As the start of the NFL regular season approaches in the coming weeks, DraftKings is ahead of schedule with the migration of its in-house sports betting engine powered by SBTech.
With the third quarter of 2021 yet to hit the halfway point, DraftKings has completed its mobile sports betting back-end migration in 11 states and has just one state remaining, pending final approval, the company said Friday. The transition to a proprietary odds platform completes an exhaustive process that dates to December 2019 when DraftKings announced a unique tri-merger with SBTech and Diamond Eagle Acquisition Corp. (DEAC), a special-purpose acquisition company. DraftKings initially targeted the end of the third quarter for the migration from a third-party technology platform powered by Kambi to its own in-house engine.
The migration represents the largest project DraftKings has ever done from a product and technology perspective, DraftKings CEO Jason Robins said during the company’s second quarter earnings conference call.
“It is a real testament to our product and development team to be able to do that ahead of schedule,” he said. “I’m so proud of that team for completing a smooth migration, but also continuing to innovate.”
Moving from Kambi to SBTech
From a macro perspective, there are numerous advantages for a global sports betting company to become vertically integrated by owning its own tech stack. For one, a company does not need to rely on a third-party provider to supply in-game betting odds through a high-powered, complex algorithmic platform. The issue received considerable attention from the mainstream media during Super Bowl LV in February when at least five major sportsbooks — Barstool Sports, BetMGM, DraftKings, FanDuel, and BetRivers — experienced unplanned outages before kickoff and/or the game itself.
Kambi, which powered the odds platform for DraftKings, BetRivers, and Penn National Gaming at the time, blamed a minor glitch with its bet validation process for creating a slowdown with its network on pre-game markets. It said the issues were not related to the overall load on the company’s systems, which more than tripled in size from the Super Bowl in 2020. Still, DraftKings indicated that it believed a surge in traffic led to the bottleneck from its back-end provider, underscoring the need to rely on its own proprietary technology.
There are other benefits for major sportsbooks in controlling their own back-end odds platform.
- Flexibility: DraftKings, through SBTech, can design more flexible betting products that are tailored to select markets, as well as individual bettors. Personalization is a recurring theme across the industry, as companies are developing creative strategies to improve the betting experience for loyal customers. In the relative near future, a customer with a history of wagering on the Kansas City Chiefs may receive in-game alerts with props on Patrick Mahomes. One prop may allow the bettor to predict whether Mahomes will eclipse a total of 1.5 touchdowns for the second half of a game. A customer with a proclivity for wagering on the Chiefs may also receive boosted odds on the prop as a sweetener. A number of sportsbooks are in the process of honing strategies on personalization as the NFL season nears.
- Domestic focus: DraftKings’ trading teams will be located throughout the U.S. rather than abroad, as is the case with some third-party providers. Other U.S. sportsbooks also outsource their trading operations abroad, a dynamic which can lead to complications with troubleshooting when major technology issues arise.
- Innovation: While DraftKings is still in the midst of a robust customer acquisition phase, the migration will allow the company to become creative with adjusting its hold percentage in certain markets. Though sportsbooks have the ability to adjust the odds provided from an in-game feed, in-play betting moves at a rapid pace. By owning its own tech platform, DraftKings will have the freedom to make critical in-game changes at the drop off a hat. The migration will enhance DraftKings’ ability to drive innovation with in-game betting, Robins emphasized on the call.
- Live betting: With a substantial portion of the migration now complete, DraftKings has promised an improved experience for bettors on in-game markets. This includes shorter delays and fewer suspensions, DraftKings said in an investor presentation. The topic has generated a good deal of consternation among bettors who believe sportsbooks use the delaying tactics to gain a competitive advantage.
DraftKings released its quarterly earnings Friday one day after it announced a comprehensive sports data agreement with Genius Sports. As part of the deal, DraftKings will use Genius’ BetBuilder product to construct a single-game parlay tool. The same-game parlay function is a popular offering at FanDuel, DraftKings’ chief rival. DraftKings launched a single-game parlay feature last week, Robins said.
As a result of the migration to our own in-house proprietary sports betting technology, DraftKings has launched Same Game Parlays. #DKNGEarnings $DKNG pic.twitter.com/WgYteAcVqM
— DraftKings News (@DraftKingsNews) August 6, 2021
DraftKings became the NFL’s first official sports betting partner to sign a separate deal with Genius since the data provider secured a landmark multi-year agreement with the league in April.
Robins did not address the pricing aspects of Genius Sports’ NFL rates or terms of the deal in aggregate, citing a confidentiality agreement in the contract. But DraftKings does not expect any adverse effects to its long-term gross margin projections based on the pricing it received, he noted.
Increased revenue guidance
DraftKings’ revenue for the second quarter came in at $297.6 million, as a key metric — revenue per user — jumped 26% from the same period last year. As a result, DraftKings increased its full-year 2021 revenue guidance from a range of $1.05-$1.15 billion to a range of $1.21-$1.29 billion.
The company reported a net loss of $305.5 million for the quarter, compared with net loss of $520.2 million during the second quarter of 2020. DraftKings reported $171 million in sales and marketing expenses, which was down from its first-quarter total of $229 million. The company spent at least $190 million in the category in each of the previous three quarters. While DraftKings reported adjusted earnings per share of negative $(0.26), the company still beat the Nasdaq consensus estimate of negative $(0.53).
$DKNG (Draftkings Inc.)
DraftKings reported second-quarter revenue of $298 million, up 320% year-over-year. The total beat analyst estimates of $242.4 million. In the second quarter, DraftKings had 1.1 million mo… https://t.co/bsVMn4KptO pic.twitter.com/UFd1yACoI1
— MajorInvestingOfficial (@InvestingMajor) August 6, 2021
DraftKings’ shares surged in pre-market trading by more than $4 (or 8.24%) to $54.64, reaching the highest level in nearly two months. Shares retreated during Friday morning’s session, surrendering some earlier gains. DraftKings traded at $51.56 at 11:45 a.m. ET, up $1.08, or 2.15%.
