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DraftKings’ Rookie CFO Has Eventful Start With M&A, Fee Reversal

The logo for DraftKings is displayed on a laptop computer in an arranged photograph taken in Little Falls, New Jersey, U.S., on Wednesday, Oct. 7, 2020. The pricing of a DraftKings Inc. share sale combined with a fresh wave of Covid-19 infections across the National Football League sent shares of the online gaming company tumbling this week. Photographer: Gabby Jones/Bloomberg (Gabby Jones/Bloomberg)

(Bloomberg) -- When sports-betting operator DraftKings Inc. announced a set of leadership changes in March, attention focused more on the outgoing chief financial officer than his successor.

Co-Founder and Chief Executive Officer Jason Robins tapped Jason Park to fill the new position of chief transformation officer, ending his nearly five-year run as CFO. Replacing Park was Alan Ellingson, DraftKings’ senior vice president of finance and analytics.

The news came as a surprise, but markets took it as a pleasant one, with the shares up 13% in the week of the announcement. While Ellingson, 45, had never been a CFO, analysts expressed confidence; Morgan Stanley’s Stephen Grambling said the newcomer played an “extensive” part in developing DraftKings’ 2023 long-term guidance, reassuring investors that “the long-term strategy is unchanged.”

“I love the challenge,” Ellingson said on Bloomberg Chief Future Officer.

Since he took over as CFO on May 1, DraftKings has closed the $750 million acquisition of lottery app Jackpocket and announced a deal to purchase in-game betting platform SimpleBet. It made headlines in August when CEO Robins unveiled plans to implement a surcharge on bettor payouts in high-tax states — only to reverse course shortly afterward, citing customer feedback. Ellingson was at the helm for the company’s first profitable quarter since going public in 2020, then reported another loss last week.

DraftKings also pared its full-year revenue forecast to a range of $4.85 billion to $4.95 billion, trailing analysts’ $5.13 billion average estimate, because of “customer-friendly sport outcomes” early in this quarter. Still, DraftKings projected 2025 revenue will be $6.2 billion to $6.6 billion. “The fundamentals are super strong,” Robins said.

The upward revenue trajectory puts the novice CFO in the enviable position of focusing on long-term efficiency without immediate pressure to reduce expenses. “We want to grow our revenue into our existing cost structure, and there’s no need to reduce the costs as long as we’re being efficient with what we allow our cost growth to look like,” Ellingson told Bloomberg. 

Robins echoed that assessment. “We don’t need that necessarily to make next quarter or next year’s profits,” the CEO said. “It’s much more about how we build the most efficient, scalable company long-term so that we can win competitively and win with the customer.” 

Analysts are supportive, with the percentage of buy ratings on the stock — 82% — close to the highest since 2020. But investors haven’t been as patient. The shares tumbled 18% through Nov. 8 after touching a 2 1/2-year high in March in the wake of the leadership shuffle, trailing the 15% gain in the Russell 1000 Index.  

Betting Boom

The company’s main US rival is FanDuel, a subsidiary of Irish gambling giant Flutter Entertainment Plc. Together, they control more than two-thirds of a market where revenue has mushroomed by more than 2,000% since 2018, when the Supreme Court overturned the restriction of legal wagering on games to the state of Nevada. Sports betting is now legal in some form in 38 states and the District of Columbia, according to the American Gaming Association, Americans bet $119.8 billion on sports in 2023, with operators reaping $10.92 billion in revenue.

DraftKings is poised to gain as more states legalize online casino gambling, or iGaming. Buying Jackpocket gives DraftKings a platform to develop products for that anticipated audience, and ultimately create a single integrated site. “When we are able to cross-sell a customer from one product to another, it definitely increases the long-term value of the customer and the engagement,” said Ellingson. While pressure from land-based casinos is slowing iGaming adoption, DraftKings still projects $350 million to $450 million in incremental revenue from Jackpocket in 2028 in jurisdictions where it operates now.

Ellingson joined DraftKings in 2020 just before it went public, and was clearly ready for the promotion to CFO, Robins said. “We had seen so much of him and he had had so much exposure to all functions of the business,” the CEO said. “I knew he got it, I knew he understood it. There was no question about it.” 

While familiarity may give him an edge, Ellingson says his analytics background has taught him to resist complacency. “We’re in an evolving business,” he said. “We’re constantly evolving and tweaking and tweaking our expectations for how things should be performing.

“Being analytic means not being complacent with where you are, but instead constantly trying to improve your models and your formulas to better understand what’s going on.”

©2024 Bloomberg L.P.