as much as it is about, you know, openness. And so each one, each state is a bit unique, just like, you know, all states are unique in their own ways.
Speaker Change #193: I think just like anything it takes time and education, sometimes in some states like California, where there's over 70 tribes I think that.
Speaker Change #193: There, it's obviously about getting alignment as much as it is about openness and so.
Speaker Change #193: Each one each state is a bit unique just like our <unk>.
Jason Robins: So we kind of have to look at it that way. But I do think there's some momentum now, more than ever, I think you're seeing, we're seeing tribes come to us and ask about what we can do. Minnesota is one that I think is another tribal state that got very close to passing a bill this past session, and I'm hopeful that it gets done next session.
Speaker Change #193: States in all regards politically and otherwise are unique in their own way so.
Speaker Change #193: We'd have to look at it that way, but I do think there is some momentum now more than ever I think youre seeing were seeing tribes come to us and ask about what we can do Minnesota is one that I think is another travel state that got very close to passing a bill this past session and I'm hopeful that it gets done next session that was all about the tribes in there.
Speaker Change #193: Tracks agreed to a deal so.
Speaker Change #223: Sometimes it's not even about openness, it's about getting different stakeholders within this data line.
Speaker Change #218: Thank you I appreciate it.
Jason Robins: And that was all about the tribes and the tracks agreeing to a deal. So sometimes, you know, it's not even about openness; it's about getting different stakeholders within the state to align. Thank you. I appreciate it.
Operator: One moment for our next question. Our next question comes from Jeff Stantial with Stifel. Your line is open.
Speaker Change #223: One moment for our next question.
Justin <unk>: Our next question comes from Justin <unk> with Stifel. Your line is open.
Jason Robins: Great, thanks. Good morning, guys. Thanks for taking our question and maybe digging a bit further into some of the commentary on iCasino player acquisition. Jason, you talked about some sequential uplift in conversion rates from the Golden Nugget platform transition. But looking at this more strategically, I guess, has your philosophy on investing towards that iCasino-led player cohort changed at all now that Golden Nugget is fully integrated? Historically, I believe the strategy is more to focus on cross-selling sports users versus acquiring that higher CAC, higher LPV iCasino-led player. But I'd be curious if your thinking here has shifted around at all based on the returns that you're seeing with this recent user acquisition upside. Thanks.
Justin: Great. Thanks, Good morning, guys. Thanks for taking my question, maybe digging a bit further into some of the commentary on casino player acquisition, Jason you talked about.
Justin <unk>: Sequential uplift in conversion rates from the Golden Nugget platform transition, but looking at this more strategically I guess has your philosophy on investing towards that I casino wed player cohort changed at all now that Golden Nugget as fully integrated historically I believe the strategy has been more to focus on cross sell sports users versus acquiring that higher cash.
Speaker Change #219: Higher LTV I casino lead player, but just curious if youre thinking here shifted around at all based on the returns that Youre seeing with this recent user acquisition upside. Thanks.
Jason Robins: Yeah, I think so. I wouldn't really describe it as a philosophical change as much as us continuing with the philosophy of following the data and the analytics and putting our dollars where we feel that we see the best returns. So naturally, as you noted, when you see an increase in performance on GNOG, then that would mean that more dollars should flow there because it's performing better, and therefore should get a higher proportion of our acquisition spend. So we definitely are moving dollars around based on performance and what we're seeing. And that's always been consistent with what we've done.
Speaker Change #223: Yes, I think so I mean.
Speaker Change #230: Didn't really describe it as a philosophical change as much as us continuing with the philosophy of following the data and the analytics and putting our dollars, where we feel that where we see the best returns so.
Speaker Change #219: Naturally as you noted when you see an increase in performance on <unk> and that would mean more dollars should flow there because its performing better than.
Speaker Change #219: Therefore should get a higher proportion of our acquisition spend so we.
Speaker Change #219: We definitely are moving dollars around based on performance and what were seeing and Thats always been consistent with what we've done but the result as you noted has been some shift towards that I gaming first customer acquisition.
Jason Robins: But the result, as you noted, has been some shift towards that iGaming first customer acquisition investment, which I think, you know, again, it's all just kind of where do we get the best return, right? It's not that we think cross-sell is inherently a better way of doing it. It was just, you know, and it still is, by the way, that that's where we get the bulk of our iGaming customers. And that's the most efficient means of doing it.
Speaker Change #233: <unk>, which I think.
Speaker Change #219: Again, it's all just kind of where do we get the best return rate. It's not that we think cross sell is inherently a better way of doing it.
Speaker Change #219: And still is by the way that that's where we get the bulk of our I gaming customers and that's the most efficient means of doing it, but certainly where we see opportunity to invest directly in acquiring and gaming first customer. We're also taking advantage of that.
Speaker Change #225: Great. Thanks very much.
Jason Robins: But certainly, where we see an opportunity to invest directly in acquiring an iGaming first customer, we're also taking advantage of that. Great, thanks very much. One moment for our next question. Our next question comes from Lance Vitanza with TD Cowen. Your line is open. Thanks, guys. First of all, congratulations on a great quarter. I just have one question regarding the surcharge, but it does have three parts, and maybe just to focus on Illinois.
Speaker Change #233: One of them before the next question.
Speaker Change #230: Our next question comes from Lance Vitanza with TD Cowen Your line is open.
Jason Robins: Can you talk about what percentage of EBITDA lost due to the tax rate increase? Is the surcharge designed to be recaptured? I'm just trying to get a sense for the potential upside beyond the 900 million to a billion guide to the extent that the surcharge is successful. Obviously, I'm talking about fiscal 25. Yeah, so the way we calculated it is we set the amount such that we are targeting DraftKings to cover 20%, you know, of gross revenue and taxes.
Lance Vitanza: Thanks, guys first of all congratulations on a great quarter I just have one question regarding the surcharge, but it does have three parts and maybe just to focus on Illinois can you talk about what percentage of the EBITDA loss due to the tax rate increase is the surcharge designed to recapture im just trying to get a sense for the potential.
Speaker Change #222: Upside beyond the $900 million to $1 billion guide to the extent that the surcharge is successful obviously I'm talking about fiscal 'twenty five.
Speaker Change #235: Yeah. So the way we calculated it is we set the amount such that we are targeting.
Speaker Change #232: Draft Kings covering 20%.
Jason Robins: And so basically, the way I think of it is any tax rate that's higher than 20%, we would be paying up to the 20%. And then the remainder would be the fee designed to offset. So, you know, in a state like New York, where the tax rate is 51%, that's a large number.
Speaker Change #236: Gross revenue in taxes, and so basically the way to think of it as any tax rate that's higher than 20%.
Speaker Change #222: We would be paying up to the 20% and then the remainder would be.
Speaker Change #232: The fee is designed to offset.
Speaker Change #222: So in a state like New York, where the tax rate, 51%, that's a large number.
Jason Robins: Obviously, the big question is, do we see any deterioration in handle and top line as a result. But, you know, you can do the math and see that it would take quite a bit because, you know, if you think about 51% versus 20%, you know, that's 60% of the taxes that we pay in New York. And you can do the math on that from all the public reports; that's a big number. So you need to see a substantial decline in handle to get to a point where you are, you know, fully cannibalizing that. And obviously, if we saw that, we would reconsider our plan. But I think there's quite a bit of a cushion there.
Speaker Change #222: Obviously, the big question is do we see any deterioration in handle in topline as a result, but.
Speaker Change #222: You can do the math and see it would take quite a bit because if you think about 51% versus 20%.
Speaker Change #222: That 60% of the taxes that we're paying in New York.
Speaker Change #222: Can do the math on that from all the public reports its a big number.
Speaker Change #222: Need to see a substantial decline in handle to get to a point where you are.
Speaker Change #222: Fully cannibalizing that and obviously, if we saw that we would reconsider our plan, but I think there's quite a bit of cushion there.
Speaker Change #236: Well and my gut tells me that customer activity would actually be highly inelastic at least around mid single digit surcharge on weddings, but and I know you haven't done.
Jason Robins: Well, and my gut tells me that customer activity would actually be highly inelastic, at least around the mid single-digit surcharge on winnings. But, and I know you haven't done A B testing, but do you have any data that you've seen that would bear this out? I mean, other than just, you know, our guts. Yeah, I think you're right, by the way.
Speaker Change #236: Testing, but do you have any data that you've seen that would bear this out I mean, rather than just.
Speaker Change #234: Our guts.
Jason Robins: You know, the best data we have is really from other industries or from our industry in other parts of the world. There are other places where online gaming companies charge customers more because of the tax regime. And, you know, countries like Germany or Australia, for example, it's not done exactly in this way, but it's conceptually very similar.
Speaker Change #237: Yes, I think youre right by the way.
Speaker Change #231: The best data, we have is really from either other industries or from our industry and other parts of the world.
Speaker Change #243: There are other places where online gaming companies charge customers more because of the tax regime.
Speaker Change #231: Countries, like Germany, or Australia as an example.
Speaker Change #231: It's not done exactly in this way, but conceptually very similar also.
Jason Robins: Also, you know, we noted this earlier in the call, but a number of industries, from hotels to taxis, all have taxes in various states that get charged to the customer. People may gripe about it, but I don't really see a behavior change because of it. You're right. It depends on the level. I think in the mid-single digits, our belief is that when you compare it to other industries as well as what we just got checked out, which seems fair and seems reasonable to a customer, it seems like this is a good zone for us, but we'll only find out when we do it. It's hard. You can't really A-B test something like that.
Speaker Change #231: We noted this earlier in the call, but a number of industries from hotels to taxis.
Speaker Change #239: I'll have taxes in various states that get charged to the customer and.
Speaker Change #231: People may gripe about it but I don't really see behavior change because of it so.
Speaker Change #231: Youre right it depends on the level I think in the mid single digits. Our belief is that when you compare it to sort of.
Speaker Change #231: Other industries as well as sort of what we just got checks, Inc. Seems fair and it seems reasonable to a customer. It seems like this is a good zone for us, but we'll only find out when we do it it's hard you can't really test something like that.
Jason Robins: Right, right. And the last part of my question: I'm glad that you're making the surcharge visible to consumers. As you point out, black market operators pay zero tax, a 40% tax, and, obviously, referring to Illinois here, that seems short-sighted, unfair, and ultimately counterproductive.
Speaker Change #243: Right right and last part of my question I'm glad that you are making the surcharge visible to consumers as you point out black market operators pay zero tax a 40% tax and then obviously, referring to Illinois here that seems shortsighted unfair and ultimately counterproductive and I'm wondering if part of the calculus in making the visit.
Speaker Change #244: Making the surcharge visible is that intended to raise awareness around this issue do you think you could possibly generate grassroots support for more rational tax policy I E lower rates.
Speaker Change #237: Well there is certainly an element there.
Jason Robins: And I'm wondering if part of the calculus in making the surcharge visible is intended to raise awareness around this issue? Do you think you could possibly generate grassroots support for more rational tax policy, i.e., lower rates? Well, there's certainly an element there that has entered into our thinking. Obviously, you're right, when you have illegal operators paying zero tax, that's pretty tough to compete with at any level.
Speaker Change #244: <unk> entered into our thinking.
Jason Robins: But when it starts getting higher than 20%, it just becomes untenable. So I do think that in the absence of us doing something like this, why wouldn't more states consider it? It's not getting passed to their customers. They're not hearing from their constituents.
Speaker Change #244: Obviously, you are right when you have illegal operators paying zero tax that's pretty tough to compete with at any level when it starts getting higher than 20%.
Speaker Change #237: It just becomes untenable so.
Speaker Change #237: I do think that in the absence of us doing something like this.
Jason Robins: And we haven't, you know, in New York done anything differently, or nobody in the industry has. So I do think that this is something that may make some states reconsider because now, you know, they may be hearing more from their citizens that they don't like it. Obviously, they wouldn't be hearing anything if we, you know, from people that weren't being charged, because it's not like, you know, I guess maybe they'd hear from local teams that aren't getting as much sponsorship spend, but not from, you know, the massive voters that bet on sports.
Speaker Change #237: Why wouldn't more states consider it it's not getting.
Speaker Change #243: <unk> to their customers, they're not hearing from their constituents and we haven't and New York done anything differently or nobody in the industry and so I do think that this is something that may make some stage III consider because now they may be hearing more from their citizens that they don't like it obviously they would be hearing anything if we.
Speaker Change #244: From from people Werent being charged because it sounds like I guess, maybe they hear from like local teams that aren't getting as much sponsorship spend but not.
Speaker Change #243: Not from the massive voters that bet on sports so.
Speaker Change #249: And I think states are going to decide based on a number of I mean, if you look at some of the comparison. These I mentioned like taxis and hotels, it's not like you don't pay for that when you go to New York. So I think some states feel like because of where they are and because of the value proposition. They bring that they can have higher costs in certain.
Speaker Change #237: <unk>.
Speaker Change #250: That's not up to us that the policy decision that they're going to have to make.
Speaker Change #244: As a business we have to make the business decision that we have to make accordingly, but certainly we will continue to advocate for taxes.
Speaker Change #244: Allow us to compete more with the illegal market and.
Speaker Change #244: I am hopeful and I believe most states do you see that if you look most vast majority of states around the country have tax rates of 20% or under its just a handful that don't.
Speaker Change #255: Thanks, guys.
Speaker Change #237: Ladies and gentlemen, this concludes secured a portion of today's conference I'd like to turn the call back over to Jason Robinson for any closing remarks.
Jason Robinson: Well. Thank you all for joining us on today's call. We are really optimistic about the second half of 2024 and are excited and well positioned for success in the future 2025 and beyond Thank you for your continued support.
Speaker Change #237: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Jason Robinson: [music].
Jason Robinson: [music].
Jason Robins: So, but in the end, I think states are going to decide based on a number of. I mean, if you look at some of the comparisons, as I mentioned, like taxis and hotels, it's not like you don't pay for that when you go to New York. So I think some states feel like because of where they are and because of the value proposition they bring, they can have higher costs and certain things.
Speaker Change #261: Good day, and thank you for standing by and welcome to <unk> first quarter 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session I need to press star one on your telephone you will then hear an automated message advising you of Hain just raised to withdraw your question. Please press star one again, please be advised.
Jason Robinson: Today's conference is being recorded I would like to turn the call over to your speaker today, Alex <unk>.
<unk>: <unk> Chief Financial Officer. Please proceed.
Jason Robins: And that's not up to us. That's a policy decision that they're going to have to make. And, you know, as a business, we have to make the business decisions that we have to make accordingly. But certainly, we will continue to advocate for taxes that allow us to compete more with the illegal market. And I'm hopeful and I believe most states do see that if you look, the vast majority of states around the country have tax rates of 20% or under. It's just a handful that don't.
Speaker Change #261: Good morning, everyone and thank you for joining us today.
Speaker Change #260: Certain statements we make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors.
Jason Robinson: 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.
Jason Robinson: During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating tracking operating performance.
Jason Robinson: <unk> measures should not be considered in isolation or as a substitute for <unk> 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 quarterly report on Form 10-Q filed with the SEC.
Operator: Ladies and gentlemen... For any closing remarks, please do so at this time. Thank you all for joining us on today's call. We are really optimistic about the second half of 2024 and are excited and well positioned for success in the future 2025 and beyond. Thank you for your continued support. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and thank you for standing by.
Jason Robinson: Hosting the call today, we have Jason Robins, co founder and Chief Executive Officer.
Speaker Change #261: We'll share some opening remarks, and an update on the business.
Speaker Change #266: Following Jason's remarks, I will provide a review of our financials. We will then open the lines to questions.
Speaker Change #266: I will now turn the call over to Jason Robins.
Operator: Welcome to DraftKings' first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone.
Jason Robins: Good morning, and thank you all for joining.
Speaker Change #261: There are five key points that I'd like to focus on during our call today.
Jason Robins: First we are achieving strong and efficient customer acquisition.
Speaker Change #261: OSB and gaming customers increased nearly 80% year over year, while cask declined more than 40% year over year in the second quarter, a period with no new state launches.
Jason Robinson: We anticipate the healthy customer acquisition environment to continue through the back half of the year and possibly beyond which may indicate that the U S online gaming opportunity it could be even larger than we previously thought.
Operator: You will then hear an automated message device, and your hand is raised. To withdraw your question, please press star 11 again. Please be advised that these conferences are being recorded. I would like to turn the call over to your speaker today, Alan Ellingson, DraftKings Chief Financial Officer. Please press, 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.
Jason Robinson: Second we believe we have a reasonable solution for high tax states, including Illinois, We plan to implement the gaming tax surcharge in the four states that at multiple sports betting operators in tax rate about 20% starting January one 2025, we.
Jason Robinson: We believe additional upside potentially desperate adjusted EBITDA in 2025 and beyond from the gaming tax surcharge.
Jason Robinson: Third the jazz pocket integration is off to a great start.
Jason Robinson: We are on track to hit the multiyear guidance for the transaction that we provided an announcement and expect the deal to generate positive adjusted EBITDA in the fiscal year 2025.
Jason Robinson: Fourth we are excited about the future and are reiterating our expectation for $900 million to $1 billion in adjusted EBITDA in fiscal year 2025.
Jason Robinson: Finally, we said last quarter that we would provide an update on capital allocation. We are pleased to announce that our board authorized share repurchase of up to $1 billion of our class a common stock.
Jason Robinson: Overall authorization reflects our conviction and the strong trajectory of our business and our expectation that we will generate significant free cash flow in the coming years.
Speaker Change #261: I'd also like to emphasize that all of us are drafting theyre very excited but startup football season, our product is in a great position as we are continuing to differentiate ourselves by investing in new features and functionality for sports book in <unk>.
Jason Robinson: And sports book, We recently launched in House player prop wafers for NFL, NBA, MLB NHL College football College basketball and tenants.
Jason Robinson: We also broadened our progressive parlays to include spread in total waitress.
Jason Robinson: In addition, we plan to integrate that and watch experience with NFL streaming.
Speaker Change #261: And I gaming, the drafting and Golden Nugget online gaming apps. We are ranked number one and number two overall and a recent third party survey we are on track to double the number of new games released this year compared to last year and recently improved our interface to promote game discover ability.
Jason Robinson: In closing our business fundamentals are very healthy and we are excited about the second half of 2024 and beyond with that I will turn it over to Alan <unk>.
Alan: Thank you, Jason I'll hit the financial highlights, including our second quarter 2024 performance and our updated guidance. Please note that all income statement measures discuss except for revenue are on a non-GAAP adjusted EBITDA basis.
Alan Ellingson: 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 quarterly report on Form 10-Q filed with the SEC.
Alan Ellingson: Hosting the call today, we have Jason Robins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on the business. Following Jason's remarks, I will provide a review of our financials, and we will then open the line to questions. I will now turn the call over to Jason Robins. Good morning, and thank you all for joining.
Alan: As Jason mentioned, our business fundamentals were strong in the second quarter, we generated $1 billion $104 million of revenue, representing 26% year over year growth and a $128 million of adjusted EBITDA.
Operator: There are five key points that I'd like to focus on during our call today. First, we are achieving strong and efficient customer acquisition. New OSB and iGaming customers increased nearly 80% year-over-year, while cap declined more than 40% year-over-year in the second quarter, a period with no new state long. We anticipate the healthy customer acquisition environment to continue through the back half of the year and possibly beyond, which may indicate that the U.S. online gaming opportunity could be even larger than we previously thought. Second, we believe we have a reasonable solution for high-tax states, including Illinois.
Jason Robinson: Importantly, customer acquisition exceeded our expectations as new to drafting as OSB and IBM and customers increased nearly 80% year over year customer.
Jason Robinson: Customer retention and engagement were healthy and resulted in handle that exceeded our expectations.
Speaker Change #274: Handel was strong even with fewer than anticipated NBA playoff games.
Speaker Change #263: <unk> sportswear colt percent improved year over year in line with our expectations to approximately 10%.
Speaker Change #263: Adjusted gross margin for the second quarter was 43%, primarily due to better than expected customer acquisition and the corresponding promotional reinvestment.
Speaker Change #263: Operating expenses, including sales and marketing product and technology and general and administrative expenses were consistent with our expectations as we continue to balance revenue growth with operating efficiency across the organization.
Jason Robins: We plan to implement a gaming tax surcharge in the four states that have multiple sports betting operators and tax rates above 20% starting January 1, 2025. We believe additional upside potentially exists for adjusted EBITDA in 2025 and beyond from this gaming tax surcharge. Third, the Jazz Pocket integration is off to a great start. We are on track to hit the multi-year guidance for the transaction that we provided in our announcement and expect the deal to generate positive adjusted EBITDA in the fiscal year 2025.
Speaker Change #263: Moving on to our fiscal year 2020 for guidance.
Speaker Change #263: We now expect revenue in the range of $5.050 billion to $5 billion and $250 million.
Speaker Change #263: From a range of $4 billion $800 to $5 billion.
Speaker Change #263: The updated range equates to year over year growth of 38% to 43%.
Speaker Change #263: The increase in revenue guidance is driven by strong customer acquisition engagement and retention trends for our existing customers as well as the inclusion of Jack market. Our recent launch of sports book in Washington D C.
Speaker Change #263: We are also revising our fiscal year 2024, adjusted EBITDA guidance to $340 million to $420 million from the range of $460 million to $540 million.
Speaker Change #263: Erosion takes into account, Illinois racing at the sports book tax rate strong new customer acquisition expectations as well as the prior mentioned inclusion of Jack market. Our recent sports book launch in Washington DC.
Speaker Change #263: For fiscal year 2020 core we now expect our adjusted gross margin to increase modestly.
Speaker Change #263: We expect sales and marketing expense to increase at a mid to high single digit rate year over year. The increase was primarily due to the investments in jackpot brand.
Speaker Change #263: We continue to expect the bridge between adjusted EBITDA and free cash flow to be approximately $100 million based on approximately $120 million of annual capital expenditure and capitalized software development costs as well as a modest source of cash from changes in networking capital combined with interest income.
Speaker Change #263: And we continue to expect 2020 for stock based compensation expense to be flat to down in dollar terms on a year over year basis and represents approximately 7% of revenue in fiscal year 2024.
Jason Robins: Fourth, we are excited about the future and are reiterating our expectation for $900 million to $1 billion of adjusted EBITDA in fiscal year 2025. Finally, we said last quarter that we would provide an update on capital allocation. We are pleased to announce that our board has authorized the share repurchase of up to $1 billion of our Class A common stock.
Speaker Change #263: Looking ahead to fiscal year 2025, we continue to expect adjusted EBITDA in the range of $900 to $1 billion.
Speaker Change #263: Due to our underlying business momentum, including the benefit of higher customer acquisitions in the second half of 2024.
Jason Robins: This inaugural authorization reflects our conviction in the strong trajectory of our business and our expectation that we will generate significant free cash flow in the coming. I'd also like to emphasize that all of us at DraftKings are very excited for the start of football. Our product is in a great position as we are continuing to differentiate ourselves by investing in new features and functionality for Sportsbook and iCloud and Sportsbook. We recently launched in-house player prop wagers for NFL, NBA, MLB, NHL, college football, college basketball, and tennis.
Speaker Change #273: We believe additional upside potential exists when we apply the gaming tax surcharge in those noted high tax states that have multiple online sports book operators, which we are not including at this time.
Jason Robins: We also broadened our progressive parlay to include spread and total weight. In addition, we plan to integrate a bet and watch experience with NFL Streaming. In iGaming, the DraftKings and Golden Nugget online gaming apps were ranked number one and number two overall in a recent third-party survey.
Jason Robins: We are on track to double the number of new games we will release this year compared to last year and recently improved our interface to promote game discoverability. In closing, our business fundamentals are very healthy, and we are excited about the second half of 2024 and beyond. With that, I will turn it over to Alan Ellingson. Thank you, Jason. I'll hit the financial highlights, including our second quarter 2024 performance and our updated guidance. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP-adjusted EBITDA basis.
Speaker Change #263: We expect to provide more details on our fiscal year 2025 guidance with our next earnings report in November.
Alan Ellingson: As Jason mentioned, our business fundamentals were strong in the second quarter. We generated $1,104,000,000 of revenue, representing 26% year-over-year growth and $128,000,000 for just the EBITDA. Importantly, customer acquisition exceeded our expectations, as new customers to DraftKings, OSB, and iGaming increased nearly 80% year-over-year. Customer attention and engagement were healthy and resulted in a handle that exceeded our expectations.
Speaker Change #281: That concludes our remarks, we will now open the line for questions.
Alan Ellingson: Structural sports for cold percent improved year over year in line with our expectations to approximately 10%. Adjusted gross margin for the second quarter was 43%, primarily due to better than expected customer acquisition and the corresponding promotional reinvestment. Operating expenses, including sales and marketing, products and technology, and general and administrative expenses, were consistent with our expectations as we continue to balance revenue growth with operating efficiency across the organization. Moving on to our fiscal year 2024 guidance, We now expect revenue in the range of $5,050,000,000 to $5,250,000,000, from a range of $4,800,000,000 to $5,000,000,000. The updated range equates to year-over-year growth of 38 to 43%.
Alan Ellingson: The increase in revenue guidance is driven by strong customer acquisition, engagement, and retention trends for existing customers, as well as the inclusion of Jackpocket and our recent launch of Sportsbook in Washington, D.C. We are also revising our fiscal year 2024 Adjusted EBITDA guidance to $340 million to $420 million from the range of $460 million to $540 million. The revision takes into account Illinois raising its sportsbook tax rate, strong new customer acquisition expectations, as well as the prior mentioned inclusion of Jackpocket in our recent sportsbook launch in Washington, D.C. For fiscal year 2024, we now expect our adjusted gross margin to increase modestly. We expect sales and marketing expenses to increase at a mid to high single-digit rate year over year.
Alan Ellingson: The increase is primarily due to the investments in jackpocket brands. We continue to expect the bridge between the justness of the dollar and pre-cash flow to be approximately $100 million, based on approximately $120 million of annual capital expenditure and capitalized software development costs, as well as a modest source of cash from changes in networking capital combined with interest. And we continue to expect 2024 stock-based compensation expense to be flat to down in dollar terms on a year-over-year basis and to represent approximately 7% of revenue in fiscal year 2024.
Alan Ellingson: Looking ahead to fiscal year 2025, we continue to expect adjusted EBITDA in the range of $900 million to $1 billion due to our underlying business momentum, including the benefit of higher customer acquisitions in the second half of 2024. We believe additional upside potential exists when we apply the gaming tax surcharge in those noted high-tax states that have multiple online sportsbook operators, which we are not including at this time. We expect to provide more details on our fiscal year 2025 guidance with our next earnings report in November.
Alan Ellingson: That concludes our remarks. We will now open the line for questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered and you wish to unmute yourself from the queue, please press star 1 1 again.
Speaker Change #271: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered you wishing with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Operator: We'll pause for a moment while we compile our Q&A room. Our first question comes from David Katz with Jeffries. Your line is open.
Speaker Change #268: Our first question comes from David Katz with Jefferies. Your line is open.
David Katz: Thank you and good morning.
David Katz: I appreciate all the information what I was really hoping to do was just talking about the surcharge for a moment.
David Katz: Which is.
David Katz: An interesting strategy and how you've thought about.
Speaker Change #268: The degree to which competitors may or may not follow.
Speaker Change #279: And how you react under those circumstances.
Speaker Change #267: Ed just flushing out the strategy a bit more would be really helpful.
David Katz: Thank you, David. A great question. You know, I think every company has to do what's best for their own business. I think we believe this is what's best for us, and I would imagine that, you know, if that's our calculus, then others would come to the same conclusion, but we really don't know, and we'll have to see. And obviously, you know, there might be other ways, too, that other ideas for how to implement something like this that might be better than what we came up with. We thought through this quite a bit, but you never know.
Speaker Change #272: Thank you David Great question.
Speaker Change #269: I think every company has to do what's best for their own business. I think we believe this is what's best for us.
Speaker Change #274: I would imagine.
Speaker Change #269: That's our calculus than others would come to the same conclusion, but we really don't know and we will have to see.
Speaker Change #263: Obviously, there might be other ways to the.
Speaker Change #263: No other ideas for how to implement something like this that might be better than what we came up with we thought through this quite a bit but you never know so we do have some time between now and Jan first.
Jason Robins: So we do have some time between now and Jan 1st, and we'll see what happens. Right, interesting. And as a quick follow-up, just with respect to putting the surcharge aside, if we think about, you know, the impact that we should be reflecting in our models for Illinois, you know, assuming no surcharge, any help, you know, Alan, as to how we might sort of think through, you know, that impact and include it for, you know, the future. Just a lot going on in there.
Speaker Change #269: And we'll see what happens.
Speaker Change #275: Right interesting and as a quick follow up just with respect to putting the surcharge aside if we think about the impact that we should be reflecting in our models for Illinois.
Speaker Change #270: <unk> no surcharge.
Speaker Change #263: Any help Alan as to how we might sort of think through.
Speaker Change #270: That impact and included for.
Speaker Change #263: The future.
Speaker Change #270: Just a lot going on in there.
Jason Robins: I'll answer quickly, and then Alan can add any detail, but I think the best way to think about it is that the overperformance that we are seeing with, you know, customer acquisition, the launch of Washington, DC, our expectation for Jackpocket to deliver positive EBITDA next year, as well as underlying trends with our existing customers and outperformance on the handle side, should all offset the Illinois tax increase next year. So even if we don't get any benefit from the fee, we will see, you know, still $900 million to a billion in adjusted EBITDA next year. Okay, thank you very much. One moment for our... Our next question comes from Shaun Kelley with B of A. Your line is open. Hi, good morning, everyone.
Speaker Change #276: I'll answer quickly and then now in any detail, but I think the best way to think about it is the over performance that we are seeing.
Speaker Change #270: With customer acquisition, the launch of Washington D C. Our expectation for Jack pocket to deliver positive EBIT next EBITDA next year as well as underlying trends of our existing customers and outperformance on the handle side all should offset.
Speaker Change #269: The Illinois tax increase next year.
Speaker Change #269: So even if we don't get any benefit from the fee waiver.
Speaker Change #274: We'll see still 902 1 billion and adjusted EBITDA next year. Okay. Okay. Thank you very much.
Speaker Change #273: One moment for our next question.
Speaker Change #263: Yes.
Speaker Change #280: Our next question comes from Shaun Kelley with Bofa. Your line is open.
Shaun Kelley: Hi, good morning, everyone.
Shaun Kelley: Jason or Alan, I think a lot of the rest of the subject of the sort of update here is about the increased customer acquisition environment and, obviously, some of the continued investment you're making. So, you know, the impact here seems to be the net effect is obviously higher revenue expectations and lower profit flow throughs. Specifically asking about kind of 2025 to start, just the implied guidance right now implies some reacceleration. You haven't given explicit revenue guidance, but that seems to be kind of the undertone here. So, what in your mind would kind of cause the environment to change from where we are today?
Shaun Kelley: Jason Alan I think a lot of the rest of the subject of the sort of update here is about the increased customer acquisition environment. Obviously some of the continued.
Speaker Change #280: Since you are making so the impact to your seems to be the net is obviously higher revenue expectations and lower profit flow through.
Speaker Change #280: Particularly asking about kind of 2025 to start just the implied.
Speaker Change #327: The implied guidance right now implies some reacceleration you haven't given explicit revenue guidance that seems to be kind of the undertone here. So what in your mind would kind of caused the environment to change from where we're at today and if it doesn't what would some of the offsets potentially be for draft kings as we kind of move into next year, and let's say the customer.
Jason Robins: And if it doesn't, what would some of the offsets potentially be for DraftKings as we kind of move into next year? And let's say the customer acquisition environment remains rich, and you continue to see strong ads there. Thanks.
Speaker Change #282: Acquisition environment remains rich and you continue to see strong adds there. Thanks.
Jason Robins: Yeah, it's a great question. You know, just to explain a little bit about what's going on. One, even if we didn't spend another dime on marketing, new customers get new customer promotion. So you're right, that has a drag on revenue and EBITDA. And we're seeing enough outperformance on the revenue side elsewhere that while it certainly hits the bottom line a little bit, or will for the remainder of the year, it didn't actually, we're still seeing improved revenue.
Speaker Change #275: Yes, it's a great question.
Speaker Change #282: Just explain a little bit about what's going on one even if we didn't spend another dime of marketing new customers get new customer promotion. So youre right that is a drag on revenue and EBITDA and we are seeing enough outperformance on the revenue side elsewhere that well it certainly hit the bottom line a little bit are well through the remainder of the year.
Speaker Change #284: It did.
Speaker Change #263: Actually we're still seeing improved revenues so.
Shaun Kelley: That's just kind of demonstrates I think the underlying strength of the business and the customers that we're seeing so.
Jason Robins: So, you know, that just kind of demonstrates, I think, the underlying strengths of the business and the customers that we're seeing. So, you know, when you kind of put all that together, next year, we do expect to get a little bit more revenue because we'll need that to offset or in order to make the math work that's needed to offset the Illinois gaming tax increase. So that's kind of how you get to $902 billion.
Shaun Kelley: When you kind of put all that together next year, we do expect to get a little bit more revenue, because we will need that to offset.
Shaun Kelley: In order to make the math work that's needed to offset the Illinois gaming tax increase so.
Shaun Kelley: That's kind of how you get to the 900 to a $1 billion and then any additional upside beyond that Illinois gaming tax amount would be the revenue driven from the impact of the fee that we're instituting in those four states.
Jason Robins: And then any additional upside beyond that Illinois gaming tax amount would be either revenue driven or from the impact of the fee that we're instituting in those four states. And then as far as the potential for hot customer acquisition next year, that can always happen. You know, right now, we feel we've built in some degree of the increased trends we're seeing. And obviously, a lot of that will depend on whether there are more state launches and things like that. So, you know, I think you could sort of think of this as a same-state basis type of thing again.
Speaker Change #284: And then as far as the potential for hot customer acquisition next year that can always happen.
Shaun Kelley: Right now we feel we built in.
Shaun Kelley: Some degree of the increase trends, we're seeing and obviously a lot of that will depend on if theres more state launches and things like that so.
Jason Robins: And obviously, if there are more state launches next year and more customer acquisition investment, then that might change things a bit. But, you know, that just means bigger numbers in the longer term over the following year. So I think that's the right way to think about it. But as of today, I see no reason to think that, on a same-state basis, we wouldn't be able to deliver $902 billion in adjusted EBITDA next year. Thank you.
Shaun Kelley: You can sort of think of this as a same state basis type of thing again, and obviously, if theres more state launches next year and more customer acquisition investment and that might change things a bit but.
Shaun Kelley: This means bigger numbers longer term over the following years, So I think thats the right way to think about it but as of today I see no reason to think data on a same state basis, we wouldn't be able to deliver 902 1 billion and EBIT and adjusted EBITDA next year.
Speaker Change #288: Thank you.
Operator: One moment for our next question. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Speaker Change #282: One moment for our next question.
Shaun Kelley: Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Stephen Grambling: Hi, thanks. Just wanted to maybe follow up on Shaun's question, but ask it in a different way. Are you seeing any change in the cost to sustain and engage existing players? And also in new customer acquisition? Is that primarily coming from new states? Or are you still seeing an even greater uptick from existing states? So we are not seeing an increase in existing player costs. It's all new player driven and mixed driven. So meaning a mix of new players with existing ones. And interestingly, it really is across the board.
Stephen Grambling: Hi, Thanks, I just wanted to maybe follow up on Johns question, but asking it a different way are you seeing any change in the cost to sustain and engage existing players and also on the new customer acquisition is that primarily coming from new states or are you still seeing even greater uptick from existing states.
Jason Robins: So certainly, we got some boosts from North Carolina having launched in late Q1. But if you remember, last year, we had two big states, Ohio and Massachusetts, launch in Q1. You know, so this year, there were fewer new state launches around this timeframe and none in Q2. We did have DC launch recently, but that didn't affect the Q2 numbers that were in July.
Speaker Change #292: So we are not seeing an increase in the existing player cost, it's all new player driven or mix, driven so meaning mix of new players the existing.
Speaker Change #288: And interestingly it really is across the board so.
Speaker Change #290: Certainly we got some boost from North Carolina, having launched in late Q1, but if you remember last year, we had two big States, Ohio, and Massachusetts launch in Q1.
Shaun Kelley: So this year there were less new state launches around this timeframe and none in Q2, we did have DC launched recently, but that didn't affect the Q2 numbers that was in July so really it has to come from existing states. If you look at it that way and then it's really across products too we did see some particular strength in <unk>.
Shaun Kelley: The nugget brand as we migrated onto the draft kings platform and product.
Shaun Kelley: <unk> saw a boost in conversion and got some lift on there, but really it's been across states across products.
Operator: So really, it has to come from existing states, if you look at it that way. And then, you know, it's really across products, too. We did see some particular strength in the Golden Nugget brand, but as we migrated on to the DraftKings platform and product, we definitely saw a boost in conversion and got some lift on there. But really, it's been across states across products. Thank you.
Speaker Change #291: Thank you.
Operator: One moment for our next question. Our next question comes from Joe Greff of J.P. Morgan. Your line is open. Good morning, everybody.
Speaker Change #291: One moment for our next question.
Shaun Kelley: Our next question comes from Joe Greff with Jpmorgan. Your line is open.
Joe Greff: Good morning, everybody.
Joseph Greff: Jason, just wanted to ask on the higher new user acquisition cost plans for the second half of this year, how much of this is offense meaning to grow the new user base versus defense? versus impacting the competition. And then my follow-up to that is, you mentioned that presently the customer acquisition environment is healthy. What if that environment changes to the downside? How do you react? How do you pivot?
Joe Greff: Jason I just wanted to ask on the higher new user acquisition cost planned in the second half of this year.
Joe Greff: How much of this is often meaning to grow.
Speaker Change #291: User base versus defense.
Speaker Change #292: Versus impacting the competition and then my follow up to that is you may.
Speaker Change #293: And that presently the customer acquisition environment is healthy.
Speaker Change #295: What if that environment changes to the downside how do you react how do you pivot.
Jason Robins: Yeah, great questions. I mean, we have been very consistent in that we don't react competitively. We make decisions based on our three-year payback rule and what our data says our customer acquisition spend is returning. So, you know, as we noted, we had an over 80% increase, an almost, excuse me, 80% increase in new players in Q2 year over year and an over 40% CAC decline. I mean, those are just massive numbers, right?
Speaker Change #292: Yes, great questions I mean, we I think have been very consistent in that we don't react competitively.
Shaun Kelley: We make decisions based on our three year payback rule and what our data says our customer acquisition spend is returning so.
Shaun Kelley: As we noted we added over 80% increase in almost excuse me, 80% increase in new players in Q2 year over year and an over 40% cash decline I mean, those are just massive numbers right. So when youre looking at those numbers and your marketing team is coming to you and saying we can deliver more productive spend with the same type of results.
Jason Robins: So when you're looking at those numbers and your marketing team is coming to you and saying we can deliver more productive spend with, you know, the same type of results, it's hard to say no to that, right? And we've been monitoring cohort quality closely. I mean, everything looks really, really solid.
Joe Greff: It's hard to say no to that right and we've been monitoring cohort quality closely I mean, everything looks really really solid. So I think it's just a particularly strong environment right now the market is growing quickly.
Jason Robins: So I think it's just a particularly strong environment right now. The market is growing quickly. You know, I think it's just really, you got to fish when the fish are biting, so to speak. So I think that's the way to think about it. It's absolutely outrageous and really, you know, more so just kind of following the data.
Speaker Change #291: I think it's just really you got to Fisher and Fisher are biting so to speak so I think that's the way to think about it it's absolutely offensive and really more so just kind of following the data and by the same token to your second question. If it goes the other way we will follow it back the other way so.
Jason Robins: And by the same token, to answer your second question, if it goes the other way, we'll follow it back the other way. So, you know, the good news for us is that the vast majority of our marketing spend is flexible. We can move in and out of it very quickly. A lot of it is digital. Even TV, we can move out of in a matter of days, usually.
Speaker Change #291: The good news for US is the vast majority of our marketing spend as flexible we can move in and out of it very quickly a lot of its digital even the television we can move out in a matter of days usually so.
Jason Robins: So really, it's quite easy for us to make adjustments as we see what's working and at what levels. And, you know, in the same way that when the data is telling us we should be investing deeper because the paybacks are really strong, if we start to see the opposite or if we start to see a decline in cohort quality, we can easily adjust there. Great. And Alan, when do you start becoming a cash taxpayer with gaming and the corporate tax rate in 2026?
Shaun Kelley: Really it's quite easy for us to make adjustments as we see what's working and at what levels.
Speaker Change #291: The same way that when the data is telling us we should be investing deeper because the paybacks are really strong if we start to see the opposite if we start to see a decline in cohort quality, we can easily adjust there.
Speaker Change #292: And Alan when did you start becoming a cash taxpayer with a gaming, let's say the corporate tax.
Alan: Cash corporate tax rate in 2026.
Alan: We will probably start paying a minimum amount of cash taxes in 'twenty five 'twenty six but we don't expect to run through all of our Nols until 'twenty seven or 28 at the soonest.
Ed: Thanks, Ed.
Speaker Change #294: One moment for our next question.
Jason Robins: We'll probably start paying a minimum amount of cash taxes in 25 and 26, but we don't we don't expect to run through all of our NOLs until 27 or 28 as soon as, One moment for our next question. Our next question comes from Clark Lampen with BTIG. Your line is open. Morning, everyone.
Speaker Change #300: Our next question comes from Clark <unk> with <unk>. Your line is open.
Operator: Thanks for taking the question. Jason, I want to come back to the sort of customer acquisition topic and the comments you made around existing state performance. I'm curious, I guess, in the absence of obvious changes, I guess, from last quarter to this one, you know, from like a launch dynamic standpoint, what's creating, I guess, this sort of more favorable environment that you're leaning into?
Clark: Good morning, everyone. Thanks for taking the question.
Clark: Good morning, Jason I want to come back to the sort of customer acquisition.
Clark: And the comments you made around existing state performance I'm curious I guess.
Speaker Change #296: In absence of obvious changes I guess from last quarter to this one.
Speaker Change #295: Unlike a launch dynamic standpoint, whats, creating I guess sort of a more favorable environment that you are leaning into.
Is it sort of more of a push factor where caps have come down enough, where it makes sense to spend more and can actually.
Clark Lampen: You know, is it sort of more of a push factor where caps have come down enough that it makes sense to spend more and you can actually reach customer cohorts that you weren't previously addressing, or is something sort of picked up in terms of interest that suggests that TAM, you know, maybe really is expanding at a faster pace than we expected right now? Yeah, it's a great question. And you know, hard to exactly pinpoint, but I think it's a combination of both the things that you said, primarily.
Clark: Reached customer cohorts that you werent previously addressing or something sort of ticked up in terms of interest that suggests the Tam maybe really is expanding at a faster pace than we expected right now.
Jason Robins: So one, as we've, you know, increased our state footprint, we've talked about this for years now, how this is kind of the gift that keeps on giving. We see the same cost from a national marketing perspective, regardless of how many states we're operating in, but the bigger your footprint, the more bang for your buck you're getting for it. So as we've grown our state footprint, you're absolutely right. It just continues to improve our efficiency, which allows us to unlock the ability to, you know, reach a little bit deeper and spend a little bit more in pockets that weren't meeting our payback thresholds previously.
Speaker Change #297: Yes, it's a great question and hard to exactly pinpoint, but I think it's a combination of both the things that you said, primarily so one is we've increased our state footprint. We've talked about this for years now how this is kind of a gift that keeps on giving we see the same cost from a national marketing perspective rigor.
Clark: Let's say, how many states are operating in but the bigger footprint and more bang for your Buck Youre getting for it so as we've grown our state footprint Youre absolutely right. It just continues to improve our efficiency, which allows us to unlock the ability to reach a little bit deeper and spend a little bit more in pockets that weren't meeting our payback thresholds previously.
Jason Robins: Secondly, I do think that there's just a ton of momentum in the industry right now. You know, lots of buzz coming up with the NFL season, and it's only going to get bigger, because this is the busiest time of year for us, typically, from a customer acquisition perspective. I guess the Super Bowl, but the whole NFL and NBA kind of thing, you know, that whole fall timeframe is usually the biggest overall period.
Clark: Secondly, I do think that there's just a ton of momentum in the industry right now.
Clark: Lots of Buzz coming up with NFL season, it's only going to get bigger because this is the most busy time of year for us typically from a customer acquisition perspective, I guess, the Super Bowl, but the whole NFL NBA.
Clark: Whole fall timeframe is usually the biggest overall period and really I see no reason to think that that's going to slow down obviously as noted earlier, we're going to be very closely monitoring the data and if we see any changes, we'll adjust our spend and adjust our approach, but right now I think if anything you would expect it to build because we're in really the lease busy time of year.
Operator: And, you know, really, I see no reason to think that that's going to slow down. Obviously, as noted earlier, we're going to be very closely monitoring the data. And if we see any changes, we'll adjust our spend and adjust our approach. But right now, I think, if anything, you'd expect it to build because we're in really the least busy time of year.
Clark: And we're still seeing very strong customer acquisition. So I don't know why that would slow down going into the busiest time of year.
Alan Ellingson: And we're still seeing very strong customer acquisition, so I don't know why that would slow down going into the busiest time of year. Okay. I have a follow-up for Alan, I guess, on the repurchase that was announced today. Alan, you guys just wrote a fairly large check for Jackpocket.
Clark: Understood.
Clark: Follow up also for Allan I guess on the repurchase that was announced today Alan.
Alan Ellingson: There have been some rumors, you know, of other sort of smaller-scale deals. Football season last year was a pretty good reminder of result swings and the potential for sort of inter-quarter outflows. Is it fair to think that, I guess, utilization of that buyback authorization might be more of a 25 event? And, you know, if so, is this something that's going to be more formulaic in nature, or would you hope to be a little bit more tactical and take advantage of bigger dislocations, I guess, in the stock price? Thank you.
Speaker Change #306: You guys just wrote a fairly large tech for Jack pocket, there have been some rumors of other sort of smaller scale deals.
Speaker Change #306: Football season last year was a pretty good reminder.
Speaker Change #309: Of results swings and the potential for sort of intra quarter outflows is it fair to say that I guess utilization of that buyback authorization might be more of a <unk> 25 of them.
Speaker Change #309: If so is this something thats going to be more formulaic in nature or would you hope to be a little bit more tactical and take advantage of the bigger dislocations I guess in the stock price. Thank you.
Operator: I think we anticipate being able to buy back the billion dollars of Class A shares over the next two to three years. We would like to ideally be formulaic with it, create some consistency, but I do expect it to take more than just the next little while to get fully finalized. Yeah, it'll be a mix.
Speaker Change #309: I think we anticipate being able to buyback the $1 billion.
Speaker Change #306: Class a shares over the next two to three years.
Speaker Change #311: We would like to be ideally be formulated with it.
Speaker Change #311: Create some consistency, but I do expect it to take more than just the next little while to get it fully.
Speaker Change #311: Okay.
Speaker Change #306: <unk>.
Alan Ellingson: I mean, we'll certainly have some flexibility, as you noted, to take advantage of any dislocations in the share price. But, as Alan noted, I think that the bulk of it will be formulated. One moment for our next question. Our next question comes from Robert Fishman with Moffitt & Nathanson. Your line is open. Hi, good morning.
Speaker Change #306: It will be a mix I mean, we will have certainly some flexibility as you noted to take advantage of any dislocations in the share price, but as Alan noted I think the bulk of it will be formulated.
Speaker Change #306: Thank you.
Speaker Change #318: For our next question.
Speaker Change #318: Our next question comes from Robert Fishman with Moffett Nathanson Your line is open.
Robert Fishman: Curious, are you guys seeing any signs of consumer weakness in some of your older states, maybe? And how would you think about the impact on OSB and iGaming if we see any more macro headwinds in the next couple of quarters? And then, shifting gears a little bit, given the expected integration of the bet and wash experience with the NFL streaming service, curious, did you see anything last year?
Robert Fishman: Hi, good morning.
Robert Fishman: Curious are you guys seeing any signs of consumer weakness in your some of your older States, maybe and how would you think about the impact on OSB anti gaming if we see any more of a macro headwinds in the next couple of quarters, and then shifting gears a little bit.
Speaker Change #318: Given the expected integration of the <unk> loss experience with the NFL screaming.
Speaker Change #318: Im curious did you see anything last year. Some of your competitors that I think have the functionality. So anything that you learned last year about the NFL season that pushed you into this product enhancement and any.
Jason Robins: Some of your competitors did, I think, have this functionality. So, anything that you learned last year about the NFL season that pushed you into this product enhancement and any early thoughts about exploring these rights for the NBA? Thank you.
Speaker Change #318: Early thoughts about exploring these rights for the MBA. Thank you.
Jason Robins: Yeah, I think, you know, in your first question, we're seeing absolutely no signs of any weakness in the consumer whatsoever. It's hard to know how much of that is unique to our industry versus macro. But really, on our end, we're seeing super strong, healthy cohort behavior across the board. And, as noted, customer acquisition is really at an all-time high as well. So everything looks really good on that front for us. On the bet and watch side, you know, it wasn't really that we saw anything last year and anything our competitors did; it was more that we wanted to do this all along.
Speaker Change #328: Yeah I think.
Speaker Change #322: Your first question, we're seeing absolutely no signs of any weakness in the consumer whatsoever hard to know how much of that is unique to our industry versus macro.
Speaker Change #329: But really on our end, we're seeing super strong healthy cohort behavior across the board and as noted our customer acquisition is really at an all time high as well so everything looks really good on that front for us.
Speaker Change #323: On the Baton watch side.
Speaker Change #323: Not really that we saw anything last year and anything our competitors did it was more that we wanted to do this all along it's a great thing that we think will add a lot of value to our customers doing live betting.
Jason Robins: It's a great thing that we think will add a lot of value to our customers doing live betting, but it just didn't make the cut. We had so many other great things that we were trying to get done last year. And I think doing it, you know, in a sort of haphazard way wasn't our style; we want to do it right.
Speaker Change #323: It didn't make the cut we had so many other great things that we're trying to get done last year and.
Speaker Change #318: And I think to do it and it's sort of a haphazard way within our style, we want to do it right. So we really wanted to make sure. It wasn't just.
Speaker Change #318: I'm kind of path together integration of a video feed but it was a true experience that we're creating because if somebody tries it we want them to say this is great and come back and I get one shot at it first impression. So I think we felt like between.
Speaker Change #318: The other things that we had on our roadmap and our desire to make sure. We did this in the right way, we decided it would be better off with this coming season.
Operator: So we really wanted to make sure it wasn't just some kind of, you know, hack together integration of a video feed, but it was a true experience that we were creating. Because, you know, if somebody tries it, we want them to say, "This is great, and come back, and you only get one shot at a first impression. So I think we felt that between the other things that we had on our roadmap and our desire to make sure we did this in the right way, we decided it would be better for this company. Thank you. One moment for our next question. Our next question comes from Ben Miller with Goldman Sachs. Your line is open.
Speaker Change #332: Thank you one moment for our next question.
Speaker Change #322: Our next question comes from Ben Miller with Goldman Sachs. Your line is open.
Benjamin Miller: Thanks for taking the questions. I guess just back on the gaming tax surcharge, can you just talk about the thought process behind using a surcharge as the mitigation measure as opposed to a more discreet lever? And then are there any insights you can share around customer behavior from any A-B testing that you might have done in advance of announcing this? Thanks.
Ben Miller: Thanks for taking the questions I guess just back on the gaming tax surcharge.
Ben Miller: Can you just talk about the thought process behind using a surcharge.
Speaker Change #329: Mitigation measure as opposed to a more discreet lever and then are there any insights you can share around customer behavior for many AB testing that you might have done in advance of announcing this thanks.
Jason Robins: Sure, so, you know, we definitely discussed and thought through a lot of different ways of doing it. And as I said, if some better idea comes along, we're open to it. I think the important thing is that, you know, if you look at the way it's typically done in other industries, whether it be hotel taxes or even the sales tax that you pay when you buy something at the store, taxis, you name it, it's typically line itemed out separately and, you know, usually 100% passed along to the consumer.
Speaker Change #332: Sure so.
Speaker Change #327: <unk> discussed and thought through a lot of different ways of doing it and as I said.
Speaker Change #329: Some better idea comes along we are open to it I think the important thing is that if.
Speaker Change #329: If you look at sort of the way, it's typically done in other industries, whether it be hotel taxes or even the sales tax that you pay when you buy something at the store.
Speaker Change #329: Taxes, you name it it's typically line items out separately.
Speaker Change #329: Usually a 100% passed along to the consumer in this case, we're obviously subsidizing a chunk of it so.
Jason Robins: In this case, we're obviously subsidizing a chunk of it. So, you know, we just thought that was most sort of in line with how it's typically done versus trying to obfuscate it, which also isn't consistent with our commitment to be transparent to our customers and be very customer-friendly in everything we do. So, you know, I know there's maybe a benefit to hiding it because maybe people don't notice, but I think, over the long term, customers appreciate transparency.
Speaker Change #329: We just thought that was most sort of in line with how it's typically done versus trying to operate the <unk>, which also isn't consistent with our commitment to be transparent to our customers and be very customer friendly in everything we do so.
Speaker Change #334: I know theres, maybe benefit hiding it because many people don't notice, but I think over the long term customers appreciate transparency, even if they don't love the state implemented a high tax and some of that is being passed along I think they prefer that not knowing if it were buried in the pricing or something else.
Jason Robins: And even if they don't love that, you know, their state implemented a high tax, and some of that is being passed along, I think they prefer that to not knowing if it was buried in the pricing or something else. Was there any A B testing that you guys did that, you know, you could share any customer behavior from that? No, we haven't. We actually still have some work to do to implement it. And, you know, I think it's hard to A B test something like that.
Speaker Change #334: Was there any AB testing that you guys done.
Speaker Change #340: That you could share any any customer behavior from that.
Jason Robins: What we are doing is launching in four states, so we'll certainly see the impact there. And obviously, you know, it won't be a perfect A-B test.
Speaker Change #334: No we haven't we actually still there's work to do to implement it and I think it's hard to test something like that what we are doing is we're launching in four states. So we will certainly see the impact there and obviously wont be a perfect AB test but.
Speaker Change #329: Think that we have enough comparable data from other states and enough of an understanding of what we would expect from consumer behavior that I think we'll have a pretty clean read on the impact.
Speaker Change #334: But it is a nominal amount if you look at the materials, we provided in the investor presentation.
Jason Robins: But I think that we have enough comparable data from other states and enough of an understanding of what we would expect from consumer behavior that I think we'll have a pretty clear read on the impact. But you know, it is a nominal amount. If you look at the materials we provided in the investor presentation, you know, for Illinois, for example, if you made a $10 bet to win $20, it would be a 37 ish 30 something cent charge. I forget the exact number.
Sandy: For Illinois for example of EMEA $10 bet to win $20. It would be at 37 ish 30, something Sandy I forget the exact number of charge. So obviously some people might just react negatively to the idea of being charged at all but it's really fairly nominal and it makes a huge difference in our ability to make a reasonable margin and also.
Sandy: More importantly to compete with the illegal market, which pays no taxes and has the ability to invest a 100% of their revenue into profit product and other things so for us to be able to be competitive with the illegal market and invest properly in product and customer experience in a state that has a very high tax rate. We feel is an important step.
Speaker Change #334: Consumers will ultimately understand and if they feel the product and experiences better than they'd rather pay for that in somewhere else that maybe doesn't have as strong a product.
Speaker Change #334: Great. Thanks, so much.
Speaker Change #339: One moment for our next question.
Speaker Change #334: Our next question comes from Robin Farley with UBS. Your line is open.
Robin Farley: Thanks, Yeah I wanted to ask when you think about strategy in Latin America.
Speaker Change #334: You would pursue sort of organically or something that you might look to use M&A to.
Speaker Change #343: <unk> taken that market and then just a quick follow up question on the.
Speaker Change #344: The earlier commentary about the increased acquisition customer acquisition.
Speaker Change #343: Your market share looks pretty consistent year over year, I guess, how should we think about what's the time lag between the higher customer acquisition and that showing up in the market share numbers. Thank you.
Speaker Change #345: So couple of things one answer to your question on Latin America, we would probably not do it organically. If we were to pursue would be through M&A that said.
Speaker Change #343: We don't currently have any plans to do that either I think we're really focused as we've noted in the past on winning in the U S online gaming opportunity in fact.
Speaker Change #334: Just in the last couple of months.
Speaker Change #334: Divested reason, we shuttered rainmakers. So I mean, we're more focused than ever on our core and I think thats just been our mantra and a theme throughout the company is focus focus focus so definitely want to make that point, but were we to do something I think it would likely be through M&A for that very reason, we don't want to take a big chunk of our.
Jason Robins: So obviously, some people might just react negatively to the idea of being charged at all, but it's really fairly nominal. And it makes a huge difference in our ability to make, you know, a reasonable margin. And also, more importantly, to compete with the illegal market, which pays no taxes and has, you know, the ability to invest 100% of their revenue into product and other things.
Speaker Change #334: Brain Trust here and distract them with something like that.
Speaker Change #334: And then.
Speaker Change #344: Sorry second question on share so hard to know exactly because I would assume that if we're seeing robust customer acquisition and our competitors are as well so.
Speaker Change #334: I don't know if thats unique to us if it were a unique to us that should show up pretty quickly within a quarter or two of acquiring the customers but.
Speaker Change #334: I think the caveat is my guess is that the entire market. The entire industry is experiencing very strong customer acquisition right now because.
Speaker Change #348: Well I guess, there could be some things like in the case of the Golden Nugget migration that we're getting a little bit of an extra boost from but for the most part we're seeing it across states across products. So I think it's more of a macro industry trend as much as anything else.
Jason Robins: So, you know, for us to be able to be competitive with the illegal market and invest properly in product and customer experience in a state that has a very high tax rate, we feel this is an important step that consumers will ultimately understand. And if they feel the product and experience is better, they'd rather pay for that than somewhere else that maybe doesn't have as strong a product. Great, thanks so much.
Speaker Change #346: Okay, great. Thank you very much.
Operator: One moment for our next question. Our next question comes from Robin Farley with UBS. Your line is open.
Speaker Change #346: One moment for our next question.
Dan <unk>: Our next question comes from Dan <unk> with Wells Fargo. Your line is open.
Robin Farley: Thanks. Yeah, I wanted to ask, when you think about strategy in Latin America, is that something you would pursue sort of organically, or something that you might look to use M&A to get a stake in that market? And then just a quick follow-up question on the earlier commentary about the increased acquisition, customer acquisition; your market share looked pretty consistent year over year. I guess how should we think about the time lag between the higher customer acquisition and that showing up in the market share numbers? Thank you. So, a couple things. One, to answer your question on Latin America, we would probably not do it organically.
Dan <unk>: Hey, good morning, everyone first of all in terms of that stronger customer acquisition retention and engagement.
Jason Robins: If we were to pursue it, it would be through M&A. That said, we don't currently have any plans to do that either. I think we're really focused, as we've noted in the past, on winning the U.S. online gaming opportunity. In fact, just in the last couple months, we divested Veeson and shuttered Rainmakers.
Speaker Change #346: Just look at your slide deck.
Speaker Change #349: Our positive revenue of about $177 million, but a drag in terms of EBITDA.
Speaker Change #346: That compares with your first quarter, where.
Speaker Change #356: Are those figures were positive rate that would add incremental adjusted EBITDA. So I guess the question is is there any way to kind of break out this.
Jason Robins: So I mean, we're more focused than ever on our core. And I think that's just been a mantra and a theme throughout the company: focus, focus, focus. So definitely want to make that point. But were we to do something, I think it would likely be through M&A. For that very reason, we don't want to take a big chunk of our brain trust here and distract them with something like that.
Speaker Change #346: The $23 million EBITDA loss.
Speaker Change #347: As part of your bridge as it relates to better monetization of existing customers versus maybe the drag of acquiring new customers.
Jason Robins: And then, sorry, oh, second question on share. So, you know, hard to know exactly. Because, you know, I would assume that if we're seeing robust customer acquisition, then our competitors are as well. So I don't know if that's unique to us.
Speaker Change #348: Yes, it's a great question I mean, I think that the.
Speaker Change #353: The best way to think about it is if you assume that the incremental revenue from existing customers flows through somewhere in the 50 ish percent range.
Speaker Change #353: Maybe a little bit higher but somewhere around there then you can kind of back into what.
Speaker Change #347: What comes from each.
Jason Robins: If it were unique to us, it should show up pretty quickly, you know, within a quarter or two of acquiring the customers. But, you know, my guess is that the entire market, the entire industry, is experiencing very strong customer acquisition right now. Because, you know, well, I guess there could be some things, like in the case of the Golden Nugget migration, that we're getting a little bit of an extra boost from. But for the most part, we're seeing it across states and across products. So I think it's more of a macro industry trend as much as anything else. Okay, great. Thank you very much.
Speaker Change #347: Got it and then and that thing I'd note two and I just wanted to make sure people understand this as well because I think it's an important point.
Speaker Change #347: When we talk about revising EBITA guidance and incremental customer acquisition costs.
Operator: One moment for our next question. Our next question comes from Dan Politzer with Wells Fargo. Your line is open. Hey, good morning, everyone.
Speaker Change #347: Even if we didn't spend any more money on marketing new customer promos come from just more customers coming in so if we under forecasted which in this case, we did the number of new customers that work, we expect to acquire this year and even if we spent zero more dollars on advertising on marketing, we would still see a headwind which is.
Daniel Politzer: First one, in terms of that stronger customer acquisition, retention, and engagement. If I just look at your slide deck in the, you know, positive revenue of about $177 million, but a drag in terms of EBITDA. But, you know, that compares with your first quarter, where both of those figures were positive, right? They would add the incremental adjusted EBITDA.
Jason Robins: So I guess the question is, is there any way to kind of break out this $23 million EBITDA loss as part of your bridge as it relates to better monetization of existing customers versus maybe the drag of acquiring new customers? Yeah, it's a great question. I mean, I think that the best way to think about it is if you assume that the incremental revenue from existing customers flows through somewhere in the 50 ish percent range, maybe a little bit higher, but somewhere around there. Then you can kind of back into what comes from each.
Jason Robins: And the other thing I'd note too, and I just want to make sure people understand this as well, because I think it's an important point. When, you know, we talk about revising EBITDA guidance and incremental customer acquisition costs, even if we didn't spend any more money on marketing, new customer promos come from just more customers coming in. So if we under-forecast, which in this case we did, the number of new customers that we expect to acquire this year, then even if we spent zero more dollars on advertising or on marketing, we would still see a headwind, which is, you know, in that line you're mentioning about new customer promos because just more people signing up means more new customer promos. So that's a good thing. It's not a bad thing.
Speaker Change #349: That line, you're mentioning from from new customer promos, because just more people signing up means more new customer promo. So thats a good thing not a bad thing obviously it creates more profit over the long term.
Jason Robins: It creates more profit over the long-term, but, you know, it's something that really is not within our control, and I think a good, you know, long-term element of what we believe is a large and growing TAM, but in the end, you know, unless we took away new customer offers, which we would never do, that's something that we can't really control. Got it. And then just quickly for my follow up on the on the surcharge, and in those states that you're you're going to implement that, are there additional steps that you're going to implement as well, such as marketing reductions, or you know, any any other levers you can pull in Illinois, New York, Pennsylvania, to maybe offset some of the higher tax, Yeah, you know, I think part of the idea is to do this in place of that, so we can continue to invest in the state.
Speaker Change #360: But it's something that really is not within our control.
Speaker Change #350: I think a good long term element of what we believe is a large and growing Tam.
Speaker Change #350: In the end unless we took away new customer offers which we would never do.
Speaker Change #347: That's something that we can't really control.
Speaker Change #362: Got it and then just quickly for my follow up on the on the surcharge in.
Speaker Change #367: In those states that youre going to implement that are there additional steps that youre going to implement as well such as marketing reductions or any any other levers you can pull in Illinois, and New York, Pennsylvania to maybe offset some of the higher taxes.
Jason Robins: I think New York's a great example where everyone, you know, all companies, including DraftKings, have pulled back heavily on promotions and in-state marketing investment. And, you know, I think that's fine. That's one way of doing it. But another way is to say, look, I'm going to adjust so that we're effectively at a 20% tax rate, which is in line with a lot of other states, and I'm going to invest at the level that I would invest in a 20% tax rate state.
Speaker Change #356: Yes, I think part of the idea is to do this in place of that so we can continue to invest in the state.
Speaker Change #363: I think New York is a great example, where everyone all companies, including draft Kings have pulled back heavily on promotions and state marketing investment and <unk>.
Speaker Change #350: I think that's fine that's one way of doing it but another way to say look I'm going to adjust so that we're effectively at a 20% tax rate, which is in line with a lot of other states.
Jason Robins: You know, we'll have to see which one works better, but my guess is that it's going to work better because it allows us to make the investments in product and promotion and marketing and all the other things that should continue to create long-term growth. Thanks so much for all the detail.
Speaker Change #362: <unk> at the level that I would invest in a 20% tax rate state.
Speaker Change #362: We'll have to see which one works better but my guess is that thats going to work better because it allows us to make the investments in product and promotions and marketing and all the other things that should continue to create long term growth.
Speaker Change #365: Thanks, so much for all the detail.
Operator: One moment for our next question. Our next question comes from Joe Stauff with SIG. Your line is open. Okay, thanks. Good morning, Jason and Alan.
Speaker Change #365: One moment for our next question.
Speaker Change #361: Our next question comes from Joe Stauff with <unk>. Your line is open.
Joseph Stauff: Two questions, please. I wanted to see if you could, Jason, sort of describe, say, the iCasino first opportunity at this point. You know, you have GNOG fully ramped out and launched. And, you know, in particular, was it a material contributor to your MUP growth?
Joe Stauff: Okay. Thanks, Good morning, Jason Alan two questions. Please.
Joe Stauff: Wanted to see if you could Jason described say the.
Jason Alan: Casino first opportunity at this point.
Speaker Change #367: Fully ramped up.
Speaker Change #361: And launched and <unk>.
Speaker Change #373: Particular was it a material contributor to your growth.
Speaker Change #361: And then the second piece is.
Speaker Change #369: Just wanted to ask about the economics of customer acquisition in existing states.
Jason Robins: And then the second piece is, just wanted to ask about, say, the economics of customer acquisition. In existing states, you know, we're aware, obviously, of that initial golden cohort. But just wondering how and what you've seen in terms of the economics and the LTVs for all the cohorts after that, whether it be year two versus year three, and so forth. I guess the main question is, like, in year two and year three, based on what you can observe, are the economics very different between them?
Speaker Change #373: We're aware obviously of the initial golden cohort.
Speaker Change #367: But just wondering how.
Speaker Change #373: And what you've seen in terms of the economics and the Ltvs for all the cohorts after that whether it be year two versus year, three and so forth.
Jason Robins: One would think that over time, it'd be lower, but I was just wondering what you're observing. Yeah, it's a great, great question. So starting off, you know, as we noted, we're seeing customer acquisition outperform really across the board, really, states and products alike. That said, GNOG has been a bright spot ever since we migrated onto the DraftKings product and platform, which is a much more positive customer experience, better conversion flows, all those sorts of things. We have definitely seen GNOG spike.
Speaker Change #367: I guess the main question is like in year, two and year three based on what you can observe are the economics very different between them.
Speaker Change #395: I would think over time, it would be lower but I was just wondering what you are observing.
Jason Robins: So that was a material contributor, for sure. It's still relatively small compared to DraftKings, but we're very excited about the potential for that brand and the growth that we're going to see there. So more to come there, but definitely an important contributor to the outperformance on customer acquisition. And then, you know, the cohort question. We've noted this in the past as well, for sure. As time goes on, you see some decline in cohort quality.
Speaker Change #370: Yes, it's great great questions, so starting off.
Speaker Change #369: As we noted we're seeing customer acquisition outperform really across the board really states and products alike.
Speaker Change #373: That said <unk> has been a bright spot ever since we migrated onto the drafting processing platform, which has been much more.
Speaker Change #367: Positive customer experience better conversion flows are those sorts of things we have definitely seen jinan spike so.
Speaker Change #367: There was a material contributor for sure it's still relatively small compared to draft kings, but we're very excited about the potential for that brand and the growth that we're going to see there so more to come there, but definitely an important contributor to the outperformance on customer acquisition.
Jason Robins: You know, it's a thing that we look at every single day, and it's not just a matter of time. Obviously, time is one factor, but you also see different LTVs based on what sport you acquire a player on or whether a player gets acquired onto iGaming versus onto OSB first. There's a number of different factors that we have noted that definitely drive different LTVs. Obviously, the state that they're acquired in and play in is based on tax rates and other elements, like whether there's iGaming.
Speaker Change #367: And then.
Speaker Change #367: The cohort question. We've noted this in the past as well for sure.
Speaker Change #367: As time goes on you see some decline in cohort quality.
Speaker Change #361: It's the thing that we look at every single day and it's not just a matter of time, obviously time is one factor, but you also see different ELD.
Speaker Change #374: <unk> based on what sport you acquire a player on or whether a player gets acquired under I gaming versus onto OSB. First there is a number of different factors that we have noted that definitely drive differential ltvs. Obviously the state that they are acquired and play in based on tax rates and other elements like whether theres I gaming so lots of complex.
Speaker Change #367: Variables that go into how we look at LTV, but certainly one of them is it.
Jason Robins: So there are lots of complex variables that go into how we look at LTV. But certainly one of them is that, you know, there is an underlying quality of the player that declines as time goes on because, of course, you're going to get your strongest players in the first year or two of a state launch. So that is something that we factor in and closely monitor. It tends to level off after a little bit of time, so it's not like it just perpetually declines.
Speaker Change #367: There is an underlying quality of the player that declines as time goes on because of course youre going to get your strongest players in the first year or two of our state launch so that is something that we factor in.
Speaker Change #367: Closely monitor it it tends to asymptote out after a little bit of time. So it's not like it just perpetually declines usually you kind of get that first year or two depending on the state.
Speaker Change #367: Do you get the strongest players and then it kind of flattens out but.
Speaker Change #367: No doubt players are getting a few years and are weaker than the players you get day one.
Speaker Change #367: Thank you.
Jason Robins: Usually, you know, you kind of get that first year or two, depending on the state where you get the strongest players, and then it kind of flattens out. But, no doubt, players you're getting a few years in are weaker than the players you get on day one.
Speaker Change #374: One moment for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Carlo Santarelli with DB. Your line is open. Hey everybody, good morning.
Speaker Change #375: Our next question comes from Carlo Santarelli with DB. Your line is open.
Carlo Santarelli: First off, I just wanted to clarify something as it pertains to the 80%. The 80% growth in customers, does that include the jackpocket customer base? No, that's just new customers on to the DraftKings brand. Oh, and GNOC as well.
Carlo Santarelli: Hey, everybody good morning.
Carlo Santarelli: First off I just wanted to two.
Speaker Change #381: To clarify some as it pertains to the 80%.
Carlo Santarelli: 80% growth in customers does that include the dress the JAK pocket customer base.
Speaker Change #367: No.
Speaker Change #367: It's just new customers onto the draft Kings brand <unk> as well.
Jason Robins: Okay, that's helpful. And then secondly, just to follow up, Jason, on your response to I believe it was Dan's question around the $177 million in net revenue and the $20, and I know you said 50% flow through to existing customers. Is it fair to that more or less estimate that the existing customers are likely generating, call it more than $177 million of incremental net revenue, as the new customers would carry kind of negative net revenue through the rest of this year and through the payback period, and hence, the math is kind of like 200 to 300 from new customers and then looked at the other way you can take 50% flow through for the EBITDA and look at what the delta is on the acquired customers.
Speaker Change #381: Okay. That's helpful. And then secondly, just just to follow up Jason on your response to I believe it was Dan's question.
Speaker Change #367: Around the $177 million.
Speaker Change #380: Net revenue in the <unk>.
Jason: I know you said, 50% flow through on the existing customers is it fair to that.
Speaker Change #380: More or less.
Speaker Change #384: Estimated that the existing customers are likely generating call it more than $177 million of incremental net revenue as the new customers would carry kind of negative net revenues through the rest of this year.
Speaker Change #384: The payback period, and hence the math is kind of like 200 to 300 from new customers and then looked at the other way to take 50% flow through for the EBITDA and look at what the Delta is on the on the the acquired customers is that accurate.
Jason Robins: That's close so new customers that we acquired say in Q2 will definitely generate positive revenue by the end of the year but you know their new customer promo will also be a significant chunk of of the play it's what is it about three or four months after a customer is acquired that they start yeah that they so depending on the timing it many of them would be negative this year but but some would get positive so you know it's a little bit complicated to think about but the best way that I would think about it is you know separate out instead of thinking of it as a customer level think of it as we're spending x more promo dollars because of new customers and those promo dollars are going to flow through somewhere you know around 90% to the bottom line and that's how you can back and then the rest of the the revenue the positive revenue flows through in the 50s and that's how you can back into it. Got it.
Speaker Change #380: That's close so new customers that we acquired say in Q2 will definitely generate positive revenue by the end of the year.
Speaker Change #380: But.
Speaker Change #386: There are new customer promo will also be a significant chunk of the play. It's what is it about three or four months after a customer's acquired that they start yet so.
Speaker Change #391: Depending on the timing.
Jason: Any of them will be negative this year, but but some will get positive.
Speaker Change #380: So it's a little bit complicated to think about but the best way that I would think about it is.
Jason: Separate out instead of thinking of it at a customer level think of it as we're spending X more promo dollars because of new customers and those promo dollars are going to flow through somewhere around 90% to the bottom line and that's how you can bat and then the rest of the revenue the positive revenue flows through into <unk>.
Speaker Change #380: <unk> and that's how you can back into it.
Speaker Change #393: Got it okay that makes sense. Thank you.
Operator: Okay, that makes sense. Thank you. One moment for our next question. Our next question comes from Bernie McTernan with Native & Company. Your line is open. Good morning.
Speaker Change #382: One of them before our next question.
Jason: Our next question comes from Bernie Mcternan with Needham <unk> Company. Your line is open.
Bernard McTernan: Thanks for taking the questions. Maybe just start sticking on the EBITDA bridge for 25, or moving over to 25. How much of the stronger customer acquisition, retention, and engagement line that's offsetting the Illinois, how much of that is really, truly existing customers versus customers that you've acquired this year? Sorry, say it one more time.
Bernie Mcternan: Great. Good morning, Thanks for taking the questions maybe.
Bernie Mcternan: Maybe just to start sticking on the EBITDA bridge for 'twenty five.
Bernie Mcternan: Over 25, how much of the stronger customer acquisition retention and engagement that line, that's offsetting the Illinois, how much of that is really truly existing customers versus customers that you've acquired this year.
Speaker Change #388: Sorry say it one more time, yes.
Jason Robins: Yeah, in the EBITDA bridge, so Illinois is a big negative, and then the big offset is the customer retention engagement line. So I want to know how much of that is driven by truly existing customers that you acquired before this year and better, you know, outperformance there versus the customers that you have been and expect to acquire this year. This is 2025, right? Yeah, for the two of them. Exactly. I don't know proportionally how it breaks out; do you know the answer to that?
Speaker Change #395: The EBITDA bridge, so, Illinois, the big negative and then the big offset.
Jason: Is the customer retention engagement.
Speaker Change #384: So want to know how much of that is driven by truly existing customers that you acquired before this year and better outperformance there versus versus the customers that you have been and expect to acquire this year.
Speaker Change #380: 2025 right.
Speaker Change #380: Okay.
Speaker Change #389: I don't know proportionally how it breaks out.
Speaker Change #387: The answer to that.
Jason Robins: We won't break it out for this call, but a disproportionate amount of it is existing customers. New customers tend to ramp up over time. So you can assume that it's a little bit heavier on the existing customers and the performance on the retention and engagement of our existing customers and less on the new customers, which we're still exploring the value of. Okay, perfect. And then, just given the focus on higher tax rate states.
Speaker Change #397: We won't break it out for this call, but disproportionate amount of it is to existing customers new customers tend to ramp up over time.
Speaker Change #387: So you can assume that it's a little bit heavier on the existing customers and the performance on the retention and the engagement of our existing customers and less on the new customers, which we are still exploring the value of.
Speaker Change #400: Okay, perfect and then.
Speaker Change #393: Just given the focus on higher tax rate states.
Jason Robins: Is the contribution profit margin significantly different in those high tax rate states versus the lower ones? [inaudible] Pre-instituting the fee, definitely the contribution margin is different because even with reduced promotion and marketing, you still can't, like, I mean, it depends on the state, right? I guess New York's probably the one I'm thinking of when I'm answering your question.
Speaker Change #387: Yes.
Speaker Change #394: Contribution profit margin significantly different in those high Tech high tax rate states versus the lower ones.
Speaker Change #387: Well.
Speaker Change #387: Instituting the fee definitely the contribution margin is different because even with reduced promo and marketing you still can't like I mean, it depends on the state right I guess, New York is probably the one I'm thinking of when Im answering your question.
Jason Robins: Fifty-one percent tax on gross revenue is just too much, you can't overcome it to a point where it's going to be in line with the other states margin-wise. Obviously, it depends on the state, and some states that are closer to that 20%, we can claw back most of it through promotion and reduced advertising. Okay. Thanks, Jason. One moment for our next question. Our next question comes from Jed Kelly with Oppenheimer Airline as well. Hey, great.
Speaker Change #387: 1% tax on gross revenue. It's just you can't overcome it to a point, where it's going to be in line with the other states margin wise.
Speaker Change #387: But obviously it depends on the state in some states that are.
Speaker Change #387: Closer to that 20%, we can claw back most of it through promo and reduced advertising.
Speaker Change #387: Okay. Thanks, Jason Thanks, Alan.
Speaker Change #397: One moment for our next question.
Speaker Change #387: Okay.
Speaker Change #395: Our next question comes from Jed Kelly with Oppenheimer. Your line is open.
Operator: Thanks for taking my question. Just just circling back on the surcharge, maybe a different way to ask it. What would cause you not to potentially implement it?
Jed Kelly: Hey, great. Thanks for taking my question just circling back on the surcharge, maybe a different way to ask it.
Jed Kelly: What caused you not to potentially implement it and then just real quickly on hold.
Speaker Change #411: Yes, some of the whole trends are obviously different but have you seen any change in how you view your structural hold or Youre parlay mix or are you changing like hey.
Speaker Change #410: It's more important to drive engagement and to maximize hold thanks.
Jed Kelly: And then just real quickly on hold, get you know, some of the whole trends are obviously different. But have you seen any change in how you view your structural hold or, you know, your parlay mix? Or are you changing your mind like, hey, you know, it's more important to drive engagement than to maximize hold?
Speaker Change #401: Yes, great question so.
Speaker Change #406: As of now I don't think there would be any reason that we wouldn't implement it but obviously, we're paying close attention to customer feedback.
Speaker Change #400: If we hear anything that makes us change our mind, we'll certainly let you know.
Speaker Change #395: I think on the hold side, we continue to focus very much there I think.
Speaker Change #410: Largely still of that mix thing certainly we feel like there's a ton of room to increase our parlay mix and increase our average lead counts still so team is very focused on that I think we're also focusing on other parts of the bedding.
Jason Robins: [inaudible] Yeah, great question. So, you know, as of now, I don't think there would be any reason that we wouldn't implement it. But obviously, we're paying close attention to customer feedback. And, you know, if we hear anything that makes us change our mind, we'll certainly let you know. I think on the hold side, we continue to focus very much there. I think it's, you know, largely still a bet mix thing.
Speaker Change #395: Platform as well such as live betting so it's.
Speaker Change #395: It's a little bit more balanced probably than I think maybe last year, where it was just all about whole right in that mix, but we're still very focused on that mix.
Jason Robins: Certainly, we feel like there's a ton of room to increase our parlay mix and increase our average leg count. So the team is very focused on that. I think we're also focusing, though, on other parts of the betting platform as well, such as live betting. So it's a little bit more balanced, probably, than I think maybe last year, where it was just all about hold rate and bet mix, but we're still very focused on that. And then just real quick, anything to call out on shutting down rate grain makers in terms of even a drag or headwind thing? Yeah, Rainmakers is fairly immaterial.
Speaker Change #400: And then just real quick any anything to call out on shutting down right green acres in terms of EBITDA drag or headwind. Thanks.
Jason Robins: So I wouldn't, you know, factor it in in any way. I think for us, it's much more it's really just about eliminating a distraction and potential risk. And, you know, as I said earlier, I think the mantra around the company has been focus, focus, focus, let's go win the US online gaming opportunity and maximize the amount of profit we're driving in that space. And I think that's what we're focusing on right now. Thank you.
Speaker Change #404: Yes, Rainmakers is fairly immaterial, so I wouldnt factor it in in any way I think for us it is.
Speaker Change #404: It's really just about.
Speaker Change #404: Eliminating a distraction and potential risk and as I said earlier I think the mantra around the company has been focus focus focus let's go in the U S online gaming opportunity and maximize the amount of profit we are driving in that space and I think thats what were focusing on right now.
Speaker Change #400: Thank you.
Operator: Again, ladies and gentlemen, just as a friendly reminder, we ask that you keep yourself to one question. Please take a moment for our next question. Our next question comes from Barry Jonas with Truist Securities. Your line is open.
Speaker Change #409: Again, ladies and gentlemen, just as a friendly reminder, we ask that you keep yourself to one question one moment for our next question.
Speaker Change #413: Our next question comes from Barry Jonas with true Securities. Your line is open.
Barry Jonas: Hey guys, we've seen a number of states starting to react to the offshore market by banning it in Nevada. Do you see these actions as meaningful to combat the illegal market? Oh, I think so. I mean, you know, right now, the illegal market, particularly in the iGaming space, ironically, is bigger than ever. I think consumers don't often know what's legal and what's not; they don't know if it's legal in their state. And, you know, there's just zero controls put on these companies to make sure that they're not marketing to minors and other sorts of things.
Barry Jonas: Hey, guys, we've seen a number of states starting to react to the offshore market by banning Levada do you see these actions as meaningful to combat the illegal market.
Jason Robins: So I do think it's a big issue, and it's good to see the regulators starting to focus on it. And you know, the thing is that there's so much pent-up demand, and there are so many people that would prefer to bet on the legal market that I think you're seeing growth, despite the fact that there's still a rampant illegal market. But for sure, a lot of the current TAM is still tied up there.
Speaker Change #419: I think so I mean.
Speaker Change #414: Right now the illegal market, particularly in the gaming space Ironically is bigger than ever.
Speaker Change #413: I think consumers don't know oftentimes, what's legal and what's not they don't know if it's legal in their state.
Speaker Change #413: And there's just.
Speaker Change #400: Zero controls put on these companies that make sure that theyre not marketing to miners and other sorts of things. So I do think it is a big issue and it's good to see the regulators starting to focus on it.
Jason Robins: And, you know, both for the long-term health of the industry and for making sure that states are maximizing their revenues and their purpose for doing this, which is to regulate and protect consumers. I think it's absolutely essential that that continues to be a focus. So I'm happy to see it, and hopefully we'll see more of it. Thank you.
Speaker Change #411: The thing is that there's so much pent up demand and there's so many people that would prefer to bet in the legal market that I think youre seeing growth. Despite the fact that theres still a ramp into the legal market, but for sure a lot of the current Tam is still tied up there.
Speaker Change #413: Both for the long term health of the industry as well as for.
Speaker Change #413: Making sure that states are maximizing their revenues and their purpose for doing this which is to regulate and protect consumers I think it is.
Speaker Change #400: Absolutely essential that that continues to be a focus so I'm happy to see it and hopefully we'll see more of it.
Speaker Change #400: Great. Thank you.
Operator: One moment for our next question. Our next question comes from Ben Chaiken with Mizzou Hill. Your line is open.
Speaker Change #421: One moment for our next question.
Ben <unk>: Our next question comes from Ben <unk> with Mizuho. Your line is open.
Benjamin Chaiken: Hey, thanks for taking my question. Two very quick product questions, I guess, on integration. I would imagine integrating JackPocket into the DraftKings app would be another significant customer acquisition opportunity. One, do you agree? And two, if so, any color on timing?
Ben <unk>: Hi, Thanks for taking the question two very quick product questions I guess on integrating I would imagine integrating Jack pocket into the.
Ben <unk>: Tracking the App would be another significant customer acquisition opportunity I guess, one do you agree and too.
Speaker Change #400: So any color on timing and then on the Baton watch integration will that require users to have access to the games themselves or will you have an opportunity to kind of tactically subsidize that in any way. Thanks.
Jason Robins: And then on the bet and watch integration, will that require users to have access to the games themselves, or will you have an opportunity to kind of tactically subsidize that? Anyway, thanks. I think the bet and watch are just included. So is that correct? It's not Yes, there's no additional charge for it. So it's a feature that customers will have just by being a part of the DraftKings user base. And then, sorry, what was it? Oh, Jackpocket. Yes.
Speaker Change #421: I think the Baton watch is just included so is that correct. It's not yes, theres no additional charge for it. So it's a feature that customers will have just by being a part of the draft King's user base.
Speaker Change #423: And then sorry, what was the first question.
Jason Robins: So we do plan on integrating those products into DraftKings, as well as integrating DraftKings Casino and OSB products into Jackpocket. You know, timing, we haven't quite determined yet. You know, in the past, we've said, and, you know, I kind of echo that, we long-term want to have all of our products available through all of our brands, and exactly when we implement those things directly versus when we have more linkage through brand to brand cross sell, it will depend on other priorities and how that slots into our product roadmap.
Speaker Change #421: Oh jackpot it yet so we do plan on integrating those products into draft kings as well as integrating draft Kings casino in OSB products into Jack pocket.
Speaker Change #416: Timing, we haven't quite determined yet.
Speaker Change #419: I think in the past and what we said in.
Speaker Change #421: I would kind of echo as well.
Speaker Change #416: We long term want to have all of our products available to all of our brands.
Speaker Change #400: Exactly when we implement those things directly versus when we have more linkage to brand to brand cross sell will depend on other priorities and how that slots into our product roadmap, but we definitely do plan to do that at some point.
Jason Robins: But we definitely do plan to do that at some point. I guess, just as a very quick follow-up, would you agree that integrating it would be a significant kind of customer acquisition catalyst for other portions of the business? Or do you think you've already acquired this?
Speaker Change #422: I guess just as a very quick follow up would you agree that integrating it would be a significant kind of customer acquisition.
Speaker Change #426: As for other portions of the business or do you think you've already acquired those customers that makes sense no. We definitely have an acquired all those customers. So I agree it would be and that's the reason we're planning to do it.
Jason Robins: Unknown Speaker No, we definitely haven't acquired all those customers. So I agree it would be. And that's the reason we're planning to do it. I also think that in the interim, we continue to see, you know, Jackpocket is a great vehicle for acquiring those customers and cross-selling them into DraftKings. But we know from experience that having a fully integrated product is always going to yield stronger conversion and stronger cross-sell.
Speaker Change #426: I also think that in the interim we continue to see.
Speaker Change #423: <unk> pocket is a great vehicle for acquiring those customers and cross selling them into draft kings, but we know from experience that having a fully integrated product is always going to yield stronger conversion and stronger cross sell so no doubt you are correct that that will be a boost.
Operator: So no doubt you're correct that that will be a, One moment for our next question. Our next question comes from Brandt Montour with Barclays. Your line is open. Hi, good morning, everybody.
Speaker Change #416: One of them for our next question.
Speaker Change #400: Our next question comes from Brent Mantra with Barclays. Your line is open.
Brandt Montour: Thanks for taking my question. So one more on the surcharge, just thinking through the potential outcomes of that plan, especially if nobody follows suit. You know, we would think that it would affect the larger players, the VIPs more. And at the same time, you're accelerating your customer acquisition and penetrating more customers in your existing states. Is there a thought that this would potentially move you more to a recreational mix? And could that actually help hold longer term?
Brent Mantra: Hi, good morning, everybody and thanks for taking my question so.
Brent Mantra: So one more on the surcharge just thinking through the.
Brent Mantra: The potential outcomes.
Speaker Change #424: That plan, especially if.
Speaker Change #423: Nobody follows suit.
Speaker Change #426: We would think that we.
Speaker Change #400: We would think that would affect the larger players the VIP is more.
Speaker Change #428: And at the same time, you're you're accelerating your customer acquisition and penetrating more customers in your existing states is there a thought that this was that this would potentially move you more to a recreational mix and could that actually help hold longer term.
Jason Robins: Yeah, it's a great question. You know, certainly, I think that players betting on multi-leg parlays and things like that are going to be less sensitive because, you know, the payout is already very large. So I understand that.
Speaker Change #432: Yes, it's a great question.
Speaker Change #429: Certainly I think the players betting multi leg parlays and things like that are going to be less sensitive because.
Speaker Change #428: The payout is already very large so I get that.
Speaker Change #436: I hadn't really thought about how it might affect I mean, we're hopeful that our product and the investment we're making our customer experience is strong enough that.
Speaker Change #400: We have players across the spectrum and they view us as being worth maybe paying a few extra cents on a bet, but certainly we'll have to see how that plays out.
Jason Robins: I hadn't really thought about how it might affect us. I mean, we're hopeful that our product and the investment we're making in our customer experience is strong enough that we get players across the spectrum, and they view us as being worth maybe paying a few extra cents on a bet. But certainly, we'll have to see how that plays out. And, you know, it'll be It'll be something just like everything where we look at the data, and we decide what we do accordingly.
Speaker Change #428: It'll be it'll be something just like everything where we look at the data and we decide what we do accordingly, I do think that if you run the math it would take quite a bit of top line deterioration to make it not worthwhile from a bottomline perspective so.
Speaker Change #400: I am optimistic, but we'll have to see and we'll have to follow whatever the data and analytics tell us.
Speaker Change #430: Great. Thanks for that Jason and then just a follow up on Jack pocket, just piecing together some of your comments youre investing more in marketing this year in Jack pocket the integration it sounds like a little bit more longer term. So what gives you confidence that youre going to inflect positive in your 25% guide.
Speaker Change #435: In your in that you laid out in your deck I, just trying to understand some of the drivers there.
Speaker Change #426: Well really it's the revenue growth, we're seeing right now on Jack pocket that gives us confidence, we'll be able to achieve adjusted positive EBITDA in 2025. So.
Speaker Change #439: <unk> been.
Speaker Change #428: Really doing well from that standpoint also as a reminder, they are an extremely low CAC so well.
Speaker Change #400: While we are investing more and we get a lot of customers for that so definitely makes a big difference in their revenue ramp as well.
Speaker Change #400: So I think all signs point towards them being a positive contributor to adjusted EBITDA in 2025 and beyond but obviously, we'll have to see how the back half of the year plays out and we'll have more of an update on that in November.
Speaker Change #400: Great. Thanks, everyone one moment for our next question.
Jason Robins: I do think that if you run the math, it would take quite a bit of top line deterioration to make it not worthwhile from a bottom line perspective. So I'm optimistic, but we'll have to see, and we'll have to follow whatever the data and analytics tell us to do. Great, thanks for that, Jason. And then just to follow up on Jackpocket, just piecing together some of your comments, you're investing more in marketing this year for Jackpocket; the integration sounds like a little bit more longer term. So what gives you confidence that you're going to inflect positive in your 25 guide in your in that you laid out on your deck?
Speaker Change #426: Our next question comes from Jason Bender with citizens JMP. Your line is open.
Jason Robins: Yeah, just trying to understand some of the drivers there. Well, really, it's the revenue growth we're seeing right now on Jackpocket that gives us confidence we'll be able to achieve adjusted positive EBITDA in 2025. So they've been, you know, really doing well from that standpoint. Also, as a reminder, they have an extremely low CAC.
Jordan: Hey, its Jordan.
Jason Robins: So while we are investing more in, we get a lot of customers for that, so it definitely makes a big difference in their revenue ramp as well. So, you know, I think all signs point toward them being a positive contributor to adjusted EBITDA in 2025 and beyond. But obviously, we'll have to see how the back half of the year plays out.
Operator: And we'll have more of an update on that in November. Great. Thanks, everyone.
Jordan: For taking my questions I wanted to talk on your market access agreements, there's obviously not much room to move in some states like New York and Oregon, but is this supply.
Jason Bender: One moment for our next question. Our next question comes from Jason Bender with Citizens JMP. Your line is open. Hey Jordan.
Jason Robins: Thanks for taking my questions. I want to talk about your market access agreements. There's obviously not much room to move in some states, like New York or Oregon, but has the supply-demand dynamic changed to the point that states with unused skins can maybe act as a renegotiation tool and be a serious lever to drive cost savings over the long term? Thank you. You know? I think there's probably some room there.
Speaker Change #444: Supply demand dynamic changed to the point that states with unused skins can maybe al is there renegotiation tool and be a serious lever to drive cost savings over the long term. Thank you.
Speaker Change #428: You know.
Jason Robins: Most states, we feel we have pretty good deals in already. So I don't think there's a ton where we feel there's a lot of optimization, but I think there's probably some optimization. And, you know, it'll be a little bit longer term because most of the deals we struck are, you know, very long term deals. So, like seven to 10 year deals, but I do think as they start to come up, there will be states that have a lot of open skins.
Speaker Change #440: I think there's probably some room there.
Speaker Change #444: Most states, we feel we have pretty good deals and already so.
Speaker Change #444: I don't think Theres, a ton where we feel there is a lot of optimization, but I think theres, probably some optimization and it'll.
Speaker Change #426: It'll be a little bit longer term because most of the deals we struck or very long term deal. So.
Speaker Change #426: Seven to 10 year deals, but I do think as they start to come up there will be states that have a lot of open skins.
Jason Robins: And just like anything, it's a supply and demand thing. And I think also even though we got great rates, many of the early states were before I think we really established the level of, you know, place in the industry that we have. So I think that'll hopefully help a little bit. Thank you very much.
Speaker Change #426: Just like anything it's a supply demand thing and I think also even though we got great rates.
Speaker Change #426: Many of the early states, where before I think we really establish the level of.
Speaker Change #426: Place in the industry that we have so I think that will hopefully hopefully help a little bit too.
Speaker Change #426: Thank you very much.
Operator: One moment for our next question. Our next question comes from Ryan Sigdahl with Craig Hallam Capital Group. Your line is open.
Speaker Change #426: One moment for our next question.
Ryan <unk>: Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Your line is open.
Ryan Sigdahl: Hey, good morning, guys. Looking at slide 10, the MUP increased sequentially, normally kind of a flattish quarter given seasonality, up almost a million. Are you able to break out how much that was jackpocket versus just organic DraftKings and Golden Nugget acquisitions? It was mostly jackpocket.
Ryan <unk>: Hey, good morning, guys looking at slide 10, the mop increased sequentially normally kind of a flattish quarter given seasonality.
Ryan <unk>: Up almost 1 million are you able to break out how much of that was Jack pocket versus just organic drop kings and Golden Nugget acquisition.
Jason Robins: Obviously, the new customer acquisition boosted it too. But given the substantial size of their database, it was mostly a jackpocket. No? No. Oh, I'm sorry. It was, it wasn't. I got that wrong.
Speaker Change #447: Was mostly Jack pocket, obviously, the new customer acquisition boosted it too but.
Speaker Change #478: Given the substantial size of their of their database it was mostly jackpot.
Speaker Change #447: Oh I'm sorry.
Speaker Change #426: Not I got that wrong.
Jason Robins: Half and half. Okay, I stand corrected. Thankfully, I have people with better data than I have in my brain apparently next to me. So it's about half and half. Thank you. Good luck, guys. One moment for our next question. Our next question comes from Michael Graham with Canada Cord. Your line is open. Thank you, Jason.
Speaker Change #447: <unk>, Okay stand corrected thankfully have people with better data than I have in my brain apparently next to me so it's about half and half.
Speaker Change #449: Thank you good luck guys.
Speaker Change #426: One moment for our next question.
Speaker Change #448: Our next question comes from Michael Graham with Canaccord. Your line is open.
Michael Graham: I just wanted to ask you about your thoughts on the product and the platform as we head into the NFL season. You know, obviously, you don't have the tremendous upside from introducing the same game parlays that you had, but you have the bed and watch feature. But just wanted to kind of hear any comments you're willing to share on how you think the product will perform, you know, in this important seasonal period here coming up.
Michael Graham: Thank you Jason I just wanted to ask you about your thoughts on the product and the platform as we head into the NFL season, obviously.
Speaker Change #452: You don't have the tremendous upside from introducing same game poorly that you had but you have to bear in watch feature but just wanted to kind of hear any comments you're willing to share on how you think the <unk>.
Speaker Change #448: Product will perform and most important seasonal period here coming up.
Michael Graham: And I think I feel really excited about the product we have going into the NFL. A lot of the work we've been doing over the last several months has been more backend performance stuff. So things that maybe aren't as immediately obvious because they don't show up like front-end features, but things like making sure that pages load faster, making sure that the app crashes less, making sure markets are up for longer, and we have less time where markets are locked or unavailable.
Speaker Change #450: I think I feel really excited about product, we have going into NFL a lot of the work we've been doing over the last several months has been more backend performance stuff. So things that maybe aren't as immediately obvious because they don't show up front end features but things like making sure that pages load faster, making sure that the.
Michael Graham: App crashes less making sure markets are up for longer and we have less time, where markets are locked or unavailable, adding new bed types, bringing in house our.
Jason Robins: Adding new bed types, bringing in house our pricing and trading for many new sports, and also launching things like cash out for same game parlay. So we have a lot of really exciting new stuff. We expanded progressive parlay to include new types of bets as well. And, you know, and more to come. Obviously, bet and watch hasn't launched yet.
Michael Graham: Pricing and trading for many new sports and also launching things like cash out for same game parlay. So we have a lot of really exciting new stuff, we expanded progressive parlays to include new types of beds as well.
Michael Graham: So and more to come obviously baton watch hasn't launched yet and we have a number of other features that we haven't announced that we have planned for the coming months a lot of what we do really all of what we do revolves around a calendar <unk>.
Operator: And we have a number of other features that we haven't announced that we have planned for the coming months. A lot of what we do, really all of what we do, revolves around a calendar, you know, starting in fall. So the team thinks about it as, what do we want to ship in the August, September timeframe? And how do we then, you know, starting at the beginning of the year, orient our entire product roadmap and calendar around that?
Michael Graham: Starting in the fall so.
Michael Graham: The team thinks about it as what do we want to ship in the August September timeframe and how do we then starting at the beginning of the year Orient, our entire product road map and calendar around that so.
Michael Graham: So a lot of the product that we ship is going to be done over the next three to six weeks.
Michael Graham: You'll see a lot of new stuff pop up as the season approaches.
Operator: So a lot of the product that we ship is going to be done in the next three to six weeks, and I think you'll see a lot of new stuff pop up as the season approaches. All right, that's exciting. Thank you.
Speaker Change #449: Alright, thank you.
Speaker Change #457: For next question.
Speaker Change #449: Yeah.
Chad Beynon: One moment for the next question. Our next question comes from Chad Beynon from Macquarie. Your line is open.
Speaker Change #449: Our next question comes from Chad Beynon with Macquarie. Your line is open.
Jason Robins: Morning, thanks for taking my question. Jason, I wanted to ask about, I guess, the temperature of some of the tribal news that's been out there. Obviously, a big decision that we learned about a few months ago in Florida. Does this change the landscape of other tribal states in terms of what you believe they could offer? And then, more importantly, your ability to partner with these companies could accelerate some of the TAM if they decide to move forward on digital? Thanks.
Chad Beynon: Good morning, Thanks for taking my question, Jason I wanted to ask about I.
Chad Beynon: I guess the temperature of of some of the <unk>.
Chad Beynon: Tribal news that's been out there obviously, a big decision that we learned a few months ago in Florida does this change the landscape of other tribal states in terms of what you believe they could offer and then more importantly, your ability to partner with these companies could that.
Chad Beynon: Accelerate some of the Tam.
Chad Beynon: If they decided to move forward on digital thanks.
Jason Robins: Yeah, you know, I do think that there is some momentum in tribal communities now. And obviously, DraftKings already has a number of partners that are tribal in various states, including Foxwoods, the Pequot tribe in Connecticut, Pascomootie in Maine, Bay Mills in Michigan, several others. I don't want to leave any out, but I probably left a few out. But you know, we continue to believe that we are the partner of choice.
Speaker Change #453: Yes, I do think that.
Speaker Change #447: There is some momentum in travel communities now.
Chad Beynon: Obviously draft Kings already has a number of partners that are tribes in various states.
Speaker Change #458: Including Foxwoods.
Chad Beynon: <unk>.
Speaker Change #462: In Connecticut passed committee and main vein.
Chad Beynon: In Michigan.
Chad Beynon: Others, I don't want to leave any out, but probably left a few out but we continue to believe that.
Jason Robins: And also that we've got a great track record if you talk to any of our tribal partners, of being great partners. And, you know, I think, just like anything, it takes time and education sometimes. In some states like California, where there are over 70 tribal communities, I think that, you know, there, it's obviously about getting alignment, as much as it is about, you know, openness. And so each one, each state is a bit unique, just like, you know, all states are unique in all regards politically and otherwise in their own ways.
Chad Beynon: We are the partner of choice and also that we've got a great track record. If you talk to any of our travel partners have been great partners.
Chad Beynon: I think just like anything it takes time and education, sometimes in some states like California, where there's over 70 tribes I think that.
Chad Beynon: There, it's obviously about getting alignment as much as it is about openness and so.
Chad Beynon: Each one each state is a bit unique just like all states in all regards politically and otherwise are unique in their own ways. So.
Jason Robins: So we kind of have to look at it that way. But I do think there's some momentum now, more than ever, I think you're seeing, we're seeing tribes come to us and ask about what we can do. Minnesota is one that I think is another tribal state that got very close to passing a bill this past session, and I'm hopeful that it gets done next session.
Chad Beynon: We kind of have to look at it that way, but I do think there is some momentum now more than ever I think youre seeing were seeing <unk> come to us and ask about what we can do Minnesota is one that I think is another travel state that got very close to passing a bill this past session and Im hopeful. It gets done next session that was all about the tribes in the tracks.
Speaker Change #465: Green to a deal so sometimes it's not even about openness, it's about getting different stakeholders within this data line.
Jason Robins: And that was all about the tribes and the tracks agreeing to a deal. So sometimes, you know, it's not even about openness; it's about getting different stakeholders within the state to align. Thank you. I appreciate it.
Speaker Change #465: Thank you I appreciate it.
Operator: One moment for our next question. Our next question comes from Jeff Stantial with Steeple. Your line is open.
Speaker Change #468: One moment for our next question.
Justin <unk>: Our next question comes from Justin <unk> with Stifel. Your line is open.
Jeff Stantial: Great, thanks. Good morning, guys. Thanks for taking our question and maybe digging in a bit further into some of the commentary on iCasino player acquisition. Jason, you talked about some sequential uplift in conversion rates from the Golden Nugget platform transition. But looking at this more strategically, I guess, has your philosophy on investing towards that iCasino-led player cohort changed at all now that Golden Nugget is fully integrated? Historically, I believe the strategy is more to focus on cross-sell of sports users versus acquiring that higher CAC, higher LTV, iCasino-led player. But I'd be curious if you're thinking here, to shift it around at all based on the returns that you're seeing with this recent user acquisition upside. Yeah, I think so.
Justin <unk>: Great. Thanks, Good morning, guys. Thanks for taking our question maybe digging a bit further into some of the commentary on casino player acquisition, Jason you talked about.
Justin <unk>: Some sequential uplift to conversion rates from the Golden Nugget platform transition, but looking at this more strategically I guess has your philosophy on investing towards that casino wed player cohort changed at all now that Golden Nugget as fully integrated historically I believe the strategy has been more to focus on cross sell of sports users versus acquiring that higher cash.
Speaker Change #460: Higher LTV I casino lead player, but just curious if youre thinking here shifted around at all based on the returns that Youre seeing if this recent user acquisition upside. Thanks.
Jason Robins: I mean, you know, I wouldn't really describe it as a philosophical change as much as us continuing with the philosophy of following the data and the analytics and putting our dollars where we feel that we see the best returns. So naturally, as you noted, when you see an increase in performance on GNOG, then that would mean that more dollars should flow there because it's performing better, and therefore it should get a higher proportion of our acquisition spend. So we definitely are moving dollars around based on performance and what we're seeing. And that's always been consistent with what we've done.
Speaker Change #457: Yes, I think so I mean.
Speaker Change #471: Wouldn't really describe it as a philosophical change as much as us continuing with the philosophy of following the data and the analytics and putting our dollars, where we feel that where we see the best returns so.
Speaker Change #457: Naturally as you noted when you see an increase in performance on <unk> and that would mean more dollars should flow there because its performing better than.
Speaker Change #457: Therefore, it should get a higher proportion of our acquisition spend so we.
Speaker Change #457: We definitely are moving dollars around based on performance and what we're seeing and that's always been consistent with what we've done but the result as you noted has been some shift towards that gaming first customer acquisition.
Jason Robins: But the result, as you noted, has been some shift towards that iGaming first customer acquisition investment, which I think, you know, again, it's all just kind of where do we get the best return, right? It's not that we think cross-sell is inherently a better way of doing it. It was just, you know, and it still is, by the way, that that's where we get the bulk of our iGaming customers. And that's the most efficient means of doing it. But certainly, where we see an opportunity to invest directly in acquiring an iGaming first customer, we're also taking advantage of that. Great, thanks very much.
Speaker Change #463: Investment, which I think.
Speaker Change #463: Again, it's all just kind of where do we get the best return rate. It's not that we think cross sell is inherently a better way of doing it it was just.
Phil: Phil is by the way that that's where we get the bulk of our I gaming customers and that's the most efficient means of doing it, but certainly where we see opportunity to invest directly in acquiring and gaming first customer. We're also taking advantage of that.
Speaker Change #469: Great. Thanks very much.
Speaker Change #463: One of them before the next question.
Operator: One moment for our next question. Our next question comes from Lance Vitanza with TD Cowen. Your line is open. Thanks, guys.
Speaker Change #465: Our next question comes from Lance Vitanza with TD Cowen Your line is open.
Lance Vitanza: First of all, congratulations on a great quarter. I just have one question regarding the surcharge, but it does have three parts. And maybe just to focus on Illinois, can you talk about what percentage of the EBITDA lost due to the tax rate increase? Is the surcharge designed to recapture? I'm just trying to get a sense for the potential upside beyond the 900 million to a billion guide, to the extent that the surcharge is successful.
Lance Vitanza: Thanks, guys first of all congratulations on a great quarter I just have one question regarding the surcharge, but it does have three parts and maybe just to focus on Illinois can you talk about what percentage of the EBITDA loss due to the tax rate increase is the surcharge designed to recapture I'm just trying to get a sense for the potential.
Speaker Change #474: Upside beyond the $900 million to $1 billion guide to the extent that the surcharge is successful obviously I'm talking about fiscal 'twenty five.
Lance Vitanza: Obviously, I'm talking about fiscal 25. Yeah, so the way we calculated it is we set the amount such that we are targeting DraftKings covering 20%, you know, of gross revenue and taxes. And so basically, the way I think of it is any tax rate that's higher than 20%, we would be paying up to the 20%. And then the remainder would be the fee designed to offset. So, you know, in a state like New York, where the tax rate is 51%, that's a large number. Obviously, the big question is, do we see any deterioration in handle and top line as a result? But, you know, you can do the math and see that it would take quite a bit.
Speaker Change #464: Yeah. So the way we calculated it is we set the amount such that we are targeting.
Speaker Change #478: Draft Kings covering 20%.
Speaker Change #475: Gross revenue in taxes, and so basically the way to think of it as any tax rate that's higher than 20%.
Speaker Change #463: We would be paying up to the 20% and then the remainder would be.
Speaker Change #463: The fee is designed to offset.
Speaker Change #463: So in a state like New York, where the tax rate, 51%, that's a large number.
Jason Robins: Because, you know, if you think about 51% versus 20%, that's 60% of the taxes that we pay in New York. And you can do the math on that from all the public reports; that's a big number. So you need to see a substantial decline in handle to get to a point where you are, you know, fully cannibalizing that.
Speaker Change #463: Obviously, the big question is do we see any deterioration in handle in top line as a result, but.
Lance Vitanza: You can do the math and see it would take quite a bit because if you think about 51% versus 20%.
Lance Vitanza: That 60% of the taxes that we're paying in New York.
Lance Vitanza: Can do the math on that from all the public reports its a big number so you need to see a substantial decline in handle to get to a point where you are.
Lance Vitanza: Fully cannibalizing that and obviously, if we saw that we would reconsider our plan, but I think there's quite a bit of cushion there.
Jason Robins: And obviously, if we saw that, we would reconsider our plan, but I think there's quite a bit of cushion there. And my gut tells me that customer activity would actually be highly inelastic, at least around the mid single-digit surcharge on winnings. But, and I know you haven't done A & B testing, but do you have any data that you've seen that would bear this out? I mean, other than just, you know, our guts? Yeah, I think you're right, by the way.
Speaker Change #478: Well and my gut tells me that customer activity would actually be highly inelastic at least around mid single digit surcharge on weddings, but and I know you haven't done.
Speaker Change #476: Testing, but do you have any data that you've seen that would bear this out I mean other than just you know.
Speaker Change #478: Our guts.
Jason Robins: You know, the best data we have is really from other industries or from our industry in other parts of the world. There are other places where online gaming companies charge customers more because of the tax regime. And, you know, countries like Germany or Australia, for example, it's not done exactly in this way, but it's conceptually very similar.
Speaker Change #470: Yes, I think youre right by the way.
Speaker Change #478: The best data, we have is really from either other industries or from our industry and other parts of the world.
Lance Vitanza: There are other places where online gaming companies charge customers more because of the tax regime.
Speaker Change #478: <unk> like Germany, Australia as an example.
Speaker Change #475: It's not done exactly in this way, but it's conceptually very similar also.
Jason Robins: Also, you know, we noted this earlier in the call, but a number of industries, from hotels to taxis, all have taxes in various states that get charged to the customer. People may gripe about it, but I don't really see behavior change because of it. You're right. It depends on the level.
Speaker Change #475: We noted this earlier on the call, but a number of industries from hotels to taxis.
Lance Vitanza: All have taxes in various states that get charged to the customer and.
Lance Vitanza: People may gripe about it but I don't really see behavior change because of it so.
Lance Vitanza: You are right it depends on the level I think in the mid single digits. Our belief is that when you compare it to sort of.
Jason Robins: I think in the mid-single digits, our belief is that when you compare it to other industries as well as what we just got checked, which seems fair and seems reasonable to a customer, it seems like this is a good zone for us, but we'll only find out when we do it. It's hard. You can't really A-B test something like that.
Lance Vitanza: Other industries as well as sort of what we just got check zinc seems fair and it seems reasonable to a customer. It seems like this is a good zone for us, but we'll only find out when we do it it's hard you can't really test something like that.
Jason Robins: Right, right. And the last part of my question: I'm glad that you're making the surcharge visible to consumers. As you point out, black market operators pay zero tax, a 40% tax, and obviously, referring to Illinois here, that seems shortsighted, unfair, and ultimately counterproductive. And I'm wondering if part of the calculus in making the surcharge visible, is that intended to raise awareness around this issue? Do you think you could possibly generate grassroots support for more rational tax policy, i.e., lower rates? Well, you know, there's certainly an element there that has entered into our thinking.
Speaker Change #486: Right right and then last part of my question I am glad that you are making the surcharge visible to consumers as you pointed out black market operators pay zero tax a 40% tax obviously, referring to Illinois here that seems shortsighted unfair and ultimately counterproductive and I'm wondering if part of the calculus and making the visit.
Speaker Change #482: Making the surcharge visible is that intended to raise awareness around this issue do you think you could possibly generate grassroots support for more rational tax policy I E lower rates.
Speaker Change #489: Well there is certainly an element there.
Speaker Change #475: Entered into our thinking.
Jason Robins: Obviously, you're right; when you have illegal operators paying zero tax, that's pretty tough to compete with at any level, but when it starts getting higher than 20%, it just becomes untenable. So I do think that in the absence of us doing something like this, why wouldn't more states consider it? It's not getting, you know, passed to their customers; they're not hearing from their constituents. And we haven't, you know, in New York done anything differently, or nobody in the industry has.
Speaker Change #485: Obviously, you are right when you have illegal operators paying zero tax that's pretty tough to compete with at any level, but when it starts getting higher than 20%.
Lance Vitanza: It just becomes untenable so.
Speaker Change #475: I do think that in the absence of us doing something like this.
Lance Vitanza: Why wouldn't more states consider it it's not getting.
Speaker Change #475: <unk> to their customers that are not hearing from their constituents and we haven't and New York done anything differently or nobody in the industry adds. So I do think that this is something that may make some stage III consider because now they may be hearing more from their citizens that they don't like it obviously they would be hearing anything if we.
Jason Robins: So I do think that this is something that may make some states reconsider because now, you know, they may be hearing more from their citizens that they don't like it. Obviously, they wouldn't be hearing anything if we, you know, from people that weren't being charged, because it's not like, you know, I guess maybe they'd hear from local teams that aren't getting as much sponsorship spend, but not from, you know, the massive voters that bet on sports.
Speaker Change #482: From from people Werent being charged because it sounds like I guess, maybe they hear from local teams that aren't getting as much sponsorship spend but not.
Lance Vitanza: Not from the massive voters that bet on sports so.
Jason Robins: So, but in the end, I think states are going to decide based on a number of. I mean, if you look at some of the comparisons I mentioned, like taxis and hotels, it's not like you don't pay for those when you go to New York. So I think some states feel like because of where they are and because of the value proposition they bring, they can have higher costs and certain things.
Speaker Change #489: And I think states are going to decide based on a number of I mean, if you look at some of the comparison. These I mentioned like taxis and hotels, it's not like you don't pay for that when you go to New York. So I think some states feel like because of where they are and because of the value proposition. They bring that they can have higher costs in certain.
Speaker Change #475: <unk>.
Speaker Change #475: That's not up to us that's a policy decision that they're going to have to make.
Jason Robins: And that's not up to us. That's a policy decision that they're going to have to make. And, you know, as a business, we have to make the business decisions that we have to make accordingly. But certainly, we will continue to advocate for taxes that allow us to compete more with the illegal market. And I'm hopeful and I believe most states do see that if you look, the vast majority of states around the country have tax rates of 20% or under. It's just a handful that don't.
Speaker Change #492: As a business we have to make the business decision that we have to make accordingly, but certainly we will continue to advocate for taxes.
Speaker Change #494: Allow us to compete more with the illegal market and.
Speaker Change #475: I am hopeful and I believe most states do you see that if you look most vast majority of states around the country have tax rates of 20% or under its just a handful that don't.
Operator: Thanks, guys. Ladies and gentlemen. For any closing remarks, I'd like to turn the call back over to Jason Robins for any closing remarks. Thank you all for joining us on today's call. We are really optimistic about the second half of 2024 and are excited and well positioned for success in the future in 2025 and beyond. Thank you for your continued support. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
Speaker Change #482: Thanks, guys.
Speaker Change #475: Ladies and gentlemen, this concludes the Q&A portion of today's conference I'd like to turn the call back over to Jason Robinson for any closing remarks.
Jason Robinson: Well. Thank you all for joining us on today's call. We are really optimistic about the second half of 2024 and are excited and well positioned for success in the future 2025 and beyond Thank you for your continued support.
Speaker Change #475: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.