Earnings Call: Q2 2021

Aug 6, 2021

Good day and thank you for standing by. Welcome to the DraftKings Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I I would now like to hand the conference over to your speaker today, Stanson Josh, Chief Legal Officer. Please go ahead. Good morning, everyone, and thanks for joining us today. Statements we make during this call that are not statements of historical fact constitute forward looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings. During the call, management will also discuss certain non GAAP measures that we believe may be useful in evaluating DraftKings operating performance. These measures should not be considered in isolation or the substitute for DraftKings' financial results prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the most directly comparable GAAP measures is available in our quarterly report on Form 10 Q filed today with the SEC and in our earnings presentation, which is available on our website at investors. Draftkings.com. Hosting the call today, we have Jason Robbins, Co Founder, Chief Executive and Chairman of DraftKings, who will share some opening remarks and an update on our business and Jason Park, Chief Financial Officer of DraftKings, will provide a review of our financials. We will then open up the line to questions. I will now turn the call over to Jason Robbins. Good morning, everyone. On today's call, I will cover 6 key messages. First, we generated $298,000,000 of revenue in Q2 due to excellent engagement from our customers and no discernible adverse impact from the reopening of the second, we saw positive legislative momentum continue with several states authorizing mobile's 4th way trend this year. 3rd, we continue to make big strides on products and technology, including the migration to our in house FedEngine. 4th, we are laying the foundation for our media and content business. 5th, we are launching an exciting new vertical in the non fungible token industry under the brand of DraftKings in the marketplace. And before turning it over to Jason Park, I will also provide an update on our ongoing responsible gaming initiative. We continue to deliver strong and healthy revenue growth in the Q2 of 2021. Revenue for the quarter increased 2 97% year over year $298,000,000 on a pro form a basis. Monthly unique players increased 281 percent to 1,100,000 an average revenue per monthly unique player increased 26% to $80 While year over year comparisons were obviously impacted by COVID, our results were very strong relative to our expectations. At this stage, we're not seeing any signs of the economy's reopening impacting demand for our mobile product offerings. We continue to acquire customers efficiently with CAC at or below our target. And as a data driven company, we will dial up or down our investments according to the numbers. Our MUP is also outperforming our expectations, which may be an indication that player LTVs could be even better than we thought. As of now, we are not making any adjustments to our models or internal cap target. Engagement in the quarter was outstanding across all our products, particularly during the NBA and NHL playoffs and final, major golf tournaments, Champions League, Copa America and the Euro Cup. We're also very excited about the continued traction we are seeing in combat sports such as the UFC. To give a sense of the engagement we saw in the quarter, excluding new states, NBA playoff handle and paid actives increased 82% and 47% compared to the 2020 playoffs. To give a sense of engagement on a more normalized basis, handle and paid actives for the NBA playoffs grew 2 93 119% in New Jersey compared to the NBA playoffs in Q2 of 2019. Also excluding new states, handle for the masters increased 47% with paid actives up 35% compared to the 2020 masters in November. Handle and paid actives for the masters grew 241% and 78% in New Jersey compared to the masters in Q2 of 2019. In fact, overall OSB handle in New Jersey grew 196% and paid actives increased 111% the Q2 of 2021 compared to the Q2 of 2019. IGaming gross revenue also continued to grow at an impressive rate in the quarter despite retail casino is reopening to full capacity in all of the 4 states where we operate with iGaming. The overall New Jersey iGaming market grew 33% Q2, which is even more impressive when considering that New Jersey iGaming has been available for almost 8 years. More importantly, DraftKings iGaming gross revenue in New Jersey grew more than 2 half times the rate of the overall market in the Q2, which is outstanding given the tailwinds we experienced in the same period last year due to COVID. Our business momentum has continued into Q3. On July 9, we announced an expansion of our existing exclusive daily fantasy sports and we are pleased to announce our sports betting relationship with Major League Baseball. As an official sports betting partner of MLB, our brand will be visible throughout digital odds the DraftKings account will be able to watch a free live MLB game within the DraftKings app. July 10 was an all time top ten day for acquiring new mobile sports betting even though July is traditionally our slowest acquisition month of the year. This critical day included the Wimbledon Women's Championship, Brazil versus Argentina in the Copa America final and the Poirier versus McGregor fight. On July 15, we received a license from the Louisiana Gaming Control Board to launch our fantasy sports product and approved parishes in the state. We moved forward with the launch on July 16. Arizona also recently legalized Fantasy Sports, and we are actively preparing to launch in the state pending receipt of licensure and regulatory approval. And on July 21, we revealed plans to launch DraftKings Marketplace, which I'll comment on in a few minutes. Looking ahead, due to the continued outperformance of our core business, we are raising our revenue guidance, which Jason Park will cover in more detail a little bit later on the call. Turning to legalization trends. We have seen continued momentum in both mobile sports betting and iGaming legislation. In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting, 5 state legislatures have introduced legislation to expand their existing sports wagering framework, 2 state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, 4 states have introduced iGaming legislation and 3 states have introduced online poker only legislation. 6 of the states where DraftKings has the potential opportunity to participate via a market access agreement or direct license: Wyoming, Arizona, New York, Maryland, Louisiana and Connecticut have already authorized Mobile Sports Wagering this year. These 6 states represent 13% of the U. S. Population and brought the percentage of the population with legalized mobile sports betting to 39%. DraftKings is live with online sports betting in 12 states that collectively represent 25% of the U. S. Population. Additionally, DraftKings is live with Igaming in 4 states, representing approximately 10% of the U. S. Population. Connecticut is also authorized I gave you, which would add about 1% of the population. I want to provide a bit more color on Florida and New York. In Florida, we have teamed up with FanDuel and Florida Education Champions to collect approximately 900,000 verified signatures. If we are able to successfully collect those signatures, we will have a mobile sports betting question on the ballot in November 2022. It is our shared goal to have a safe, legal, regulated and competitive market for online we are pleased to report that we are in the Sunshine State, and Floridians deserve a market leading and technologically advanced product offering. In New York, the RFA for mobile sports betting was issued in July, and we are prepared to respond in a fulsome and timely manner. We look forward to the potential of offering mobile sports betting in New York. Turning to Canada. We continue to believe that the country represents a very meaningful opportunity, and we have seen strong legislative progress this year. At the federal level, the bill to repeal the single game sports wagering prohibition has passed the legislature and received royal assent. During market. For context, Ontario represents about 40% of Canada's population. If Ontario were a U. S. State, it would be the 5th largest state by population. We're excited about this momentum and we look forward to further progress in Ontario and Canada as a whole. Moving on to product and technology. I'm very pleased to announce another quarter of significant progress. As we have mentioned in the past, we believe that the long term winners in this industry will have a relentless focus on bringing the best product experience for mobile sports betting, we have completed our back end migration in 11 states and have just one state left pending final approval. Being vertically integrated will greatly enhance our ability to continuously drive differentiated products and customer experiences and offer markets unique to DraftKings. For example, we are happy to announce that we have launched Same Game Parlays. Same Game Parlays are a sought after feature from our customers that we are now able to offer due to our vertical integration. In addition, we are on track to bring other new features, including new in game markets to our customers by the start of the NFL season. We signed a multi year sports data supplier agreement with Genius Sports, which gives us access to Genius' full portfolio of global sports data and content, including official NFL data and content. The terms of this deal are consistent with our long term gross margin expectation. For iGaming, we added DK Krap to our mobile casino suite in New Jersey with Pennsylvania, Michigan and West Virginia to follow pending approval. The game is a DraftKings exclusive and built in house. Craft is a challenging game to develop given the seemingly endless path players can take, our internal teams were able to deliver an authentic and truly differentiated craft experience. In addition, we have launched our jackpot technology, which is enabled by our prior acquisition a blue ribbon. Over the past quarter, we have taken additional meaningful steps to begin building out our media business. We firmly believe that DraftKings has an exciting opportunity to play in the media space given our brand recognition and trusted relationship with 1,000,000 we will be pleased to announce that we will be making progress in our DFS, OSB and iGaming verticals. We also have tremendous relationships across the industry with sports partners and media entities as well as newly acquired assets like Zviathan and our distribution relationship with Meadowlark. When analyzing the media vertical, we see 3 critical factors that will lead to our success in both the short and long term. Media is a logical adjacent vertical to BFS, OSB and Igaming customers through our content assets such as Viesen and distribution relationships such as Meadowlark. We believe we will also be able to improve retention of our DFS, OSB and iGaming players as a result of our differentiated media content. Given our well known brand, millions of paying customers, ownership of proprietary content in the form of gaming and DFS data and the vSAN platform, we will have the opportunity to be a unique content provider in the sports and entertainment space. Media in of itself is a great business, which has the potential to diversify our revenue streams through ad sales, content distribution deals, potentially even recurring subscription revenue. Suffice it to say we are very excited about the future of our Media and Content business and we will continue to update you on this topic in the coming quarters. We are continuing to explore exciting new growth sectors, some of which we can pursue organically, some inorganically. On July 21st, we reveal plans to launch DraftKings Marketplace, a digital collectibles ecosystem designed for mainstream accessibility. DraftKings Marketplace offers curated NFT drops for U. S. Dollar purchase and supports secondary market transactions. Our first NFP drop will be in the near future and instantaneously millions of customers will have the ability to seamlessly buy and sell digital collectibles across sports, entertainment and culture using their existing DraftKings account. This first drop is enabled by our exclusive sports content distribution relationship with Autograph, we've established exclusive relationships with prominent iconic athletes such as Tom Brady, Wayne Gretzky, Tony Hawk, Derek Jeter, Naomi Osaka, Tiger Woods and more. We are pursuing this vertical because it fits the criteria we have outlined to you in the notably that NFTs offer a logical cross sell opportunity with our existing customers. As a result, this vertical can enhance customer stickiness in LTV as well as the potential for new customer acquisition through affiliation with these iconic athletes' fan bases. It also has very attractive economics given the large potential revenue opportunity based on transaction fees, modest initial investment and excellent EBITDA margins. We also continue to explore other vectors, including deepening and strengthening our existing product offerings and geographic expansion outside of the U. S. I also want to provide some recent updates on one of our highest ESG priorities, Responsible Gaming. DraftKings' Responsible Gaming mission is we will leverage technology, employee training and evidence based research to protect consumers. In the Q2, we announced 3 ways we are advancing this critical mission. In May, we made a financial commitment to the International Center For Responsible Gaming Fund to support research on sports wagering. As a result of DraftKings' contribution, the ICRG was able to proceed with the competitive request for applications from researchers around the world who are interested in pursuing groundbreaking research. In June, we collaborated with the American Gaming Association to promote the AGA's Have a Game Plan, debt responsibly public service campaign. DraftKings is committed to publicize the campaign in many of the company's own channels, including at DraftKings Retail Gaming Properties to promote Day for Play. This collaboration marks the first time in the industry that the Have a Game plan campaign will be comprehensively rolled out across the national retail sportsbook footprint. Most recently, we finalized a strategic consulting agreement with the division on addiction at Cambridge Health Alliance, which is affiliated with Harvard Medical School. In coordination with the DraftKings' Responsible Gaming team, the division on addiction will create an innovative systems based pay for play approach to training employees across the business in Responsible Gaming. Responsible gaming is an area in which we will continue to work with the industry and invest in as a company. We are committed to continually improving and evolving we can best support our customers with gold standard tools for proactively identifying, intervening and providing guidance so players can set limits, effectively utilize cool off periods and self I will now turn the call over to DraftKings CFO, Jason Park, who will discuss our Q2 results and revised expectations for 2021. Thank you, Jason, and good morning, everyone. Before I begin, I want to remind everyone that we will be discussing our results on a combined company pro form a basis to improve comparability as if we owned our B2B business starting on January 1, 2020 rather than on April 23, 2020. We are pleased to announce that we generated $298,000,000 in revenue for the quarter, representing a 2 97% versus Q2 2020 revenue of $75,000,000 Our B2C business generated $270,000,000 for the quarter, representing a 383% increase versus prior year. We continue to drive strong growth in players and player retention as measured through MAP as well as player engagement and monetization as measured through ARPMOP. B2C monthly unique payers in the quarter increased 281% year over year to 1,100,000. The increase reflects strong unique payer retention and acquisition across DFS, OSB and iGaming. The expansion of our OSB and iGaming product offerings into new states and the lack of traditional sports for much of the Q2 of 2020. Q2 MUPS represented typical seasonality with Q2 being a slower sports quarter than Q1. Average revenue per monthly unit payer or ARP MUP it was $80 in Q2, representing a 26% increase versus the same period in 2020. Our ARP MUP was positively impacted by the return to our more normal sports schedule, which resulted in stronger and more consistent customer engagement across our DFS and sportsbook product offering. The launch of our sportsbook and iGaming product offerings all states also positively impacted our product mix. We also continue to drive engagement across our B2C product offerings as we cross sell our users into more products. Clearly, a portion of the tremendous year over year growth of our B2C business is due to the sports cancellations and postponements that occurred in Q2 2020 due to COVID-nineteen. 2nd quarter 2021 revenue also exceeded our expectations, not only due to the over performance of our core business as a result of continued strong acquisition, retention and monetization, but also due to higher than forecast OSB hold percentage, which contributed about $20,000,000 to our outperformance in the quarter. Year to date in 2021, higher than forecast OSB hold percentage has contributed approximately $40,000,000 to our outperformance. B2B revenue was $27,000,000 for the quarter, up 44% versus prior year, which was negatively impacted by COVID. We generated $139,000,000 of gross profit dollars on an adjusted EBITDA basis for the entire business in the quarter, representing a 2 23% increase versus prior year period. Gross margin rate on an adjusted EBITDA basis for the business was 47% in the quarter. As we have noted in the past, our gross margin rate is impacted by a mix shift out of our more mature and thus higher margin DFS product offering and into higher growth rate and lower margin OSB and iGaming product offerings. In addition, gross margin rate within a period is impacted by promotional intensity, typically most intense when a new state launches and at the beginning of a major sports season as we aim to acquire customers. Gross margin rates for OSB will be positively impacted by the conversion to our own bed engine, which is now complete in all states but one pending approval, though we will continue to pay our 3rd party bed engine provider through the end of Q3 2021. Adjusted EBITDA for it was negative $95,000,000 as we invested in external marketing and in our product technology and G and A function. Our sales and marketing expenses were 157,000,000 which included our external marketing. External marketing was higher than prior year due to there being a full sports calendar in Q2 2021 versus the COVID impacted calendar in Q2 2020 as well as being live in 12 total states versus 8 in Q2 2020. We are continuing to see very attractive PAC opportunities that support this investment in marketing. Our general and administrative technology costs on an adjusted EBITDA basis were $41,000,000 $36,000,000 respectively, as we continue to invest to achieve scale in our back office functions such as customer service, finance and accounting, legal and human resources as well as adding to our technology team. A majority of the combined $17,000,000 of year over year growth in these two expense lines was from compensation. Much of the headcount growth was in our customer experience department, where we are focused on providing best in industry customer experience it's largely a variable cost impacted by our rapid growth in MUP. In the quarter, we expensed 226 dollars 1,000,000 in items that we exclude from adjusted EBITDA, but are included in GAAP operating income, including $172,000,000 for stock based compensation and $54,000,000 for amortization of acquired intangible depreciation and other amortization and other non recurring expenses. The expense associated with our stock based compensation awards is based on a defined service period for our time based brands and a probability based model performance based and long term incentive plan grants. Our Board grants equity awards to retain, motivate and incentivize key employees, align their interest with those of shareholders and tie a significant amount of their compensation by working together to produce outstanding company performance. Moving on to our balance sheet and liquidity. We ended the quarter with $2,600,000,000 of cash on our balance sheet. We are very well capitalized to execute our multi year plan and address our key priorities of customer acquisition, entering new states as they legalize, continuing to lead the market on product innovation and exploring opportunistic and accretive M and A. Looking at the rest of 2021. On our first earnings call in May, we increased our 2021 revenue guidance to $1,050,000,000 to $1,150,000,000 from $900,000,000 to 1,000,000,000 given our continued strong performance in 2021 and underlying acquisition, retention and monetization of players, we are increasing our guidance to $1,210,000,000 to $1,290,000,000 of revenue for 2021, which equates to year over year growth of 88% to 100%. We are raising the midpoint of our 2021 revenue guidance, which results in implied second half growth of more than 40% based on our strong results in Q2 and Q3 to date as well as our demonstrated and continued plan for strong user engagement and efficient customer acquisition. We expect both MUF and ARPMUP to grow in 2021 with MUF increasing at a higher rate than ARPMUP. We also assume that all professional and college sports calendars that have been announced come to fruition and that we continue to operate in the states in which we are alive today. These states collectively represent 25% of the U. S. Population for mobile sports betting and 10% of the U. S. Population for iGaming. Though Wyoming, Arizona, Maryland, Louisiana, Connecticut and New York have authorized mobile sports wagering, we do not know the exact date these states will launch, nor in the case of New York, the results of the selection process. As such, we are not including them in our revenue guidance. The underlying strength in our business he is responsible for the revenue guidance increase. Regarding our 2021 quarterly revenue cadence, we have a high conviction plan in place for the start of the NFL season and have incorporated sensitivities on a variety of internal and external factors, the largest being support outcome variability. Based on this analysis, we expect Q3 to be roughly 17% of the midpoint of our new 2021 revenue guidance, which is similar in dollar terms to the guidance we shared with you on May 7. Due to ongoing excellent customer retention, the efficacy of our customer acquisition investments and new product features, we expect Q4 to account for approximately 34 we expect to be approximately $1,000,000 of our revenue for the year based on the midpoint of our revised guidance range. While we are not providing guidance for we expect to continue to be in the range of $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000,000,000 our results since the economy fully reopened confirmed that our CAC continued to be very attractive. Based on the attractive LTV to CAC ratio opportunities we're seeing, we plan to continue to invest in sales and marketing to take advantage of these circumstances. From a quarterly perspective, we plan to deploy and optimize, but overall similar promotional and marketing campaign as we did in Q3 of 2020, including more activity in the later part of the quarter, which will disproportionately affect adjusted EBITDA in Q3. In the Q4, we expect a slight improvement compared to adjusted EBITDA in the second quarter as we monetize our Q3 promotional and marketing investments and benefit from higher seasonal revenue. As a result, we expect our adjusted EBITDA loss in the second half of twenty twenty one to be approximately 60% of our total annual loss for 2021. Before wrapping up, I want to touch on state level unit economics. As you know, our business model is predicated on states turning profitable after 2 to 3 years due to underlying LTV to CAC dynamics. At this point, I want to affirm our outlook for our most mature state, New Jersey, which we said would generate $210,000,000 in net revenue and $65,000,000 in contribution profit at our March Investor Day. Our other states are on a similar trajectory and I look forward to providing you updates on those in the near future. As a reminder, our marketing spend is highly flexible and can be reduced or paused altogether if the sports calendar shifts or if LTV the CAC opportunities become less attractive. Our spend is also impacted by the launch of new states. That concludes our remarks and we will now open the line for questions. And to withdraw your question, press the pound key. Please standby while we compile the Q and A roster. Our first question will come from the line of Shaun Kelley from Bank of America. You may begin. Hi, good morning everyone. Thanks for taking my question. I was wondering if we could just dig in a little further on the customer acquisition spending outlook for the Q3 or the back half, maybe just help us a little bit with the timing. It looks like you got very good cost leverage this quarter with on the sales and marketing line and those numbers coming down sequentially. So just what's the right expectation for thinking about that investment especially into NFL and giving the timing of probably some of your larger broadcast contracts and the like? Thank you, Sean. So really we're going to I'll start with we've seen recently that while we had kind of expected or at least thought there might be some slowdown in performance due to the reopening. We're not seeing that. So based on what we're seeing today, I would expect we're going to get very good results going into NFL, NFL is basically like our holiday season. It's when we acquire the most new players and reactivate large portions of the player base. We do have a lower CAC target, as the players that we acquire tend to be a little bit more casual than the ones that we acquire in, say, Q2. So we're going to manage that CAC target and we'll dial the investment up or down accordingly based on results, which is really hard to predict. I mean, we always learn a lot the 1st weeks Going into NFL and based on what we've seen recently, I would expect strong results will continue and we want to invest into it, but it's really hard to say and we'll be monitoring the data on an hourly basis and turning campaigns on and off accordingly. Thank you very much. Our next question will come from the line of Stephen Grambling from Goldman Sachs. You may begin. Hey, thanks. I guess just following up on the outlook, I think that you referenced that the dollar guidance is roughly unchanged when we think about the math, I guess, what are some of the puts and takes to think about that could drive numbers above or below, I guess, as we think about strong growth that you've seen and it looks like that's embedding some deceleration. Are you talking about Q3 specifically? I guess both Q3 and Q4. I think we raised a little bit in the back half of the year, but you're right. We aren't necessarily banking on the over performance we've seen in Q1 and Q2 carrying over. I think that continues to be us being a bit cautious about what this NFL season might look like. Obviously, COVID has been up and down and we could see this swing either way. But based on what we see today, everyone's going to be back in stadiums, gatherings we'll be back to normal generally in most places. So we're just being a bit cautious given how significant the NFL period is for customer acquisition and activation What we think will happen in the back half of the year. Also, there's only 3 weeks of NFL in Q3. So, it's not It's an interesting period because you activate a lot of players, but a lot of their spending comes in Q4. So the ARP mob is typically not as high in Q3 as we see in other quarters. So that's something we're also paying attention to. Got it. And I guess the NTAA being back would be maybe a partial offset. I guess one follow-up, I guess on the SB Tech integration, I know that you talked about some of the increased functionality, how are you thinking about the kind of milestones? Do you feel like the most challenging aspects are behind you? Or do you still have to test it through the NFL season? Thank you. Yes. That's a great question. So we've definitely tested it quite extensively over the last few weeks. We've migrated in all but one state. That one is pending approval. So we feel pretty good. Obviously, we want to see how NFL looks From a trading perspective, but we've done pretty rigorous testing throughout the other sports on the calendar, and we feel pretty good about it. We launched Same Game Parley's last week, which was a big feature that our customers have been asking for, also typically has a higher margin. So we have not built in any additional revenue or any additional whole percentage based on new features we're launching. We don't Sort of building off what you said, we want to test those things and see how they look going into NFL before we would promise any more based on it, but we do think that there's some potential upside in the new features that we'll be launching in the coming weeks months. Thanks. Best of luck. Thank you. Our next question will come from the line of Jed Kelly from Oppenheimer. You may begin. Hey, great. Thanks for taking my question. Just following back up on the SB Tech and the same game parlays, I expect you plan to market that product into NFL. And do you think that will close the yield gap with some of your competitors that are a little more vertically integrated? And then another question, just on the seasonality of mops, the decline in sports betting. Jason, how do you think of sort of making sports betting a year round phenomenon and not as seasonally dependent on football? Thank you. So on the first question, I think that we certainly have seen evidence across other companies and in the marketplace that same game parlays have a higher yield. So we could certainly See that we have not built that into any of our forward looking guidance. So, we're not counting on it, but it's something that we're certainly hoping will be the case. And in general, I would say we're not really trying to maximize whole percentage at this stage. We're onboarding a lot of new customers. It's the early days of the industry. So really we're focusing on getting people onto the platform, getting them active and there will be a I'm in a place where we'll focus more attention on increasing whole percentage. It's just not right now. And then sorry, what was the second question? Just on mops, we saw a seasonal decline. I mean, how do you think about sort of making sports betting more year round and not as Depending on football, it might be impossible, but how do you think about that? Yes, you're I don't know. Certainly, we think that as more people try more sports. It will smooth out a little bit. There are certain sports like soccer, which are very popular among the younger generations, which I think over Time will increase. But you're right, the sports themselves are seasonal. So it's very hard for us to control anything when there's popularity differences Different sports and they're only certain times of the year. As hard as we may try, we're not anytime soon going to be able to get more people to bet on basketball or baseball than they do on NFL. It's just based on the And they do on NFL. It's just based on the fan base size. So that's something that I think just we'll always have to kind of live with But what we can do is continue to launch other types of products. So obviously, iGaming has been a good one for us. That's something that people can play year round. We're cross selling very effectively onto that product. So, while certainly we see bumps when there's more actives, we do think it's a bit smoother seasonally. We recently announced that we're launching the marketplace. So NFTs, I think, will be a year round thing, there might be some seasonality given the sports focus, but we're also going to branch into NFTs for other things outside of sports. So I think as that continues to grow in the coming years. We'll see that help smooth out. So I think really that's the way that we're looking at smoothing out seasonality is just trying to diversify into other products that we can effectively cross sell our customers into and might have a little bit less seasonal variation. Thank you. Our next question comes from the line of Michael Graham from Canaccord. You may begin. Yes. Thank you and congrats on the great performance. I wanted to ask 2, 1 on ARPMUP. Jason, if you could just take us under the hood a little bit on what's driving that strength. You mentioned cross selling a minute ago. Is it iGaming? Is it more sports being engaged in by each player or bigger bets from players or just can you tell us anything that help us understand that? And then, you had mentioned a long time ago that when you got to 1 third coverage of the United States that you would switch a lot of resources towards national ads. And I know you're sort of like Almost there, but not quite there. Just wondering if you could update us on sort of how you're thinking about the marketing mix going forward? Thanks for the question. Regarding Artemap, certainly there's some seasonality to it, Q3 because it's a high quarter, but only a few weeks of NFL to monetize. I think we'll have lower ARPM up in Q2. But even relatively speaking, meaning Year over year and actually given the sport calendar change really looking at 2019, it can be helpful versus Q2 of 2021. I think that we're cautiously optimistic that we might just have a higher LTV player than we thought, and I think that's probably the biggest driver beyond anything else. We have also improved cross sell rates, so iGaming is helping. But We have also improved cross sell rates, so iGaming is helping. But even on the course sports betting products, I think that it's still looking like ArtMop was higher than expected, again, with the caveat that it's hard to compare anything Q2 this is 2020 Q2. And looking back at 2019, it was a very different time than only a few states that we had. I think live would sports betting at that point. So actually, I think it might have just been New Jersey at that point, although I could be wrong on that. There might have been 1 or 2 others. Never mind, I'm sorry. It was New Jersey, West Virginia and Indiana at that point. So there were only a few. So it's a little hard to compare, but That's why we've also not changed our CAC targets. We're not counting on higher LTVs, but we're certainly optimistic cautiously that, that could be the case and we're going to be monitoring That in the coming quarters and hopefully we'll have more data as the sports schedule stabilizes and it's easier to make year over year comparisons. And then the second question was sorry, can you remind me what the second question was? National ad spend. Oh, national ad spend, right. So we're at right now 25% of the population. I do think there's a possibility that some new states will launch either right before or during the NFL season, Wyoming and Arizona being 2 that seem like they're on a good track and I think others like Louisiana may get in there as well. And if that happens, I still don't think we'll quite be at 33%. But I do think you'll see us start to mix some national advertising in this year to test. I think it's important that if we're planning on shifting quite a bit as we get into the mid-30s and 40s level, international advertising that we have some data in this NFL season to look at to be able to optimize for next year. So you will see us start to test into that this NFL season. Great. Thank you. Our next question will come from the line of Bernie McTiernan sorry, Bernie McTiernan from Needham and Company. You may begin. Great. Good morning. Thanks for taking the question. Just a follow-up before, Jason, you mentioned a bit more cautious Just on the NFL, I was hoping you could dive into that a little bit more. Is it competitive environment or something else you were referring to? Well, I think we're still waiting to see what a year potentially people in stadiums and more of an open economy looks Like that's the biggest factor. Of course, that could change. We also don't know that. So I think there's a lot of moving variables and we're trying to exercise caution and not getting overly bullish based on results that we've seen early on suggesting that the reopening is having no adverse effect on the momentum we've seen. If we get an NFL season under our belt with the economy generally open around the country and around the states we have online Sports betting and iGaming, I think then we start to feel really good that, we're not going to see any adverse impact and that, it's really just truly momentum in the industry and with drafting. Understood. And then just to drill down the NFT marketplace for a second. Could you just talk about like what the economics of a transaction in the marketplace are, the level of investment of time and money that it will take and kind of what's the upside opportunity. I think there's 3 or 4 major NFT marketplaces right do you need to be a top operator to really move the needle for the company? Or is that the right way to think about it? I think it is the right way to think about it because being a marketplace, having liquidity is important. That said, we also have exclusive rights that we've secured through our relationship with Autograph to be able to sell NFTs that are for top athletes like Tom Brady, Wayne Gretzky, Larry Musaka, Tiger Woods, Derek Jeter and many others, Tony Hawk, many others. So, we feel pretty good that having that clusivity, no matter how liquid our marketplace is initially will drive a lot of traffic. But over the long term, I think being a marketplace, it's to have the highest or close to highest level of liquidity. People are going to go where there's the most buying and selling when they're posting secondary transactions and things like that, Which is true of any marketplace really. So, I think that is how we're looking at it. We do have a much larger user base than any of the other online sports betting into other states. I think that having a big database with millions of active customers will really be a leg up for us. And it just comes down to how effectively can we cross sell. And I think we feel pretty good about that given our track record of selling other cross other products, but this is also our first foray into something that's a little bit different. So we're going to have to see how the data shakes out. Understood. Thanks for taking the questions. Thank you. Our next question will come from the line of Ben Chaikin from Credit Suisse. You may begin. Hey, how's it going? It looks like the it seems like the media angle is particularly interesting. You talked about MLB streaming. Think you mentioned exploring some subscription revenues, if I caught that. I guess when it comes to unique sporting event require a one time payment or some type of exclusive access. I guess I'm thinking like boxing or out of network game. Why not offer a promotion that allows access upon sign up and deposit with DraftKings? High level, it just seems like the cost of that versus your normal DAC is compelling relative to other channels. Is that something you could do? And then forgive me if this question lacks awareness in some way and there's an obvious answer why it wouldn't work. Thanks. I think it's a great idea. That's definitely something we've talked about. In order to do it, it depends on the event, but most of the time you have to have the rights. So That's something that we'll look into exploring as well and those rights of course cost money. So while giving it away is one way to look at it, it's actually really the cost of the rights that matters, which of course are lower than the cost of the pay per view because that's how money is made by companies that traditionally do that. So That's something that we're absolutely looking at amongst other things. We're still very early in developing our media strategy. Our goal is to have much more of fleshed out by the end of the year and have explored some of those opportunities in the marketplace such as the one you mentioned to see if it could be something that works for us. We do want the media vertical to on its own be a profit generating vertical, certainly over the long term. I think we have the flexibility to not do that if we wanted to. But as of today, we believe that we can both make Profit directly in the vertical and have the synergistic benefit of being able to acquire and keep retain users using the content that we put out there as well. Got you. That makes sense. And then just quickly, follow-up or second question would be, I think, I know Canada is not in your numbers, but it sounds like Ontario is going to be live maybe by the end of this year, October, November, who knows. But will that follow us will Canada follow the more cadence to how you've launched new states? I think you've provided some guidance around New Jersey and other states about how you think about promotion and external marketing? Is that a reasonable way to think about Candid? Or is there a different format just because this is a little size wise is different? I think we look at it the same way. It's an LTV to cap question. We have plenty of daily fantasy customers in Canada and we See really any differences between their spend levels and the customers that we have in the U. S. So I don't really have any reason to believe it's different. The interesting thing about Canada is that most major operators around the world have been in Canada for quite some time. It's a little bit different than new U. S. States where they're opening up. And in some ways, I think we have to focus on taking customers that have already been playing, as much as trying to convert new customers, which it's why we projected a lower long term market share for Canada than we have for the U. S. One thing I wanted just on your previous question note as well that occurred to me after I answered. A lot of pay per views that distribute through multiple platforms, they actually have in their contracts with the platforms they distribute on that no one can give away for free or even under a certain price because it undermines the other platforms. They would say why would anyone pay to for a pay per view on my platform if they're getting it free elsewhere. Very common in the media industry. There's lots of things like this. MFNs are a very common thing and also restrictions on what you can and can't sell things for are very common. So that's something we would have to work around unless we had exclusive rights to distribute a pay per view. Makes sense. Thank you. Thank you. Our next question comes from the line of Robin Farley from UBS. You may begin. Great. Thanks. Can you quantify a little bit of how much of the revenue raised for the year is due to new initiatives like Marketplace? Hi, Robin. We have not built in any additional revenue expectation from new initiatives. We really don't have enough Data, we have no data to base it on. So, we haven't assumed any new states. We haven't assumed any new initiatives generating revenue. Those are all things that once we have a little bit more clarity on the state side as to which states and when might go live, we would be able to update. And then as we get a little bit of data on new initiatives, I think we'd be able to update that. That said, I wouldn't that new initiatives to generate a huge amount of revenue this year. This will be very early days of us launching them. Obviously, we have very strong conviction and are very excited about the long term prospects and think that the markets that we're entering like NFTs could be really, really large, but it will take a little time for those new products to ramp. Okay. Thanks. And then other question is on the agreement that you signed With GeneSforce, you mentioned you access to all of your other data outside of the NFL or that that was part of the deal. Does that lower your cost in some way for things outside of the NFL? In other words, was it packaged with other things that lowers the cost that you've been paying for that data elsewhere? It's a great question. We aren't really able to give any specifics on that contract, but what we will say is that, we do not expect any adverse effect to our long term gross margin projections based on the pricing that we receive. So, I think you can kind of read between the lines based on that. But due to confidentiality, we're not able to disclose any details of the contract. Okay, great. Thank you. And our next question will come from the line of David Katz from Jefferies. You may begin. Hi, good morning, everyone. My one question is and it's one that I've asked a few quarters back, but not lately is around in game wagering and the breadth of offerings there. Obviously, we're reminded by the Parley indication. If you could just talk about the breadth of offerings, where you are today and what we can reasonably expect in the future? And is that something that's entirely driven within the confines of SVtech or are there other B2B services or tuck ins or other things you may need to fully build that out? Thanks. Thank you. One of the things that really we've noted we're excited about with now having migrated to our in house platform is the ability to drive innovation and things like in game wagering and other innovative types of bets that previously we had a lot more dependence on our partner, Camby, for. So we're really excited about that. And it's been an all consuming thing, the migration. As you can it was a large project, the largest we've ever done from a product and technology perspective. And it's a real testament to the great people on our product an engineering team to be able to have not only done that a little bit ahead of schedule, but also to have continued to launch new things, including our upcoming launch of Marketplace, but also several new states and other sorts of things along the way, including PK Crafts and many iGaming games that we released. So really just I'm so proud of that team for not only ahead of schedule completing a very smooth migration, but also continuing to innovate. But it is true that it was very all consuming. And so I think now that that's mostly behind us, we do still have one state left. We're really in a position to start focusing on driving innovation and launching new things. As far as 3rd parties, much like our iGaming product, we're going to do both. There's just a speed to market aspect of being able to integrate different providers and also at the same time launch things ourselves and much like what we're doing with Igaming, we'll look at things that either we can't get through 3rd party providers or economically it just makes sense for us to bring in house. And we'll We'll do that over time, with the goal being most things are in house over the long term. But there's just such a long tail of Different types of bets and same thing on iGaming, different types of games that there's always going to be a mix of things that we've completely built on our own and things that we've built either We are in partnership with 3rd parties. Okay, perfect. Thank you. Our next question will come from the line of Joe Stauff from Susquehanna. You may begin. Good morning, Jason and Jason. Good morning. One other question to add on regarding your product offering. How do you think about especially given your newfound flexibility in the in house platform about extending out to different consumer segments. Again, whether they be offshore or something, I know it's not an immediate thing, but how do you think about extending your product into those other consumer segments say over time? So I definitely think that there's an opportunity as you noted to expand globally and that's something that we're looking at doing either inorganically or organically or a combination of the 2. But I think within sports betting, the opportunity to maybe branch into other sports that we haven't had as deep of an offering that could reach different types of is interesting and I think something that we're exploring. And then outside of sports, which we've always It isn't specific to the migration, of course. We definitely feel in the iGaming segment that we do better with people who are sports fans that we can cross sell and we've been working hard to try to extend our brand and extend our reach into the non sports fan iGaming audience and that's something I think we've been getting a bit of traction on, but really need to continue to invest. I think that's probably the biggest opportunity for us now in terms of consumer segments that we're just not penetrating at the moment. Thank you. Our next question comes from the line of Steven Vallegola from Cowen. You may begin. Hi, thanks for the question. I just wanted to unpack the announcement with Genius yesterday a bit more on same game parlays. Were the same game Parley's launched on the app, a product built in house by DraftKings? Or are you using Genius' Bet Builder product? And if it is Genius' product, why are you using their product? I believe BetMGM is also using that same product and FanDuel has developed An in house parlay product. So if you can just talk around that, please. Yes. I mentioned this A few moments ago, but we're going to put out a mix of different things that are organically developed and things where we're partnering and it's going to depend on a variety of factors such as the opportunity cost of building them in the short term, the actual cost of 3rd party, in this particular case, it was packaged up with a larger deal. So we felt like it was a good way to get same game parlays into the market Really quickly in advance of NFL and it frees up our engineering time to focus on other things. So that's a lot of how in the we're going to look at it as if there's a good solution that gets us something that's as good or better than what our competitors have. And we can free up engineering bandwidth to focus on other things that maybe our competitors don't have. That's going to be the initial focus. And then over time, I think we will take things that prove to be large parts of our offering that we think there's an economic benefit Vertically integrating and focused on those. But in the short term, it's really about as quickly as possible having the broadest and deepest product offering since we at this stage of game, getting maximum activation and retention of consumers is the most important thing. All right. Thanks, Jason. But just to be clear, so that is it is the you are working that is the BetGenius product and that is on the app right now for the Parley? I believe so. I know we were using because we just announced the deal, I think yesterday and we had same game parlay as we launched Earlier this week, I know we were using another provider. I'm not sure if we fully switched over to Vetgenius yet, but that's the plan. Okay. Thank you. Our next question comes from the line of Barry Jonas from Truist Securities. You may begin. States have been slower to legalize iGaming than say sports betting. I know your expectations there aren't as The same as sports betting, but what do you think needs to happen to get more momentum on the iGaming legalization front? I think we've always felt and I think have said that it's going to be sports First and then iGaming. I think that it's just the kind of natural evolution of things that states are going to be more comfortable in many cases going sports First, and then once they get used to the tax revenues coming in, see more and more states doing iGaming, we think more and more states will get comfortable with iGaming as well. Some states such as Connecticut this year chose to do them all at once. Michigan did the same thing. Pennsylvania did the same thing. We may see that here and there. And then we may see states like West Virginia, for example, that did sports betting first and then a year or 2 later did iGaming. So think it will be a mix, but we certainly expect the momentum to be first with sports betting legalization and then iGaming to be something that follows that. And I think that in terms of your question about how to get them comfortable, I think there's really 2 things. One is just Most states don't want to be the guinea pigs. So more and more that they see other states, particularly, it tends to be regional in their geographic areas Doing it and the more that they feel like everything is going well and the playbook on how to regulate it is clear, the more I think comfort they'll get. I think also seeing how much tax revenue can be generated and back to the kind of regional point, if there's bleed from States like right neighboring them because they have iGaming and a state that's chosen to do sports betting does not. I think that it could be a reason that they move faster, but it's really just time. And we're going to continue to push the message out there that this is something that can be done in a safe manner. We have great guardrails in place and are continuing to invest in getting better at responsible gaming and there's gaming and there's real meaningful tax revenue that can be generated by adding that product. Thank you. Our next question comes from the line of Ryan Sigdahl from Craig Hallum Capital. You may begin. Good morning, guys. Thanks for squeezing me in. Nice metrics on New Jersey iGaming that you gave, really strong performance there. What do you think is driving that accelerated market share gains recently here versus the past several quarters? And then secondly, why do you think you're having more taking share on iGaming versus OSB? Thanks. Great question. I mean, I think iGaming is actually and hopefully it foreshadows OSB, a great example of where we've invested in launching our own games and enhancing our own products. And for example, we mentioned we had launched our own in house craps Last quarter, and I think that that's really helped, generate momentum and gain market share. And we've been really consumed with the migration and also of course there are many things we couldn't do on the product front before migrating. So I think now that we're finally in a position where we control our own destiny there and we're able to innovate, I hope to be able to do many of the same things that we've done in the last several quarters on the iGaming front product wise, and we hope that, that helps us gain more share and retain and acquire customers more effectively. Great. Thanks guys. Good luck. Thank you. And our last question for today will be come from the line of Mike Hickey from The Benchmark Company. You may begin. Nice. Good morning, Jason. Nice quarter guys And Guy, congrats. Thank you. I guess 2, just first one, just any progress you've made on sort of adding social layers to your app. I think that was sort of a theme on your last call with the tie in on retention there on your user base. And the second question on NFTs, just curious, obviously, the cross sell opportunities seems like a no brainer. But curious on the user acquisition side, thinking about NFT offerings, maybe tied into live events and that can bring players into the ecosystem. Thanks guys. Thank you. Social is off to a great start. It's very early. I mean, we launched an MVP only a few months ago. And so we still feel like we have a very lengthy and exciting roadmap there, but the early results have been very strong. We've seen great adoption. We monitor daily and monthly active users on the social features separate from daily and monthly active users on the product on the other products and We've seen that continually increasing since we've launched. And I think we'll learn a lot in NFL season based on how many of our customers that we acquire and activate, we're able to get adopting those social features. So very excited about it. I think it's too early to share any metrics, but we're starting to flesh out what metrics we might be we'll sharing on the coming in the coming quarters. On the NFT side, I definitely feel like it'll be a great cross sell product. We'll know when we get the data, but we've done enough market research on our customers to know that quite a few of them are interested in it and there's good overlap with our current And I do agree that it could also potentially have some upside on the customer acquisition side. Just like we do with every product in our portfolio, we test which are the best products to most efficiently bring people onto the platform. And then once they're on the platform, we try to cross sell them across everything we do. And I think there could be some upside on that front for sure, but we're going to have to wait and see and really we'll do whatever the data suggests, but it's something that we've talked about as a potential Upside and in general, I think just having the broadest product portfolio gives us the most options for how we can acquire different pockets of customers. So not only does it increase LTV, but also has positive effect on our CAC efficiency over time to just have the broadest and deepest product portfolio possible. Thank you. That's all the time we have for questions today. Thank you all for joining us we appreciate your questions and look forward to continuing our conversations with you. Our performance in 2021 continues to be very strong, and we're excited for what the rest the year and beyond holds for us. DraftKings is well positioned with $2,600,000,000 in cash to capitalize on legislative advancements in several states, complete the migration to our own in house Fed engine, expand and initiate relationships with important organizations and advance new product, technology and content initiatives. Hope you all stay safe and well, and we look forward to speaking with you on our next earnings call in November.