DraftKings to Shrink Deals With Leagues and Teams, CEO Says
DraftKings will continue to scale back on its partnerships with sports teams and leagues, CEO Jason Robins said Friday, calling it an inefficient part of the company’s business.
The comment is particularly notable coming from Robins, whose company is taking a more aggressive approach to customer acquisition than many of its competitors. Sportsbooks including Caesars and BetMGM scaled back their marketing and promotion costs last year in reaction to investors expressing fears about heavy losses; Robins said DraftKings’ costs in that area this year will likely be similar to the $1.2 billion spent in 2022.
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That spending, however, will not continue at the same rate with leagues and teams, a shift that could have large financial ramifications across U.S. pro sports. Robins said during an analyst call that “a number of partners” had already agreed to reduce fees as part of their deals and that DraftKings had already ended its relationship with some others. He added that the company would likely not renew a handful of addition deals.
“It’s really part of an overall effort that we have to be more efficient as a company,” Robins said on the call. “And I think that there is an opportunity in this category to get even better.”
DraftKings is an official sports betting partner of the NFL, NHL, NBA, PGA Tour and UFC. Robins did not name any specific partners, and a company spokesman declined to say which had agreed to lower fees. The boilerplate in recent DraftKings press releases state that it is an “authorized gaming operator” of MLB, though earlier releases indicate it was once at the higher ‘official sports betting partner’ level. (An MLB representative didn’t immediately respond to a question about whether the relationship had changed.)
DraftKings (NYSE: DKNG) on Thursday afternoon released fourth-quarter numbers that outpaced analysts estimates, and provided additional detail about its reduced expenses. The stock, which was already up 61% this year, jumped as much as 19% after trading opened on Friday.
Companies like DraftKings scaling back on these deals could have significant financial implications for professional sports teams. In the first few years of the U.S. sports betting expansion, these partnerships were among the most common ways for operators to market toward the most avid sports fans, and to do so in very specific geographic locations. Take, for example, the NHL’s New Jersey Devils—when New Jersey became one of the first new states to legalize sports betting, the Devils signed a handful of different team deals, including ones with William Hill, FanDuel and Caesars, all announced within a few months of one another.
These deals often include in-arena or in-stadium advertising, naming rights to specific lounge areas inside venues, and the right to use official team logos and IP within the product. The more pricey ones, and presumably the ones more valuable to operators, can include either market access within a state or the ability to build brick-and-mortar sportsbooks on premises. For example, DraftKings is building a physical location outside Wrigley Field in partnership with the Chicago Cubs, and a sportsbook outside TPC Scottsdale in Arizona, a deal that also includes statewide access.
Overnight, sports betting became a principal sponsorship category for teams in states where sportsbooks were allowed to operate. Eventually, it even spilled into states that hadn’t yet legalized the practice. Last January, the Houston Dynamo signed a multi-year deal with Fubo Gaming that included large escalators if/when Texas legalized sports betting. The sponsorship deal, which would have included market access, could have been worth $178 million, a total that would have been among the biggest commercial deals in MLS club history.
That Dynamo partnership is now notable for a different reason. Fubo shuttered its sportsbook in October, one of a handful of operators that has already succumbed to the industry’s difficult economics. The market forces that led to the end of Fubo Gaming and MaximBet are now forcing larger books, including DraftKings and BetMGM, to reevaluate where they spend their money.
DraftKings spent $1.2 billion in “sales and marketing” in 2022, a 22% increase from the $981 million it spent in 2021. Robins said Friday that those cost would likely remain flat in 2023, as more states launch sports betting, before possibly dropping in 2024. That’s in line with the company’s stated path toward profitability. DraftKings executives have said that the company expects to be adjusted EBITDA positive for the first time in 2024.
DraftKings isn’t the only major operator whose league and team deals appear to be casualties of attempts to better balance their business. Last year PointsBet scaled back its partnership with the NFL, a move that resulted in BetMGM taking over as betting sponsor of NBC’s Sunday Night Football.
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