DraftKings CEO Jason Robins: Our vision is to be the hub of all betting, not just sports

Published Thu, Aug 27 202012:37 PM EDT

Key Points

DraftKings CEO and co-founder Jason Robins tells CNBC his aspiration is to be valued 'like the great tech companies.'
He says SPAC market may be overheating: 'not a fit for everyone.'
Sports betting is just the start of DraftKings ‘vision’ to be the hub of gambling on many aspects of life.

A View from the Top is a Q & A series exclusively available on CNBC Pro . Alex Sherman will regularly speak with a business leader about decision-making, investing and industry news. Special purpose acquisition companies are all the rage on Wall Street now, and there's little doubt the craze has a lot to do with the success of DraftKings, which debuted as a $3 billion company and quickly surged to a market valuation of more than $12 billion. While growth companies like DraftKings have historically avoided SPACs, the company's success has opened the eyes of entrepreneurs, executives and investors that there's a new way to go public. But while DraftKings co-founder and CEO Jason Robins is pleased to have started a trend, he tells CNBC that "if that's all we ever accomplish, then shame on us." He explains how his long-term vision for the company involves betting of all kinds — not just sports — and says that while there is not a comparable company to DraftKings today, he eventually wants to be compared to the "major distruptors: Amazon, Alphabet, Facebook and Apple." Here's the full Q & A: (This interview has been lightly edited for length and clarity.) Alex Sherman, CNBC: My mom is in an investment club. And she asked me, 'Should I buy DraftKings?' What are the comparable companies?' And I said, to be honest, I'm not 100% sure how the company comps itself but I'll ask the CEO what he tells his own theoretical investors or shareholders. So maybe you can help me understand how you value the company? Jason Robins , DraftKings Co-founder and CEO : Well, I think one of the things I don't have to do, thankfully, is value the company. That's something that I let the market do, and I think from my end, really, we want to be in a class of our own. Our aspiration is to be like many of the great tech companies out there, viewed in sort of our own category, and if anything comp to those major disruptors, companies like Amazon, Alphabet, Facebook, Apple. I am by no means saying that's what we should be compared to now. I think we have a lot of work ahead of us before we... You don't think you're quite at the $1 trillion valuation mark? Not quite now. I hope to get there one day, but I think we have a lot of work ahead of us to be mentioned in the same breath as those companies. But that's our aspiration. We kind of talk about it as our goal is to be incomparable. We want people to view us as so disruptive and so growth-oriented and have such limitless potential that there really isn't anything else out there that you can point to and say, yeah, that's a perfect comp for DraftKings. And yet there are competitors certainly out there. There are fairly arduous barriers to entry in the industry, because you need licenses and so forth. And that takes a long time. But what will it be that sets DraftKings apart from everyone else that puts you in that class by yourself? The bet we're making is that product and user experience will ultimately be the most important thing in this market. Behind that is great technology, great data science, great analytics. Obviously marketing is important. There are other things that we think we need to do very well in order to succeed. But we think that product and user experience will be the most important thing and also potentially the hardest thing to duplicate if we're able to innovate in a way that I hope we can in the coming years. It hopefully will be in a way that's a lot harder to copy than maybe some other things, for example, on the marketing or other kinds of functions of the business that might be a little bit easier to fast follow if you're a competitor. Would you say right now you guys have a distinct advantage from a user experience standpoint over say, Fanduel or FOX Bet? Isn't it kind of the same thing? I think if you look at fantasy sports, we definitely feel we do. I think we have shown that we can truly differentiate on a customer experience there. On the sports betting side, on the iGaming side, I think there are areas that you can point to where we're differentiated. For example, we've been the only ones that have had a single account -- a single wallet -- for the customer across all of our products, which may seem like a little thing, but I do think it's an inconvenience to people to have to open accounts in different places and have credit cards on file in different places, deposits made in different places, simply to interact with the same company across their own products. And then there's other areas that I think we're really differentiated. For example, we've built our own in-house games for blackjack, roulette and some of the other table games, which I think are some of the best, if not the best in New Jersey and Pennsylvania and West Virginia right now. So, there are places we've really started to, but this is just the beginning. What we'd like to really innovate on and truly differentiate on, you're going to see over the next several years in a lot of different ways. Right now, I feel like we do have some areas that are important, but we are just scratching the surface still. You became a public company a few months ago through a SPAC . I want to get into that in a second. But the results have been very good initially . Have you been surprised, given the fact that betting is not legal in so many states that investors have been so willing, so early, to take a leap of faith in you guys? We're very appreciative that so many great investors have interest in the company, and we're working really hard to make sure we prove them right. I think that shows that the markets continue to be hungry for growth, continue to be hungry for disruptive technologies. And I think we hit on both of those. And there's not a lot of things that you can point to right now that have such a clear growth story. And I think we're benefiting from that for sure. But we have to go out and execute it. It's great to have a nice initial reception from the market. But our aspirations are to be worth 5x, 10x, 20x what our valuation is today. We still feel like we have a lot of work ahead of us. We've seen the number of SPACs go absolutely crazy since you guys announced yours, and that was just in December. I'm curious, have you heard from others? Do you feel like DraftKings' success is sort of what blew this whole thing open? I've had a lot of people in the last couple of weeks message me saying 'wow, there's a lot of SPACs out there right now,' and they all seem to be pointing to DraftKings as one of the recent success stories. There have been others -- Virgin Galactic and others that have some brand identity and done well. But hopefully the market settles down a little bit there. I think there are a lot of SPACs now. Some will do well and some won't. It's nice, I guess, in the short term to have a bit of your claim to fame be that you sparked a new type of way of going public. But if that's all we ever accomplish, then shame on us. Hopefully one day people don't even remember that we went public via a SPAC. We'll see what happens with the overall market. For the right companies, SPACs are great vehicles, but it's not a fit for everybody. It's not a fit for every company. One of the things people who are interested in investing in the betting space and DraftKings, specifically, really want to know is what is the pace of legalization in terms of getting up and running in different states? Can you give us a timeline? We have online sports betting now in nine states. Most recently we launched Illinois. We have brick and mortar sports betting in two additional states, Mississippi and New York, as well as several of the states that we have online in. There are a few more, namely Tennessee, Virginia and Michigan, that have already passed legislation and are in the process of writing the regulations considering who they will give licenses to. Hopefully those three states will be not too far off in the future. I hope that many more states will choose to go the route of legalization. There are a lot of good arguments for it. It's a massive illegal industry that is currently operating in an unregulated world with no tax revenue being generated. I think right now, in particular, tax revenue is going to be even more of a focus for states after some of the recent events. I think there'll be a lot of budgets that are hurting. We feel like we're here willing to be taxed, ready to go. Hopefully that'll be an attractive proposition for a lot of states as they consider their next year's budgets. You and FanDuel have dominated New Jersey in terms of market share. As online sports betting spreads from state to state, do you expect that it will be you and FanDuel are dominating most states from a market share standpoint? Or do you feel like each state is sort of going to have its own market leaders depending on who gets into the market first? Well, I don't know that I would say each state will have market leaders that are different from other states. Obviously, there are factors such as who gets in first, and ultimately, who gets in at all that can affect that. But I think as the market becomes a bit more mature, there will be national players that emerge. I think right now, because it's a limited set of states, a lot of the marketing and advertising is done locally. That will start to shift to a national basis. It will become more consistent throughout the states as more maturity happens within the market. I think that there will also be -- you're seeing this now -- there'll be a lot of competitors vying for those leadership positions. To the first part of your question, I don't think it's a foregone conclusion that it will be us and FanDuel. I think we have a good position. FanDuel does too. And I know that there are a lot of other competitors out there. They're raising capital, forming partnerships and alliances. So I think it's going to be a very competitive market over the next few years. And we're gonna work hard to ensure that as it matures, we're one of the leaders that emerge. But I do think it's so early and hard for anyone to declare victory. It's relatively foolish if you're sitting in our seat or any other seat that might be a position to say, 'hey, we're doing well' to declare victory right now. It's a sign of complacency. And that's the last thing that DraftKings wants to do at this moment. You guys have $1.2 billion on the balance sheet and cash and no debt. You've been pretty open in other interviews saying that you would look to do opportunistic acquisitions with that money. What does that mean, exactly? In other words, does that mean you would think about buying things that are not in sort of the core gambling space right now if the pandemic pushed down their valuation? Something tangential to DraftKings that may not be core? Never say never to anything, but I don't think that's really what what I meant by that. What I meant more was we don't feel like we need to acquire a company at this moment in time to achieve our goals in the next 12 months. But, if the right opportunity emerged, we would consider it. It would, though, have to be within the current strategy. I don't see us deviating outside of the current strategy. And just to be clear, the current strategy is.... To win the United States in online gaming. While that will eventually become a global ambition, while that may eventually branch into other categories, it really, right now, that's the focus. And it's not to say that there couldn't be -- I'm not saying there is or isn't -- things that may seem tangential as long as they were still aligned with that strategy. It wouldn't be something that's just like, 'Hey, there's a good cheap deal out there' if it doesn't help us win in the online gaming market in the United States. I don't see us doing that. But if it's something that we think helps with that strategy, and it's the right situation, the right price tag, we would consider it. Broadly speaking, do you feel like that's probably something that's more back-end tech related or maybe front facing consumer marketing media related? I think either could fit within the current strategy. We feel that we're in a pretty good place on both those fronts. But if there are things that can accelerate either our ultimate leadership in product and technology or something that could accelerate our own content initiatives, those would be things we consider. We'd also consider acquiring some smaller competitors, potentially. But none of these things seem like a 'must' for us at the moment, whereas I felt like we had to buy our sports betting back-end, because that was just so urgent and so core to how we need to compete. We almost have 1,000 engineers now, and we feel like there's really not much we couldn't build. But you know, if there are ways to accelerate that at valuations that makes sense, that's something that we will consider. I have a few specific under-the-hood betting questions. But before that, let me start with something much more general: For people that don't really understand the gambling industry — what you're doing in both daily fantasy sports and online gambling — can you briefly explain how DraftKings makes money? There are two different models, depending on the product. In our fantasy product, we host contests between other players. Our revenue is, basically, there's an entry fee that someone pays into the contest. And, we guarantee most of the prizes. So there may be contests where we lose money, but depending on how many people end up in the contest, we may end up making money or not on that contest, and the prizes are always fixed at the beginning. So if we, for example, guarantee a million dollars in a prize pool, we have an analytics team that's trying to estimate how much demand is out there. Hopefully there's a little bit more than a million, and that ends up being our revenue. On the sports betting and online casino side, those are more traditional house back wagers. So, basically, we would take risk on an outcome like a sporting event score, or spin of a roulette wheel. And the bettor, the customer on the other side, would take risk on the other side. And then whoever wins collects. If we collect more on our end, then winnings paid out, that would be our revenue. You're actually taking that risk management portion in house, right ? You had been using a separate third party. We had been using a third party. It's interesting, a lot of the industry uses — at least for parts of the technology and risk management processes and stack — they do use outsourced technology or outsourced third-party providers. We decided early on that this is such an important thing for us because it's not just managing the risk, it's also creating the bets, creating the odds. So if you want to be able to offer bets on things that are interesting, or offer the most live bets and live betting options, you have to control that part of it. So that's a decision we made, and why we acquired a company called SBTech about four or five months ago, and we're in the process of integrating that company into DraftKings. But right now, we use a third party called Kambi. They've done a great job. You know, they power a lot of folks in the industry. They're a great company, and we have nothing but good things to say about them. We just felt it was important to own our own tech and our own back end on that. I think Kambi has a reputation for being fairly conservative from a risk management standpoint. So I'm curious as you take this in house, do you feel like part of the rationale behind that was you can become a little looser from a risk management standpoint? Well, I think they can be, certainly, balanced. I wouldn't say they're conservative, but there may be instances where we would like to be more aggressive. And there may be instances where we'd actually like to be more conservative than them. So I think it's being able to control that and control our own destiny from that standpoint. If we feel like certain types of bets, or certain sports, that we'd like to get a bit more aggressive — even if it's just from a marketing perspective, not necessarily trying to maximize the revenue at that moment — we want to have the option to do so. If you are an excellent sports bettor — I know at the casinos, they'll shut you down. Is that the case at DraftKings too? Well, you talked about conservatism a moment ago, I think that that plays into it. It's not just, you know, what lines are you setting, it's also who are you willing to take action from? And, how much are you willing to take from them? I think the more common tactic than shutting anyone down — that's pretty rare — is just limits being placed on people. They feel like hey, this person, whenever they make a bet above this size, they tend to be on the winning side of it. Sometimes the bookmakers or those that they're partnering with for risk management don't want to take those bets. And it's actually very valuable information to see where the best bettors are betting. If they're attacking certain lines, that gives you some insight that maybe those lines are soft. I think a more common tactic is to limit those people so that you're still getting that insight when they go after certain bets, but they're not taking you for so much that it's causing a big hit to your revenue. I know occasionally you and other sites put out promotional odds boosts. I'm curious, why do you do that? Is it because you want people to make that particular bet? Or is it because you're getting too much action on the other side, and that's why you want people to make the bet? Usually it's more marketing oriented. There are times where we do it for the reason you're saying — if we have heavy action on one side, and we feel that we'd like to be a bit more balanced. Usually, we don't try to balance the book. We do that very rarely, only when there's a lot of action on a particular event. Usually, we just let things play out and even out over time. But there are occasions where ... we had a situation in the World Series last year. There was a guy, they called him Mattress Mack , down in Houston. He had a promotion that he had run that if the Astros were to win the World Series, everybody who'd bought furniture that year would get it for free, or something like that, I don't remember exactly. And so he was going around all these different places putting a lot of money on the Astros to hedge his bets. So that was an example where we got such big bets coming in on the Astros that we did do a little bit of odds boosting and other things to try to get money on the other side. But the vast majority of the time, that's not it. The vast majority of the time, it's more marketing driven. It's something that we think will help get customers to get excited about trying out our product and maybe get customers to try a new sport if it's the beginning of a new sports season. Along those lines, is it more beneficial for you that those customers actually win their initial bets so that they stick with the product? Because of course, if they lose that initial bet, at least in the short term, you guys do better. Well, I don't think right now we're thinking about the short term too much. I think it's much more about, you know, years down the road. So while we certainly don't have control over whether they win or lose the bet, it's probably, you're right, a good thing if people win a lot early on, get excited about the product, and enjoy the experience. You know, hopefully people have fun either way, but I think you have more fun if you win, right? And we want people to have a good experience. So that's not within our control, but I think you're right. I don't think it's a bad thing, if people win, especially early on. Do you have a prime customer in mind? In other words, does it matter to you if someone places a lot of small bets or a few large bets? I think we'd rather have people placing a lot of small bets. One, they're a more engaged customer. Two, it spreads the risk out to many different bets instead of just one. In the end, we're happy to take either customer. Hopefully we have enough customers that are betting on all types of things that even ones making large singular bets are fine. But we definitely would rather see a customer who is more engaged with lots of things and spreading it out a bit, if we had a choice. When you first sign up for a typical gambling app, you're given $25, or $50, or $100 in free money as an incentive to sign up. I'm assuming this is a fairly small issue, but as this grows in popularity, I could see it maybe becoming a bigger one. Have you seen evidence of anyone arbitraging this where someone is signing up, placing a bet on one app, hedging the bet with another, and then they're just able to walk away with free money and closing the account? I'm sure there's some people doing that. I mean, it'd be very hard for us to know because we don't see what people are doing on other products. But, you know, if you thought of it, I'm sure there are people out there doing it. You're going to get some of that and you know, there's not much you can do. But the important thing is that people are enjoying it. If they're enjoying it, even if they're doing that, they're going to come back. And so, someone, if that's the initial draw, and then they're like, hey, that actually was fun, I'm going to keep betting. That's okay by me. The NFL is around the corner. What do you guys have in store for bettors in terms of things that maybe they haven't seen before? One of the really cool things we're doing — we're running a survivor pool for a Week One that's totally free to enter. There's a million dollar top prize. But the best part is if you enter it — and again, totally free, so there's no capturing anything — then you unlock some hidden gift that we put in your account. And that gift will range anywhere from $5 to $25,000. And everyone who enters gets a golden ticket and gets entered into a drawing for a million dollars. So all that, just for entering for free. If everybody took it, we would end up giving away over $100 million. It's a lot of exposure for us, but hopefully it'll be a good thing for all the customers out there. We're also offering a ton of odds boosts on Week One opening games, and we're offering deposit bonuses. If you sign up for the first time, you get a free bet matched up to several hundred — maybe even $1,000, I forget where we have that set now. There's a lot of promotions going on. But the one that should be a no-brainer for everyone is the free survival pool because it's totally free to enter. You don't have to put your credit card in or anything. There's definitely a camp out there among public health officials that are thinking and warning about a second wave. If you talk to media companies that are banking on sports programming, they have backup programming in case this happens and sports get shut down again. You've gone through this one once already for a short amount of time where there were basically no sports. Do you have backup programming, in essence in terms of betting, in case, live sports are wiped out again a few months from now? Well, certainly I hope that doesn't happen. But I think we learned a ton during the first few months of this. We tried a lot of different things and have a lot of good data on what worked and what didn't. Many of those... What worked and what didn't? ESports was tremendous for us. That was a massive growth category for us. We ran simulated games via a relationship with EA Sports for Madden football simulations. We also had a lot of content around television shows, political debates, things like that. Various pockets of things that work there. We saw sports like table tennis really take off. That became at one point the most popular betting sport we had. There might be a situation where even if there are some sports that have difficulty, others might be fine. For example, golf seems to be a sport, based on the nature of it -- it's outdoors, people are naturally socially distancing -- my hope is even if there is a second wave, I'm hoping golf has no trouble continuing right through that. We saw in June, golf was huge for us. The growth in golf was absolutely amazing relative to prior years. Hopefully there's not a situation where major sports get shut down, but if they do, I think some of them like golf might make it through. In the worst case, if they don't, we have eSports and some other offerings lined up. What didn't work? Amongst all the different things we did with TV shows, and things like that, there were some that just struck out. It was more format than anything. We tried different things like trivia games, pools, jackpot-type games. It was more format. But there weren't many things -- it shows you how much pent-up demand there was. There weren't many things that we couldn't get trial on. When sports were gone, people had an appetite to try almost anything. Is the long-term goal for DraftKings to be an online betting — beyond sports betting — site for everyone? In other words, by taking risk management in house, are you then able to allow people to bet on all sorts of different things that maybe they've never thought were possible to bet on? That is a great question. What you're touching on is part of our vision. We believe that this is just a secular trend happening right now in our society — that betting is becoming more casual, more friendly. Mobile enables it to be done on a more social basis. I think eventually people will be able to make bets with their friends on almost anything. I think that that's a lot of where the world's going. I mean, I've seen people enjoying betting on what the next TV commercial is going to be during the Superbowl, or the outcome of the coin toss. One of the more popular bets is the Gatorade color at the end — things that have nothing to do with the actual game on the field. And I think it just shows that people people want to interact with content, they want to make predictions, and they want to play games. And I think eventually, they're gonna want to do all of those things with their friends more than they're able to do now, too. So as you think about this hypothetical, are you imagining a world where there are personal, customized bets? In other words, I submit something to you, as a company, and you spit back odds at me? I think that is absolutely something that we hope eventually comes. It should be that people -- if they want to make a bet or want to make a prediction or want to play a game around something, that they are able to. One of our aspirations is to be able to offer that as an inbound request-based system. Absolutely. WATCH: Options traders see more upside in shares of NIO, DraftKings

DraftKings CEO and Co-Founder Jason Robins speaks during the unveiling of DraftKings headquarters March 26, 2019 in Boston, Massachusetts.

Darren McCollester | Getty Images

A View from the Top is a Q&A series exclusively available on CNBC Pro. Alex Sherman will regularly speak with a business leader about decision-making, investing and industry news.

Special purpose acquisition companies are all the rage on Wall Street now, and there's little doubt the craze has a lot to do with the success of DraftKings, which debuted as a $3 billion company and quickly surged to a market valuation of more than $12 billion. While growth companies like DraftKings have historically avoided SPACs, the company's success has opened the eyes of entrepreneurs, executives and investors that there's a new way to go public.

But while DraftKings co-founder and CEO Jason Robins is pleased to have started a trend, he tells CNBC that "if that's all we ever accomplish, then shame on us." He explains how his long-term vision for the company involves betting of all kinds — not just sports — and says that while there is not a comparable company to DraftKings today, he eventually wants to be compared to the "major distruptors: Amazon, Alphabet, Facebook and Apple."

Here's the full Q&A: