Q3 2025 DraftKings Inc Earnings Call
Speaker #1: Thank you for standing by . Welcome to the DraftKings third quarter 2020 earnings Call . At this time , all participants are in listen only mode .
Speaker #1: After the speakers presentation , there will be a question and answer session to ask a question . During this session , you will need to press star one one on your telephone .
Speaker #1: If your question has been answered and you'd like to remove yourself from the queue , simply press star one . One again . As a reminder , today's program is being recorded .
Speaker #1: And now I'd like to introduce your host for today's program , Michael DeLalio Senior Director of Investor Relations . Please go ahead , sir .
Speaker #2: 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 forecasts .
Speaker #2: We assume no responsibility to update forward looking statements other than as required by law . During this call , management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings operating performance .
Speaker #2: 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 slide presentation and business update , which can be found on our website and our quarterly Report on Form 10-q filed with the SEC .
Speaker #2: 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 our business .
Speaker #2: Following Jason's remarks , our Chief Financial Officer , Alan Ellingson , will provide a brief review of our financials . We will then open the line to questions .
Speaker #2: I'll now turn the call over to Jason Robins .
Speaker #3: Thank you . Mike . Good morning , everyone , and thank you all for joining . This is the most bullish I've ever felt about the future of DraftKings .
Speaker #3: This may sound surprising given we are revising our fiscal year 2020 guidance ranges today . However , underlying growth in the business is accelerating .
Speaker #3: We are also increasingly advantaged through new exclusive marketing agreements with ESPN and NBC universal , as well as our leading product offerings . Continuing to improve .
Speaker #3: Finally , we are launching DraftKings predictions in the coming months , which we view as a significant incremental opportunity . Overall , I believe that our long term financial potential has never been brighter .
Speaker #3: The progress we've made over the last few years has been outstanding . In 2022 , we reported a little more than $2 billion of revenue in nearly $1 billion of negative adjusted EBITDA in 2025 .
Speaker #3: Only three years later , we expect to generate $5.9 billion to $6.1 billion of revenue and 450 to $550 million of positive adjusted EBITDA .
Speaker #3: Our sportsbook net revenue margin is on track to increase by more than 400 basis points over the last four years , which is more than 100 basis points per year on average .
Speaker #3: As our parlay handle mix and efficiency of promotions all continue to improve . We are achieving this expansion while also maintaining very high customer retention rates .
Speaker #3: In fact , retention of NFL week one customers is up over 300 basis points in the last four NFL weeks compared to the same weeks a year ago .
Speaker #3: Recent product enhancements are also driving strong customer engagement . NFL handle has grown 13% season to date , and NBA handle has grown 19% season to date and acceleration compared to the growth we were seeing in recent quarters that acceleration is continued to build in the first month of the fourth quarter , as our total sportsbook handle increased 17% year over year in October .
Speaker #3: Parlay handle mix continues to surge with year over year gains of 800 bips for NFL season to date and 1000 Bips for NBA season to date .
Speaker #3: iGaming has been similarly strong , with third quarter net revenue growth accelerating to 25% year over year . The fastest growth we've experienced since the first quarter of 2024 .
Speaker #3: We are even more excited about the future . Our new exclusive marketing agreements with ESPN and NBC universal provide us deeper brand affinity and broader reach , including unmatched NBA access .
Speaker #3: In fact , early indicators suggest our NBA share is significantly higher than it was at this point last year . Our top rated sportsbook experience continues to set the standard for speed , depth and breadth , and we will soon launch Spanish language functionality that will meet the demands for a growing audience ahead of the World Cup in 2026 .
Speaker #3: In iGaming . We're developing innovative slot and jackpot content , and recently brought in a new leader to solidify and grow our position .
Speaker #3: The next point I would like to touch on is sport outcomes . We have made significant progress growing our sportsbook hold percentage in net revenue margin in recent years , primarily due to parlay handle mix increasing , while also experiencing short term positive and negative sport outcome variances .
Speaker #3: It is important to understand that over the course of most sports seasons , this variance typically evens out and should not be overly significant .
Speaker #3: However , because sports seasons do not align with fiscal quarters , there will be certain periods when outcomes positively and negatively impact reported financial results .
Speaker #3: For example , in the second quarter of 2025 , sportsbook friendly outcomes positively impacted our revenue by roughly $100 million , driving record performance for revenue , adjusted EBITDA and adjusted EBITDA margin .
Speaker #3: Conversely , in September and October , customer friendly sport outcomes impacted our revenue by more than $300 million . As just a handful of NFL games had a pronounced effect over the long term .
Speaker #3: However, sport outcomes do not affect the underlying earnings power of our business, but there will be periods where we can meaningfully overperform or underperform our expectations based on these variances.
Speaker #3: I'd also like to touch on the recent rise of predictions . We have experienced numerous waves of competition in recent years , mostly from well-capitalized companies that have built or acquired strong sports betting product offerings , and those have had minimal impact on DraftKings revenue trajectory .
Speaker #3: By comparison , predictions are structurally limited , lacking the depth and breadth of a sports betting offering . There are also numerous data points from around the globe that validate the predictions in sports is relatively small and largely incremental relative to traditional sports betting and actuality .
Speaker #3: We see predictions as a significant incremental opportunity . We are excited about our pending launch of DraftKings predictions and its potential to expand our total addressable market in the coming months .
Speaker #3: We expect DraftKings predictions to enter many new states with sport event contracts unlocking a new customer base and revenue stream . Nearly half the country's population remains without access to legal online sports betting , but there are several other companies offering federally regulated predictions in all 50 states .
Speaker #3: As growth in predictions continues , this may also motivate more states to legalize online sports betting and iGaming with reasonable regulation and taxation .
Speaker #3: To close out my thoughts on predictions, I would leave you all with three key takeaways. First, we will pursue this opportunity.
Speaker #3: We will compete and we will win for the same reasons that we have been successful competing in the sports betting industry . We expect to succeed here .
Speaker #3: Second, we will be thoughtful in how we launch DraftKings predictions and do so in a way that is respectful of other stakeholders.
Speaker #3: As such, we plan to focus on the states where we do not offer sports betting, which is also where we believe the vast majority of the financial opportunity exists.
Speaker #3: Third , we will be measured in our investment level . Understanding that gross profit payback periods need to be shorter relative to our more established product lines , where we have more predictability around what customers we acquire will be worth over time to finally , I want to touch on our share repurchase program .
Speaker #3: We have bought back 9.3 million shares since the inception of this program , and we are pleased to announce that our board has authorized increasing our repurchase program from 1 billion to $2 billion .
Speaker #3: We anticipate being active with share repurchases over the next quarter and expect to continue returning capital to our shareholders as free cash flow ramps up over the coming years .
Speaker #3: Thank you all for your support . We promise to continue working relentlessly to create meaningful value for you in 2026 and beyond .
Speaker #4: Thank you . Jason . Before I cover our fiscal year guidance , I'd like to discuss our third quarter 2020 financial performance . Please note that all income statement measures discussed except for revenue , are on a non-GAAP adjusted EBITDA basis .
Speaker #4: In the third quarter , we generated $1,000,000,144 million of revenue , representing 4% year over year growth . We also generated -$127 million of adjusted EBITDA .
Speaker #4: First off , we do recognize our third quarter financial results were below our expectations due to the pronounced impact of customer friendly sports outcomes in the last two months .
Speaker #4: These outcomes impacted our revenue by more than $300 million , with just a handful of NFL games having an outsized effect . But as Jason highlighted , there is a lot to be excited about in our business .
Speaker #4: Our underlying customer metrics are as strong as they've ever been . Our Mops growth was healthy , increasing 6% year over year when excluding the impact of Jackpocket from all periods .
Speaker #4: Customer acquisition was also a bright spot . Increasing year over year across the entire enterprise and also for direct to sportsbook . Despite not having any new state launches in sportsbook , we continue to drive strong engagement .
Speaker #4: Sportsbook handle increased 10% year over year to $11.4 billion . As we see strong returns on our promotions , we will adjust our investment levels based on deliberate and calculated return observations .
Speaker #4: The results of our promotions around the start of the NFL season has been outstanding . As Jason mentioned , our October handle accelerated meaningfully year over year .
Speaker #4: That mix improvements are also exceeding what we've been estimating , providing us even more confidence in our long term sportsbook hold percentage . Shifting to iGaming .
Speaker #4: Our third quarter net revenue reflected a solid acceleration compared to the first half of 2025 , driven by strong year over year growth in both active customers and net revenue per customer on a per customer basis .
Speaker #4: We've made strong progress, growing gross gaming revenue while also optimizing our promotions for more advanced cohort modeling. Now I'll touch on our fiscal year 2025 guidance.
Speaker #4: In August . We guided fiscal year 2025 revenue of $6.2 billion to $6.4 billion and adjusted EBITDA of 800 million to $900 million , based on all of the aforementioned .
Speaker #4: Today , we are providing fiscal year 2025 revenue guidance of $5.9 billion to $6.1 billion in fiscal year 2025 . Adjusted EBITDA guidance of 450 million to 550 million , our revenue guidance range implies growth of 24% to 28% compared to what we achieved in fiscal year 2024 .
Speaker #4: Notably , our fiscal year 2020 guidance ranges now include the expected launch of a predictions market offering , which we're excited about as we begin to look ahead to 2026 .
Speaker #4: That concludes our remarks , and we will now open the line for questions .
Speaker #1: Certainly . And our first question for today comes from the line of David Katz from Jefferies . Your question , please .
Speaker #5: Hi . Good morning , everybody . Thanks for all the commentary . I wanted to ask us a about OSB hold percentage . Obviously , many of us are struggling with getting our models in the right place .
Speaker #5: You know , we talk about customer unfriendly , you know , that has been , you know , more the pattern than the exception of late .
Speaker #5: How do you get confidence or help us get confidence that , you know it ? It will . And should swing back around and , you know , just talk about the journey of the past year in that regard .
Speaker #5: Thank you .
Speaker #6: Yeah , I know it definitely is frustrating when you're , you know , seeing it happen and it feels like it's the pattern .
Speaker #6: I will say .
Speaker #3: We should probably push back a little bit on that last quarter. In Q2, we actually had positive outcomes. I think you can see the strength of the business model; we generated over $100 million of adjusted EBITDA in Q2, with positive outcomes in the U.S.
Speaker #3: So , you know , I think it can swing either way . Certainly . And this quarter , it unfortunately didn't go our way .
Speaker #3: October also wasn't a great month for us . But over the course of time , it normalizes . So I think , you know , as you're thinking about modeling out years or multiyear periods , certainly I think that can definitely be something where you can assume smooth sort of curve .
Speaker #3: But I think if you look at short periods , you're going to have times when sport outcomes impact results and they're going to be times where allows us to overachieve our expectations .
Speaker #3: And times where we fall a little short.
Speaker #5: Understood . And if I can ask one very quick follow up , I noticed that you did an individual to the board , Greg went , who ?
Speaker #5: You know , many of us sort of know is a well-regarded person . I'd love to just get a quick comment on , you know , how you see him adding value .
Speaker #5: You know , for DraftKings . Thanks .
Speaker #3: Well , first of all , Greg is a great addition . We're really excited to have him on the board . I've known Greg for many years .
Speaker #3: He is obviously an expert as it comes to investing . He's been a long time gaming investor . So you know , and also very recently left that position .
Speaker #3: So I think what's nice is he's somebody that we can talk to that has a really strong perspective on what investors are thinking and understands .
Speaker #3: The capital markets really , really well . He has tremendous connections on the public affairs side , and he's just all around smart guy .
Speaker #3: And really I think is going to contribute to the strategy and direction of the company . So we're really excited to have Greg and , you know , just had him in our first board meeting this week and looking forward to his contributions .
Speaker #5: Thank you .
Speaker #1: Thank you . And our next question comes to the line of Steven Grambling from Morgan Stanley . Your question please .
Speaker #7: Thank you . As a quick follow up to David's question on hold , aside from just hitting structural hold , I think one of the concerns is whether parlays also increase the overall volatility of hold .
Speaker #7: So, what do you think are the biggest opportunities to dampen the volatility over time? Or how do you think about balancing pushing higher structural hold versus potentially higher volatility?
Speaker #3: Well , I think we always view it as we should maximize long term value . And you know , obviously in some cases that may come with some increased beta .
Speaker #3: But I think that over the course of time maximizing long term expected value is the right strategy . As long as you're managing risk in a way that's appropriate .
Speaker #3: You know , really where this occurs most acutely is when you have , you know , sports or individual events that are very concentrated .
Speaker #3: So , you know , something like baseball or basketball , where there's long seasons with many , many games , you're going to see less of that .
Speaker #3: Something like , you know , an NFL weekend or Super Bowl or March Madness or , you know , a big fight . You could see bigger swings because , you know , those are individual events where a single outcome , you know , affects a large volume of betting .
Speaker #3: And there aren't other events to offset it . And to normalize over time . So I think that's just the nature of the business .
Speaker #3: And you know , what we do is we certainly make sure we're managing risk . If you look at the overall negative outcome impact , we've experienced this year , it's only around 5% of our total revenue .
Speaker #3: So obviously , you know , in a given quarter when a lot of that hits , that can be meaningful . But from a risk management and from a , you know , cash flow and making sure that we're still generating profit and liquidity , I think that that's something that we always keep in mind .
Speaker #3: And so we won't take liabilities above a certain level . And if we ever did need to , we would find ways to hedge off or we wouldn't take them at all .
Speaker #3: But I think within that constraint , being able to to know that you're maximizing EV is important and obviously , if that comes with some ups and downs , so be it .
Speaker #3: But as long as you can manage the business in a way that you're managing that risk , I think maximizing long term value is the way to go .
Speaker #7: Fair enough . If I can sneak one on the prediction markets , I think similar to the start of online sports betting , there's a lot of concern about the what profitability looks like here .
Speaker #7: I think you mentioned the shorter payback window potentially , or what you hope . Can you elaborate on how you think about the profitability of a prediction market product and any initial thoughts on what investment could look like if the market plays out the way you hope ?
Speaker #3: Well, I think what we're going to do is the same thing we do with everything, which is we're going to be very data-driven, very analytical.
Speaker #3: Here , starting off with very conservative views on MTV and very conservative approach to payback periods , I think is smart because one , we don't have any data .
Speaker #3: So in absence of that being conservative is always best . And two , we don't really know what the future of this product will ultimately look like .
Speaker #3: You know , as we've noted , I think as this continues , states will legalize OSB . Now , that might be helpful because those customers may convert , but the actual predictions product is unknown at this point .
Speaker #3: In terms of what the longevity of customers will look like , what the spend will look like , the products themselves are super nascent .
Speaker #3: So I imagine retention initially is going to be a challenge , and over time I think it will get better . Same with monetization , but they're very bare bones at this point , so I think we'll certainly an exciting area and one that we really are excited and bullish about .
Speaker #3: It is still so early and , you know , a lot of unknowns . And we have zero data . We haven't launched a product and don't know anything yet .
Speaker #3: Once we start to gather data , we're going to make different decisions . We're going to look at what the data says , and we're going to adjust .
Speaker #3: I don't see us dramatically extending the payback period . So I think we'll kind of keep conservative on that , but we'll have much more precise data with which to make those decisions .
Speaker #3: It won't be as much of an estimate , so we'll be able to be a little bit more of a lean in there .
Speaker #3: And as far as total investment , because we don't have that data yet , I really don't know . You know , it could be anything , but we're not going to spend foolishly if we find that we're not able to get the kinds of returns that we want , then we won't do it .
Speaker #3: The other thing I will say is that because we have so many , we have such a great presence across the sports and media landscape already .
Speaker #3: We don't think there needs to be a ton of incremental spend , at least on the national level here . There might be some incremental local spend in key states , but the national level , we feel like a lot of what we already have can be used to effectively get this message across as well .
Speaker #3: I think on
Speaker #8: I'm going to jump in here too . This is Mike analyst . As a reminder . Please stick to one question . We have a lot of participants in the Q .
Speaker #1: Thank you . And our next question comes from the line of Dan Palazzo from JP Morgan . Your question please .
Speaker #9: Hey , good morning everyone . Thanks for taking my question . On prediction markets . Jason , maybe can you talk about the conversations that you've had with regulators and shed light on why you feel comfortable proceeding here , when certainly some of your larger peers have not ?
Speaker #9: And along those lines , how you see this , you know , prediction market , product evolving , you know , in the coming years , just given this is where a lot of tension from investors is right now .
Speaker #3: Well , first , obviously , we really value and treat with the importance our relationships with the and policy makers and states where we are licensed and operate .
Speaker #3: So we have had numerous conversations with them and wanted to make sure that , you know , when we were acquiring Railbird other things like that , they were hearing from us and understood what the rationale behind it was and how we were thinking about it .
Speaker #3: So , you know , I think through the strength of those relationships and conversations , we got comfort in the approach that we're taking .
Speaker #3: And, you know, as I said in our note and on the call, we aren't going to be in every state with sports.
Speaker #3: So we won't even be in every state with non-sports . And I think we have a good sense of where the sensitivity areas are .
Speaker #3: And the good news is , you know , as I've said in the past , I think it aligns also with the opportunity .
Speaker #3: I think the states that already have legal, regulated online sports betting, there isn't going to be as much opportunity in the prediction space, at least in the sports prediction space.
Speaker #3: So to me , that also is kind of , you know , makes it a no brainer to focus on the states that don't have online sports betting already .
Speaker #9: And then just sorry . And how you see this product evolving . Do you think it just limited to sports or it evolves into a broader subset of prediction offerings over time ?
Speaker #9: You know , gaming , you know , all the other other stuff kind of under the hood .
Speaker #3: You know , I think if you look overseas sports is really where most of the concentration and volume is , even here in the US , sports is what's driving all the growth .
Speaker #3: So , I mean , not to say there won't be other things . I know elections are popular too and you know , and in certain places we'll be able to offer that as well .
Speaker #3: But I think that for the most part , the volume and opportunity is going to , you know , be in the sports space .
Speaker #3: Not to say there couldn't be other innovations and things that create opportunities over the long term , but that's less proven . And I think something that at this point , we don't have as much certainty in .
Speaker #9: Got it. Thank you.
Speaker #1: Thank you . And our next question comes from the line of Clark Lampkin from Btig . Your question please .
Speaker #10: Thanks a lot . I'll keep the , I guess , sort of theme going here with prediction . Jason , I'd like to , I guess , just get a little bit more sort of specificity around the significance comment in the letter is that largely going to be just sort of customer access in new states , or is there , as you guys think about winning , as you put it , in this market , where can you guys , I guess , bring something unique here to the extension to extract some , some value that maybe others can't ?
Speaker #10: Thank you .
Speaker #3: Yeah . I mean , to the extent that everyone is viewing this as competitive , you know , I think it's the same way we compete with anyone .
Speaker #3: We go out and out , execute across all the key things that matter . Product , customer experience , marketing , all of those things are things that we have in extraordinary amount of data and expertise around .
Speaker #3: And systems and processes that we've built, that at scale, are able to perform at the highest of levels and compete with the toughest of competition.
Speaker #3: So I view that as a huge advantage that we're going to have , along with our brand . And the fact that people already associate us with sports , you know , add in some of the media assets that we have and the partnerships that we have .
Speaker #3: I think it's going to be really tough for anyone to compete with us. And I expect for the same reason that we've been able to do well against other new competitive entrants in the market.
Speaker #3: And there have been many , many of them over the years , as you all know , we've continued to chug along . We've continued to perform .
Speaker #3: So it's really the same reasons as those things . And I think in this case , we're actually starting from an even more advantageous position because we know more and have more scale and more expertise than we did a few years ago .
Speaker #3: So I think it's going to be tough to beat us . Not that I'm taking anything for granted . Obviously we're going to go out and we're going to compete hard , but I do feel very good about where we're going to be able to find our place in this , in this space .
Speaker #10: Thank you .
Speaker #1: Thank you . And our next question comes from the line of Robert Fishman from MoffettNathanson . Your question please .
Speaker #7: Hi . Good morning .
Speaker #11: On the ESPN deal . There's a long history between your companies . I'm just wondering if you can discuss how this deal came together and why you think today it makes sense for DraftKings ?
Speaker #11: And how important do you expect the integration in their apps to be as a future growth driver for DraftKings going forward ?
Speaker #3: Morning . Thanks , Robert . So first , very excited about this . I mean , as you noted , we've had a long relationship with ESPN back .
Speaker #3: You know , decade plus ago in fantasy sports through the early days of sports betting and really happy to be reunited with them again in a long term strategic deal .
Speaker #3: So , you know , one , as you know , they're the premier sports brand and property . And between them and some of the others , like NBC Universal and Amazon that we have , we just have an unbelievable presence across sports media .
Speaker #3: I think with ESPN , though , as you said , they have an app , they have a fantasy database and app that is as big as anything in the world in that category .
Speaker #3: They just have so many different channels and brands and also great talent , you know , really it's going to be something that we leverage across all elements of what we do from the product to our marketing .
Speaker #3: And I think having , you know , somebody that can not only help advertise as a partner and help bring in new customers , but can truly help you engage your existing customers to with , you know , things .
Speaker #3: Yes , in their content , but also things that potentially can be integrated . Like you mentioned , the app on the digital side with product , I think that can just take this to a whole new level .
Speaker #3: So I'm thrilled . And if you look also at their trajectory , it's unbelievable . Some of the , you know , deals that they've been rumored to be doing and some of the , you know , new apps and things that they're launching .
Speaker #3: I think that , you know , being with a company that's also aggressive and wants to grow and wants to really increase their presence in the sports landscape , you know , that's somebody that you can grow alongside with .
Speaker #3: So very excited and , you know , really happy to be working alongside them again . Jimmy Pitaro has been a long time friend , great guy and somebody that I know passionately cares about sports betting and knows how important it is for engaging their fans and their consumers too .
Speaker #3: So I just thrilled and really excited about this partnership .
Speaker #7: Thank you .
Speaker #1: Thank you . And our next question comes from the line of Robin Farley from UBS . Your question please .
Speaker #12: Great . Thanks . I would love to ask about the how we should think about that split of the 300 million . How much of that was in Q3 versus falling in Q4 ?
Speaker #12: Just so we could kind of quantify for ourselves a little bit what the structural hold increase was . But if I only get one question , maybe I would ask instead the going back to prediction markets for a moment and your ability in terms of your competitive offering and your ability to offer parlays , can you talk a little bit about , I assume your access to the official sports data or there are other things that will enable you to offer a parlay product that is significantly different than maybe what other prediction markets are able to offer , or any thoughts on that ?
Speaker #12: Thanks .
Speaker #13: So .
Speaker #3: I'll let Mike follow up offline with you on the first question , but on the second one , I think parlays are just challenging with predictions because it's liquidity based .
Speaker #3: So you can do some pre-packaged stuff . And I think that could work . But to be able to really have a parlay offering that looks anything like what you'd find in online sportsbook just isn't possible .
Speaker #3: The reason being that on the online sportsbook , we can say , what do you want to do ? And then as the market maker , we could say , okay , we will make you a market for that .
Speaker #3: Here you go . Here are the odds and we can do that knowing exactly what the requested amount of the bet is and who's making it .
Speaker #3: And in this case , you have to , as a market maker , create liquidity pools around these things . And you don't always have control over who's on the other side and who's taking how much of your order volume and things like that .
Speaker #3: And also just having to have individual liquidity pools makes it hard because then you spread out your liquidity . So I just think it's going to be very challenging to do all the kinds of combined ability that you can do in a traditional sports book .
Speaker #3: We will , I think , because of our pricing models and because of some of the other IP that we have be able to put out , I feel a better version of that than than others .
Speaker #3: In the industry . But I still think it will be very limited compared to what you would find in our traditional sports betting product .
Speaker #12: Okay . Thank you .
Speaker #1: Thank you. Our next question comes from the line of Brandon Montour from Barclays. Your question, please.
Speaker #14: Hi , everybody . Thanks for taking my question . So if we look at the luck impact of the full year guide of 300 million , and I know you didn't quantify that versus third quarter versus fourth quarter , but more on the full year .
Speaker #14: I mean , if you look at that , if you just sort of assume a flow through and then look at the full year guide down to EBITDA , there's obviously a pretty decent gap there between those two .
Speaker #14: And so what is that gap broken out between , you know , higher promo than expected spend at this maybe early spend with the ESPN partnership NBC spend and obviously any sort of early prediction spend .
Speaker #14: Thank you .
Speaker #13: Yeah .
Speaker #3: It's a good question . So you know , most of it is outcomes . There are a few other little things in there .
Speaker #3: Probably most notably as you said , there is some assumption in Q4 for prediction spend , which as we noted , will be very analytically driven , at least with any marketing portion .
Speaker #3: So I don't know , you know , if that will be I think we made sure we had enough . But I don't know that we would need to spend it all .
Speaker #3: And then , you know , there is some also investment on the product . And technology side getting ramped up for , you know , customer service , everything else in order to , to launch the product .
Speaker #3: I don't know exactly when we'll launch it , but we wanted to make sure we had enough budget in there to be able to develop and launch it in Q4 .
Speaker #3: If it were ready . So that's something that we're certainly pushing towards . But I do expect it'll be , you know , at some point in the next couple of months .
Speaker #14: Great . Thank you .
Speaker #1: Thank you . And our next question comes from the line of Jed Kelly from Oppenheimer . Your question , please .
Speaker #15: Hey , great . Thanks for taking my question . As we think about next year , obviously prediction markets are going to be a decent level of incremental investments .
Speaker #15: But can you sort of highlight or help us bridge , you know , how where else you're looking to invest ? I mean , the OSB product is very good .
Speaker #15: Now , I'm sure you want to invest in that . And then you recently hired , a new iGaming person too . So can you just help us understand how you're thinking about investments for next year outside of prediction markets ?
Speaker #3: Yeah , I think , you know , in terms of the what we call kind of core business , meaning , you know , the the OSB and iGaming products and the states that we have been in for , for at least a few years .
Speaker #3: I don't think you're going to see much , if any incremental investment . In fact , we might actually see a little bit of reduction in things like promotion and marketing .
Speaker #3: I do think in the newer states , Missouri being , you know , obviously one that's launching at the end of this year will continue to invest next year .
Speaker #3: If any other states launch . And I am hopeful that we get some iGaming and sports betting bills done next year . Obviously , predictions , as you noted , is somewhere we will be making an investment .
Speaker #3: Although as noted earlier , are going to be appropriately conservative and seek faster paybacks on that than we do on the other products .
Speaker #3: The other area I'd mentioned is AI . I think AI is somewhere that there will be , you know , it'll be a kind of two way thing .
Speaker #3: There will be some places where we're actually able to reduce costs next year , but there will also be some incremental investment which has a longer tail on where we see the efficiency in revenue generation impacts .
Speaker #3: And so some of that , but maybe not all of it would pay back in 2026 . But I think that's an area that we need to be investing in and could have potentially a very significant impact on both our cost structure and revenue trajectory in 26 and beyond .
Speaker #15: Thank you .
Speaker #1: Thank you . And our next question comes from the line of Sean Kelly from B of A . Your question , please .
Speaker #16: Hi . Good morning everyone . Thanks for taking my questions , Jason . Maybe just to connect the two topics of the morning prediction and pricing .
Speaker #16: Wondering if you could just talk a little bit about , you know , there's a there's a fairly large narrative from the prediction market side of the world about sort of longer term pressure on on , you know , hold rates for the industry .
Speaker #16: And I'm really talking about straight bets and pricing to the customer . So just wondering if we could get your thoughts on that .
Speaker #16: And then just how price or or price aware do you actually think customers really are in the sports book ecosystem ? You know , relative to products ?
Speaker #16: And does that give you some flex to be able to manage , you know , long tail events and other things like that ?
Speaker #16: Appreciate it .
Speaker #13: Yeah . So .
Speaker #3: You know , we'll obviously we'll have to see how it plays out . But if you look at pricing now , it's actually a little bit worse on predictions .
Speaker #3: And I think it's going to be hard to get to a point where it's better , you know . Right . If you remember us , the reason we have higher margins is we meaning higher hold rates .
Speaker #3: Sorry . Is because we have a very strong bet mix . Our singles hold is actually nowhere near what our actual hold rate is .
Speaker #3: Our singles hold is in the mid single digits , so that's sort of the comparison point . If you're thinking about predictions now in predictions , you have both the fees that the exchange is taking as well as the other fees that are collected from the FCM or anyone else in the ecosystem , as well as the spreads that the market makers are taking .
Speaker #3: So there's a lot more mouths to feed in the ecosystem versus , in our case , we are the market maker solely on our online sports book .
Speaker #3: And well , at least for about 99% or 95 plus percent of our stuff . So really it makes it that we have more margin to play with .
Speaker #3: There . The other thing is , even if there are cases where there's better pricing , promotions don't really work in the same way in predictions as they do in OSB .
Speaker #3: So , you know , we can give back money and help create cool , you know , profit boost and other kinds of promotions for customers that engage them , which really isn't something that predictions is doing .
Speaker #3: In fact , predictions is really rebates to incentivize the market makers to create liquidity . So it's almost kind of the opposite . They're giving the the promos , so to speak , to the people who are actually trying to make money on the platform and the retail customer is not getting that .
Speaker #3: using
Speaker #3: So , you know , for a variety of reasons , I think the value prop is going to be better . And maybe that gap closes a little bit .
Speaker #3: But right now it's not even close . Right now it's a much better value prop in terms of the overall pricing and promotions that you get using an online sports book .
Speaker #1: Thank you . And our next question comes from the line of Bernie McDonough from Needham and Company .
Speaker #1: Your question please .
Speaker #17: Great . Thanks for taking the question , Jason . Historically , the online sports betting industry has competed on a variety of different metrics like daily fantasy capital mattered a lot .
Speaker #17: Marketing budgets mattered along with liquidity . Online sports betting promotion , early days , and now more . Various aspects of the product .
Speaker #17: What do you think the battle will be on in prediction markets ? And maybe a follow up to the last question , what is the risk that that it does evolve into promo over time ?
Speaker #13: Well , I think the first .
Speaker #3: Battle is going to be for customers , but , you know , it depends on who you're talking about and what parts of the ecosystem for the exchanges .
Speaker #3: The battle is going to be for liquidity . And so that's the key thing . Much like it was in daily fantasy sports , I think if you look at , you know , the Fcms or the IPS that are plugged into them , it's going to be much more about customer acquisition to , costs versus LTV generation .
Speaker #3: So that'll be about how well you market and engage and monetize the customer . Now in our case , because we bought Railbird , we're going to have both pieces of the ecosystem .
Speaker #3: So you know we have to be thinking about both . But at least in today's world , most of it's not connected in that way .
Speaker #3: There's separation between those . So it'll really depend on kind of how things vertically integrate over time . But you know , that's that's the best way to explain , I think for the exchanges , it's about liquidity and for the front end .
Speaker #3: You know , the fcms , the ib's , it's much more about the cash to LTV equation and being able to engage , retain and monetize customers as well as acquire them efficiently .
Speaker #1: Thank you . And our next question comes from the line of Jeff Stoff from Susquehanna . Your question please .
Speaker #18: Okay . Good morning . Jason , I wanted to ask . It's always difficult to reconcile . From a regulatory and a legislature perspective for the states .
Speaker #18: You know , we know obviously we're well aware that the regulators know in the various states and obviously talking about predictions . But just wondering if , you know , to the extent you could help us kind of fill in whether or not the legislatures are aware of this , you know , as we kind of go into a newer session in early 26 and the , you know , the the implications on the competitive landscape .
Speaker #3: I think they are absolutely aware of it . And , you know , this is one of the things that we noted in our letter , I think as states see this continue to grow , it's going to put increased pressure on policymakers to strongly consider whether they , should follow the path of the other half or so of the country .
Speaker #3: And just pass sports betting legislation . I also think it's going to help really make policymakers think twice about tax increases , because they understand that there is another thing out there that they have to compete with , and that operators .
Speaker #3: Ultimately , if the taxes get too high , might decide to just pivot . So , you know , I think that it's this is one of the many reasons I think it's a huge positive for us .
Speaker #3: I think it's an opportunity for us to, obviously, go into the industry and compete and win. But I also think it's a powerful lever in terms of, you know, what policymakers are going to be thinking, and legislators are very aware of it.
Speaker #3: Like anything , you know , it's still early . And so there's still kind of developing their views on it . But I think in the same way regulators are concerned about it .
Speaker #3: So we're policy makers , legislators as well .
Speaker #18: Thank you .
Speaker #1: Thank you . And our next question comes from the line of Ben Chicken from miso . Your question please .
Speaker #19: Hey , how's it going ? Good morning . You know , you've on predictions . You have 50% of the country that are non OSD states .
Speaker #19: As you think about . This is a two parter . As you think about the launch , how do you think about tax .
Speaker #19: Maybe an absolute dollars in the context or compared to an OSB launch . And then maybe you could compare and contrast versus state launches in terms of targeting customers and how you think about determining the appropriate aperture .
Speaker #19: If that makes sense . Thanks .
Speaker #3: So I mean , I think really it's the same type of approach that we would take with OSB simply with a much shorter payback periods .
Speaker #3: And also we don't have data yet to know exactly what those payback periods would even need to be . Or what those numbers would even need to be to hit that payback period .
Speaker #3: So, we're going to be even more conservative with that in mind. We do have some external data that we can gather from looking at how some of the others in the prediction space have been generating volume and doing some estimations of what we think we can get.
Speaker #3: So we're not completely coming in blind . We have a model , but like anything , you want your own real data to be able to validate that model before you really lean in .
Speaker #3: So I think we're going to test enough that we have data and understanding . If you test too slowly , then it takes forever to get there .
Speaker #3: But we're also going to be measured in a really conservative way in how we do it. You know, as far as an absolute number, I can't tell you that at the moment because we're still trying to figure it out.
Speaker #3: But also I don't think we would share it anyway , to be honest . But we did mention that we're going to be looking for shorter payback periods , so in the past we've said we look at three year payback periods for OSB and iGaming .
Speaker #3: So it's , you know , going to be something materially less than that .
Speaker #1: Thank you . And our next question comes from the line of Jason Tilkin from Canaccord Genuity . Your question please .
Speaker #20: Great . Morning and thanks for taking my question . I'm wondering if you could share a little bit more on the upcoming rollout of the Spanish language app , how incremental of an opportunity do you see that as a customer acquisition and engagement driver going forward ?
Speaker #20: Thanks .
Speaker #3: Yeah , I'm excited about it . That's something we've been actually working on for a little while . What sparked it was really two things .
Speaker #3: Well , first thing that sparked it was saying , look , we have the World Cup coming up in 2026 . You know how big an audience do we think there's going to be for that ?
Speaker #3: That is Spanish language first . And you know what kind of opportunity could that create . And then that led us to do further research on just , you know , hey , not just for World Cup .
Speaker #3: What do we think in terms of people betting on NFL , NBA , you know , other sports ? We've also done some testing into Spanish language media .
Speaker #3: Obviously directing to the English language product , but more just to see is there incremental customer acquisition opportunity there . So between all those data points , we had a pretty good idea of how what kind of opportunity this could represent .
Speaker #3: As long as well as obviously , you know , other data on just how many people in the US are Hispanic . First , Spanish speaking first , and how many live in different states .
Speaker #3: And really understanding based on the states we're operating in , what to expect . So , you know , that was sort of the thinking behind it in terms of the opportunity .
Speaker #3: I think the big question is how how many people who are Spanish speaking are going to , you know , I'm sure some of them are already betting , but how many of them are going to make their choice of where they go based on the experience and the Spanish language ?
Speaker #3: And I have to imagine that there's a lot of people who would prefer Spanish language , maybe even some that just won't even use an English language app .
Speaker #3: But even amongst those that would , that would certainly prefer Spanish language app . And so if we can create the best experience there , we can get there first and early , especially with a big event like World Cup coming up , it gives us an opportunity to really build outsized share in that demographics .
Speaker #3: And I'm really excited about it . It's obviously a very fast growing demographic in the United States as well , and one where some of the biggest states where those Spanish speaking folks live haven't even come online yet , like Texas and California .
Speaker #3: So you know much more incremental opportunity in the future as well .
Speaker #1: Thank you . And our final question for today comes from the line of Ian Moore from Bernstein . Your question , please .
Speaker #21: Hi . Thank you . The 800 to 1000 basis point surge you guys had in NFL and NBA parlay mix is a really massive number .
Speaker #21: The share gains you called out are great to hear to you guys credited like product innovation and promo strategy . And the release .
Speaker #21: But maybe you could help us with like attribution more product , more promo and does that inform the strategy on the prediction markets launch at all ?
Speaker #21: Like balancing the front end with Railbird in the back end ? Thanks .
Speaker #3: I think it was a combination of everything . I mean , our products never been better . Features like stacks and other sorts of things that help you more easily build and figure out what kind of parlays you want or I think at the best stage they've ever been at .
Speaker #3: I think our , you know , ghost leg promotion in particular was really effective at driving parlay mix . It's a I mean , the promotion is , you know , designed around parlays .
Speaker #3: So I think it's really helped there too . So I mean , it was a combination of multiple things . But it's been such a focus area for us .
Speaker #3: It's just really great to see that it's actually accelerating . I think each season that goes by . Right . Can it be even better next year ?
Speaker #3: And so far it has . So this is why we're so bullish on the on the bet mix side and why we think there's so much long term margin .
Speaker #3: You know , headroom because we see this acceleration . It doesn't seem like it's slowing down . And then you look at some more mature markets overseas where they have 60 plus percent of handle coming from from parlays .
Speaker #3: And so between that and live betting , we think those are the two areas that have the most upside and the most growth in the US .
Speaker #3: And in the coming years .
Speaker #1: Thank you . This does conclude the question and answer session of today's program . I'd like to hand the program back to Jason for any further remarks .
Speaker #3: Well , thank you all for joining us on today's call . We are really excited and feel we're really well positioned for continued success in the future .
Speaker #3: Thank you all for your continued support , and we look forward to seeing you next quarter .
Speaker #1: Thank you , ladies and gentlemen , for your participation in today's conference . This does conclude the program . You may now disconnect .