Sports Betting Operators Prioritize Revenue Over Profit Amid Expensive Expansion Efforts

The old saying, “the house always wins,” may hold true, but in the case of U.S. sports betting, the journey to profitability is taking much longer than expected. DraftKings, one of the leading names in American sports betting, holds roughly 30% of the U.S. market share, on par with rival FanDuel.

In its Q1 2024 report, DraftKings posted $1.17 billion in revenue—yet recorded a net loss of $142.6 million. In Q2, revenue reached $1.1 billion, with a net income of $63.8 million, though operational losses persisted, amounting to $32.4 million.

The reason behind these losses is a business principle as old as time: "In order to make money, you have to spend money." In 2023 alone, DraftKings spent a staggering $1.2 billion on sales and marketing. This aggressive spending spree continued into Q1 of 2024, with the company shelling out $341 million in that quarter alone, followed by $216 million in Q2. By comparison, its investment in Product and Technology stood at $89 million, while General and Administrative expenses reached $174 million in Q1.

Despite these massive outlays, the company’s efforts have yielded clear results. In Q1, monthly unique players (MUPs) rose 23% to an average of 3.4 million, while the average revenue per MUP (ARPMUP) surged 25% to $114. DraftKings attributed this success to its expansion into new jurisdictions and optimized promotional reinvestment in Sportsbook and iGaming. The company also reported a 110% rise in adjusted EBITDA to $22.4 million.

Furthermore, its Q1 net loss of $142.6 million marked a significant improvement—a 64% reduction compared to the same period in the previous year.

DraftKings’ leadership is transparent about the company’s current lack of profitability. CEO and Co-Founder Jason Robins acknowledged this, stating, “DraftKings’ performance in the first quarter of 2024 was outstanding, reflecting healthy revenue growth and a scaled fixed cost structure that positions us to drive rapidly improving adjusted EBITDA.” He added, “Looking ahead, we remain committed to maximizing shareholder value through continued innovation, operational excellence and disciplined capital allocation.”

Robins' words underline the company’s focus on the long-term goal of profitability, but DraftKings is not rushing to achieve it. The sports betting market in the U.S. is still relatively young, with the Supreme Court's decision in Murphy v. NCAA having only been overturned in 2018. DraftKings operates in 25 of the 38 states and jurisdictions where sports betting is legal, expanding to an average of four new states each year—a remarkable pace of growth.

When Jason Park was appointed Chief Transformation Officer, Robins noted this move would “generate significant incremental profitability over the coming years.” While profitability remains a goal, DraftKings is clearly willing to wait to achieve it.

This strategic patience is not lost on the public, either. Reddit threads in r/stocks and r/sportsbetting have explored DraftKings’ long-term growth strategy, with users acknowledging that the high costs of acquiring new customers are necessary for future profitability. As one Reddit user put it, “DKNG will be one of the winners when all is said and done.”

However, not all sports betting operators are willing or able to follow DraftKings’ path. Australian-based PointsBet, once a major player in the U.S. market, is a cautionary tale.

Launched in 2019, just a year after sports betting was legalized in the U.S., PointsBet saw revenue rise by 28% in H1 2023 to AU$178.1 million (US$118 million), but net losses grew by 22%, hitting AU$178.2 million. By FY2023, revenue reached AU$210.3 million (US$139.4 million), while total losses ballooned to AU$276.3 million. Despite handling more turnover in the U.S. than in Australia, PointsBet struggled to remain cash-flow positive and eventually sold its U.S. business to Fanatics.

As PointsBet Managing Director and Group CEO Sam Swanell explained, “Despite the strategic success building a valuable asset in the U.S., the costs of operating in a state-by-state environment, together with the requirement to build significant scale to compete against well-capitalized operators, led us to explore a number of options.” PointsBet’s decision to exit the U.S. market highlights the immense costs associated with state-by-state expansion, including licensing fees, marketing expenses, and operational overhead.

The difficulties faced by PointsBet illustrate the high stakes of competing in the U.S. sports betting market. In New Jersey, for example, operators must partner with a licensed casino or racetrack and pay a $100,000 fee to apply for a license, on top of the costs for marketing and launching their platform. PointsBet simply couldn’t keep up, and as the company bluntly stated, it “is not expected to be cash flow positive in the near term.”

While PointsBet chose to exit the race, DraftKings remains committed to its long-term strategy, even if profitability takes time. As CEO Jason Robins said, DraftKings is playing the long game, and slow and steady might just win the race.

The reality is that quick profits are nearly impossible in such an expensive, competitive, and still-maturing market. For companies like DraftKings, high marketing costs are necessary to secure a lasting market presence. As the U.S. sports betting market stabilizes, operators must continue navigating these turbulent waters while focusing on building a sustainable, profitable business. In some cases, companies like DraftKings may not turn a profit for years—but if investors continue to back them, that might not be such a bad thing after all.

By fLEXI tEAM