How DraftKings Makes Money: Inside Their Business Model

DraftKings is an online betting and gaming platform operating in eight countries.
The platform offers fantasy sports betting, sportsbook, iGaming, and advertising services.
DraftKings makes money through commissions on bets and transactions on its platform.

DraftKings is one of the leading online daily fantasy sports platforms with over 8 million users and more than 2 million active users engaging with the platform each month. The company was founded in 2012 by Jason Robins (CEO), Paul Liberman, and Matt Kalish, with headquarters in Boston, Massachusetts.

DraftKings employs more than 3,400 people across eight countries. The company was listed on the Nasdaq exchange (NASDAQ: DKNG) in April 2020 with a share price of $52.

What does DraftKings do?

DraftKings is an online fantasy sports website + app allowing users to create a roster of players representing their virtual team.

Users earn points when their team members achieve milestones in a game, such as making a touchdown or hitting a three-pointer.

The competitor with the most points in their fantasy wins at the end of the season.

DraftKings offers fantasy sports for major American sports leagues like the NFL, NBA, NHL, and MLB, as well as college sports, soccer, and UFC fighters.

DraftKings also operates a sportsbook for action on all major US sports events. You can bet on the game's outcome, receiving money if your team achieves the projected result.

How does DraftKings work?

DraftKings makes it easy for new users to register an account. You can sign up with your Facebook account or email address and start placing bets or playing fantasy sports.

There is no deposit required to explore the site and the fantasy sports offerings.

If you want to start playing or use the sportsbook service, you'll need to make a deposit.

DraftKings lets you fund your account using your bank account, credit card, PayPal account, PayNearMe (7-Eleven, Family Dollar, CVS), and Play+ Prepaid.

You also receive your winnings through your chosen payment method.

How DraftKings makes money

DraftKings makes money by taking a commission from all transactions on its site. It receives a cut of all the sports betting, fantasy, and gambling products. It also offers advertising packages for companies and brands, and it has a lucrative B2B offering.

Let's look at the DraftKings business model in detail.

Fantasy sports

The bulk of DraftKings' earnings come from its daily fantasy sports offering. Players need to meet a certain buy-in amount to enter the tournament, and DraftKings takes a 10% cut from the buy-in.

Sportsbook

DraftKings also offers a sportsbook service for gamblers through its Sportsbook app.

The app is available in 18 states, including Arkansas, Colorado, Connecticut, Delaware, Indiana, Kansas, Maine, Massachusetts, Missouri, Mississippi, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Vermont, and Virginia.

DraftKings generates income when punters lose their bets, keeping the money.

The company also takes a small commission when bettors place their bets.

iGaming

DraftKings also offers online gaming where users can play casino games like roulette or blackjack.

The app has more than 400 tables and roulette online.

The company makes money when putters lose their bets.

However, the company doesn't charge fees for account withdrawals.

Advertising

DraftKings started offering corporate advertising services on its platform in 2016.

Some of its advertising partners include leading brands like Sprint, Jägermeister, Hooters, and Buffalo Wild Wings.

Brands get to engage with users, and DraftKings charges for marketing packages.

Pricing can vary depending on the extent of the campaign.

It's a great way for brands to reach a targeted audience, and DraftKings tracks all user engagement with advertising campaigns.

Future growth engine

DraftKings believes its future growth depends on its expansion into the United States and the EU.

The company is focusing on developing its B2B service offering, with a projected $1.27 billion in annual revenues.

DraftKings charges its B2B partners a managed service fee.

The fee ranges between 10% to 20%. DraftKings is open to negotiation on this amount, depending on the contractual agreement between DraftKings and the B2B partner.

The company intends to grow this segment of its business in the coming years.

Competitors

DraftKings competes with other online sportsbook services and fantasy sports sites. It's a competitive market, and some of the leading competitors to the company include the following.