When the opening bell rang for DraftKings’ debut as a publicly traded company last April, the stock market had recently taken a historic nosedive. Boston, the online sports betting company’s hometown, was in the midst of its first COVID-19 surge. And sports venues nationwide had gone dark.
No matter. DraftKings ended that first day of trading up more than 10 percent, even as its customers faced a slim roster of betting choices that included Belarusian soccer, Korean baseball, and Russian ping-pong.
It was the beginning of what has been a charmed run. Nearly a year later, DraftKings’ share price has more than tripled, the company’s value exceeds $24 billion, and its 40-year-old chief executive is a newly minted billionaire.
The pandemic, said CEO Jason D. Robins, has actually validated the company’s approach to building its business ― a strategy that involved investing massively in marketing and technology in anticipation of online gambling becoming widely accepted.
Over the past year, that has happened, as more states legalize sports betting and people discover the newly available games in search of something interesting to do as they spend more time stuck at home.
“Some of these things that are shocks to the system, they don’t actually create new trends,” Robins said in an interview. “They simply accelerate things that were happening before.”
Like many growing companies, nine-year-old DraftKings has focused on rapid expansion over short-term profitability — wagering that its future success depends on heavy spending now to solidify its position in a fast-growing field.
The company lost $855.2 million in 2020, up from $174 million a year earlier. But revenue also rose to $643.5 million last year, compared with $431.8 million in 2019, and the company has said that figure could rise as high as $1 billion this year.
Last week, New York lawmakers agreed to legalize mobile sports betting, a deal that would make it the largest state so far to open up that market. (Sports betting is legal in some form in nearly half of US states, though not in Massachusetts). And while some worry that a rush to allow sports wagers could lead to problem gambling, momentum is clearly on the side of the industry.
DraftKings, which has 950 of its 2,600 employees based in Boston, has so far reaped big payoffs from its early gambit on paid daily fantasy sports. Before sports betting was broadly available beyond Nevada, the company was one of the pioneers of the fantasy games in which participants can win money based on the performance of real-life athletes.
The popularity of those games gave DraftKings a distinct advantage when the US Supreme Court in 2018 cleared the way for most states to legalize sports betting.
“They were ready,” Dustin Gouker, an industry analyst and journalist who works with organizations that include Legal Sports Report, said of DraftKings and FanDuel, the company’s New York-based competitor in both daily fantasy sports and sports betting.
He said both companies have lists of customers interested in sports betting that are “better than a regular casino’s database.”
“Everybody else is starting behind DraftKings and FanDuel,” Gouker added.
But DraftKings’ nascent success didn’t always look like a sure thing.
While fantasy sports made it one of Boston’s hottest startups in a tech scene not known for creating consumer products, it also opened the company to a host of legal questions — some of which it is still litigating — about the legality of those online games.
The company and others in the field took advantage of what some saw as a gray area in federal laws surrounding sports betting, which created an exception for paid games of fantasy sports. Unlike other games in which people can win money based on what happens in a sporting event, daily fantasy operators said their games were not covered by existing bans.
Regulators around the country launched inquiries testing that theory. And after expensive advertising campaigns to win customers, DraftKings and FanDuel in 2016 agreed to merge in an effort to shore up their finances, only to have the deal shot down by US antitrust officials.
The turbulence of the company’s early days helped create a culture that was well-suited to weather the challenges of the past year, said Ryan Moore, a Boston venture capitalist who was an early DraftKings investor and still sits on its board. Moore, a founding partner of the investment firm Accomplice, said he had no concerns about DraftKings’s ability to endure the pandemic.
“It was really one of the companies that I was least worried about, because I know how, in the face of challenges, they thrive,” he said.
Nonetheless, the past year was unusual. Like many businesses, DraftKings has allowed its employees to work remotely. Robins has spent most of his time working from his home in the Boston suburbs.
The company’s massive Back Bay office remains largely empty. The company has committed to returning, but Robins said he’s still deciding what that will look like.
“We adjusted faster than I would have thought to the working environment talking to each other over computer screens, and I think we’ll adjust to whatever comes next,” he said.
But DraftKings still has a long way to go to secure its long-term future.
The company operates online sports betting in 11 states, and in-person sports books in two others. In Oregon, DraftKings provides the technology for a state lottery program for mobile sports betting games. Overall, the company says its online games can reach about a quarter of the US population — and its daily fantasy games have even broader reach.
FanDuel has online sports betting in 10 states, but has so far attracted a bigger chunk of gamblers’ money, according to Eilers & Krejcik Gaming Research. Since 2018, it has recorded $645 million in online sports betting revenue, while DraftKings has brought in $501 million.
The competition is only going to get tougher. Casino companies, which for years have dominated the US gambling industry, are making major investments in sports betting and online gambling — after a year in which their physical properties lost billions of dollars because of closures due to the pandemic.
The field will likely be crowded in Massachusetts if lawmakers on Beacon Hill decide to legalize sports betting — something they have been debating since 2018.
BetMGM, run by MGM Springfield’s corporate parent, has been a growing force in the industry. Wynn Resorts, which owns Encore Boston Harbor, has developed its own online products. And Plainridge Park Casino owner Penn National Gaming has been building an online betting brand around the proudly ill-mannered Barstool Sports franchise, which it bought in 2020.
Those companies and others will also be angling for a slice of what could be a huge market for online gambling not related to sports, a practice that has not spread as widely as sports betting. DraftKings currently offers such games, including blackjack and roulette, in four states.
And even though the rapid expansion of sports betting has been good news for the industry, it also carries a risk.
States, eager to raise revenue, are opening up markets quickly. But an overly aggressive marketing approach by operators could lead to blowback, said Sara Slane, a consultant who works in the sports betting industry.
“There’s always got to be a tieback to responsible gaming, and not an oversaturation of advertising and marketing and being in too many people’s faces,” Slane said. “It’s always going to be an issue in striking the right balance.”