Good day, and welcome to the DraftKings Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will conduct a question-and-answer session. As a reminder, this call is being recorded. I’d now like to turn the call over to Stanton Dodge, Chief Legal Officer. You may begin.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties, and other factors, as discussed further in our SEC filings, that could cause our actual results to differ materially from our historical results or from our forecasts. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings financial results prepared in accordance with GAAP. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our annual report on Form 10-K filed with the SEC. Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and updates on our business, and Jason Park, Chief Financial Officer of DraftKings, who will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Good morning, and thank you all for joining. Last year at this time, we shared our first end of year letter. In that letter, I described DraftKings as a company that would thrive when business conditions became more challenging. I wrote that our culture and people positioned us well to execute, which effectively made 2023 a proven year for DraftKings. As you've seen, our team rose to the occasion. Revenue increased 64% year-over-year in fiscal year 2023, even with very customer-friendly outcomes in late November. More importantly, we improved adjusted EBITDA in fiscal year 2023 by nearly $600 million year-over-year and posted our first two adjusted EBITDA positive quarters in company history. Beyond our financial highlights, we improved our product and customer experience and also made a number of operational improvements to better serve our customers and operate more efficiently. We gained share, including taking the number one position in combined OSB and iGaming gross gaming revenue share in the US for the third quarter. We focused on our core value drivers and empowered our leaders to set aspirational goals and drive their teams to meet and exceed those goals. We lean heavily on data and analytics, giving us the confidence to cut expenses in some areas and double down in others. This year, our focus will largely be on essentially the same items. We are still in the early innings of the US online gaming industry, and there is still share that can be gained through innovation and operational excellence. We will continue to focus on product and customer experience as key differentiators. We will continue to leverage our scale to invest in important areas while also focusing heavily on efficiency and optimization. And we will continue to focus on the core value drivers of our business. Having superior lifetime values and customer acquisition costs is the ultimate competitive advantage. And we have a number of initiatives planned to enhance both in 2024 and beyond. We also continue to face new competition as we consistently have over the years. In the past, we've been able to drive growth and gain share while simultaneously becoming more efficient. But importantly, we do not take any of our recent success for granted. We have the right team in place and are working hard to maintain our edge. Going into 2024, there are three main opportunities on my mind. The first is continuing to foster our entrepreneurial culture and empower our great people to pursue big opportunities. The second is developing our next crop of leaders and giving them opportunities that allow them to stretch, grow, and contribute at higher levels. The third is leveraging our free cash flow which we expect to generate in order to maximize value for our shareholders. We are excited to have an agreement to bring Jackpocket into the DraftKings family and enter the rapidly growing US digital lottery vertical. Importantly, this is not just a new product for our customers to enjoy, but really a way to strengthen our core OSB and iGaming position in the US by optimizing our overall LTV and CAC. We look forward to working together to provide tremendous and differentiated value to the combined customer base. In closing, 2023 is a fantastic year for DraftKings, yet I believe that 2024 will be even better. I am unbelievably excited about the plans we have in place to continue serving our customers and growing our business. Most importantly, I am excited about the quality of the team we have in place, and I have no doubt that we will continue to execute very effectively against our key priorities this year. We will work tirelessly to produce great results and build on the incredible momentum we generated in 2023. With that, I will turn it over to Jason Park.

Thank you, Jason. I'll hit the highlights, including our full year 2023 and fourth quarter performance and our updated guidance for 2024. Please note, that all income statement measures discussed except for revenue are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, the organization is executing very well, and that is showing up in our results. In fiscal year 2023, revenue grew 64% versus 2022, and adjusted EBITDA improved year-over-year by nearly $600 million versus 2022, which resulted in year-over-year adjusted EBITDA flow through percentage of 40%. Adjusted gross margin increased nearly 200 basis points as we delivered higher sportsbook hold percentage and improved our promotional reinvestment for OSB and iGaming. Adjusted sales and marketing expense grew 3% as we reduced marketing in our more mature states and transitioned further into more efficient national marketing. In the fourth quarter, we continued to generate great performance across our core value drivers and produced more than $1.2 billion of revenue and $151 million of positive adjusted EBITDA. Better customer acquisition, retention, and engagement resulted in higher than expected handle for the quarter and positively impacted revenue and adjusted EBITDA by $93 million and $42 million, respectively. Structural sportsbook hold percentage was 10.4% and well ahead of expectations as we continued to improve our parlay mix and optimize our trading capabilities. This trend positively impacted revenue and adjusted EBITDA by $53 million and $38 million, respectively. As you are well aware of by now, sport outcomes were very customer friendly in the fourth quarter, primarily in the final two weeks of November, while December was consistent with expectations. Our actual sportsbook hold percentage for the fourth quarter was 9.2% due to sport outcomes, which were a headwind to revenue and adjusted EBITDA of $175 million and $126 million, respectively, compared to our expectations. Moving on to our full year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth coupled with a scaled fixed cost structure. In November of 2023, we guided fiscal year 2024 revenue of $4.5 billion to $4.8 billion and adjusted EBITDA of $350 million to $450 million. Today, we are improving our fiscal year 2024 revenue guidance range to $4.65 billion to $4.9 billion and our adjusted EBITDA guidance range to $410 million to $510 million. Customer acquisition, retention, and engagement in Q4 and Q1 to date has continued to exceed expectations due to ongoing product innovation and marketing optimization initiatives. These trends account for $90 million of the revenue improvement and $35 million of the adjusted EBITDA improvement. Higher structural sportsbook hold percentage as a result of continued year-over-year bet mix improvement, as well as improvements in trading and risk management accounts for $35 million of the revenue improvement and $25 million of the adjusted EBITDA improvement. From an intra-year perspective in 2024, we expect first quarter revenue to increase approximately 45% year-over-year and second through fourth quarter revenue to each grow year-over-year in the 20% to 30% range. We expect adjusted EBITDA to be approximately breakeven in the first quarter, nearly $150 million in the second quarter, and above $300 million in the fourth quarter. Importantly, we are also now guiding free cash flow. We expect to generate between $310 million and $410 million in free cash flow in 2024 based on approximately $120 million of annual CapEx and capitalized software development costs, as well as a modest source of cash from changes in networking capital and interest income. Therefore, we will end the year with approximately $1.6 billion of cash before using approximately $413 million to fund our proposed acquisition of Jackpocket. Looking further ahead, as discussed at our Investor Day and the letter we released last night, we expect to generate positive and increasing free cash flow starting this year and are beginning to explore ways to optimize our capital structure. Our expectation for sustainable revenue growth and adjusted EBITDA margin expansion over the next several years offers us a number of options to maximize long-term returns for our shareholders. That concludes our remarks, and we will now open the line for questions.

Thank you. Our first question comes from David Katz with Jefferies. Your line is open.

Hi, good morning, everyone. Thanks for taking my question.

Good morning.

I wanted to delve a little further into sort of what the next phase really looks like. And if you could talk about the kinds of product advancement, the kinds of features and functionality where your focus is in play, part of what's next for domestic sports betting, where is it all going to come from, I suppose?

That's a great question and very broad. It seems like you're touching on product development. I believe in-play betting presents a significant opportunity, as you've pointed out. We're still in the early stages of enhancing that feature, and there's plenty we can do on both the product and broadcast sides to improve the overall experience and make it more engaging for a wider audience. There's still much potential for organic growth with parlays and similar offerings. Keep in mind, we've just introduced the progressive parlay, so that aspect is still in its infancy and should help boost our parlay numbers. Additionally, we have several other initiatives planned for the year that I won't disclose now, but there are exciting developments on the horizon. It's important to remember that we're still in the early days. Many changes we envision for the coming years will significantly impact how the product and customer experience will evolve. It's an exciting time with plenty of opportunities for growth.

Thank you. And if I may just follow up quickly, with respect to Jackpocket, seems like a nice business that generates a little bit of return, but more as a customer acquisition vehicle. As we think about these cash allocation decisions going forward, are there more things like this that are contemplated or is it more a function of capital structure and returns? And that's it for me. Thank you.

Yes, I think it's more the latter. There are all sorts of different options that we're looking at for how to maximize shareholder return with the capital we'll be accumulating on our balance sheet. I think what you will see though is we're going to stay very squarely on strategy. We talked about how priority A is winning in the US and I think Jackpocket is absolutely in line with that. Lottery is the oldest form of gaming in the US. It's been around forever. The audience is massive. And as you noted, it's a very efficient way to acquire customers in mass at extraordinarily lower CACs than what we see in the other forms of online gaming. And we know from overlap analysis that we did that those customers will cross-sell very effectively too. And from the overlap analysis we did, we saw that the customers that overlapped were about 50% higher spend on DraftKings OSB and iGaming products than customers who didn't. So, there are lots of reasons to believe that not only is there cheap acquisition, but there are also high LTV customers that we can cross over. I think that's a really core thing that DFS provided for us as an advantage too. So if you look at kind of the playbook that's worked for us, entering new states, having a built-up database, having an active base of customers that we can cross-sell. I think this is doubling down on that.

Thank you.

Thank you. Our next question comes from Shaun Kelley with Bank of America. Your line is open.

Hi, good morning, everyone. Jason or Jason, I was hoping you'd comment a little bit on just how the fourth quarter played out from a promotional activity perspective. So overall, we didn't see quite the sequential improvement in promotions that we saw a year ago between the third quarter and the fourth quarter. So what are we seeing as the business level is off there? And just if you could characterize a little bit, given plenty of nail biting out there strategically about new customers, launches, sport mix changes obviously between NFL and NBA. Just help us kind of characterize the landscape as you saw it and we move through 4Q and into January.

Yes. So, I mean, there are a couple of things at play here. First, for a fixed amount of promotions, obviously lower hold due to sport outcomes. We had the worst two-week stretch of sport outcomes from a dollar cost basis that we've ever had as a public company. So that's going to just naturally make up. But if you look at sort of the adjusted for outcomes numbers, it was down to 300 basis points year-over-year. I think also, we had a blowout quarter from a customer acquisition perspective. So you're going to have a little bit higher promotion rate when that happens. If you isolate the retention side, to existing customer promotions, those were down even more significantly year-over-year. So we're actually seeing really good trends on that front, playing out pretty much exactly as we expected. And I think where you're seeing some noise is just from some of the outcomes and also a blowout quarter from customer acquisition. But even despite all that, when you adjust just for the outcomes and leave the acquisition numbers in there, it was still 200 bps to 300 bps lower year-over-year.

Very helpful. And just for my follow-up, if we could talk about Jackpocket, the business today, our belief is this is probably losing a little bit. Just trying to kind of get a sense of contribution as we move out and you actually consolidate this business probably more in 2025. What's your sort of risk tolerance around what you'd be willing to invest or commit to this business, again, from a capital or loss perspective for those couple of years, while you want to ramp it? Because it seems like at least in the forecast that you've given, there's a heck of a lot of organic growth that you can also attribute to this business. So help us balance those two and maybe losses or potential investment in 2025.

Yes. First of all, regardless of when this closes, if it closes in 2024, it will not have a material impact. It will not cause us to change our guidance, so let me be clear on that. We're talking low single-digit losses this year, and I think next year will be a positive year. I think the real question is how much, depending on the timing of close, synergy can we realize next year and how much upside is there. But I don't expect this to be any sort of drag. If anything, it'll be, I think, some pleasant upside, but we're just hesitant to kind of commit to the timing of synergies given that we don't have a definitive date of close yet. So really, I think that's the question for 2025 is, is it going to be slightly positive or are we going to be able to capture real meaningful synergies and start to accelerate some of the expected synergies that we have pegged for 2026 currently? And that's currently not something that we really can peg given we're not certain of the closing timing. But just to be completely clear, this will not change our guidance regardless of when we close in 2024, and this should be, if anything, a positive, certainly not a drag on EBITDA in 2025.

Thank you very much.

Thank you. Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.

Hey there, can you hear me?

We can hear you.

Excellent. Thank you. Apologies for that. So on Jackpocket, I guess one question. Is that going to stay a single app or be folded into the DraftKings app or both? And does the ramp to $60 million to $100 million in 2026 assume any new states get approved?

A lot of the questions regarding branding and product are still in the early stages for us. However, the current plan is to maintain it as a separate brand and app. They have established a strong audience and a solid brand, and we intend to keep it that way. At the same time, we will explore opportunities to integrate ecosystems and ensure all products are accessible across all brands, similar to what we do with GNOG. Jackpocket has a casino, so there is considerable potential for their brand, and we will observe how things evolve over time, but that is the current plan. What was the second question?

As you look out to 2026, does the target include states?

No new OSB and iGaming states are factored into our synergy or any other assumptions, so we're only considering our current footprint. There’s significant potential for upside if additional OSB and iGaming states emerge and we can cross-sell more customers. We do expect some new lottery states to launch, which is generally more straightforward as it doesn't require a legislative process; it involves working out a deal directly with the state. We have confidence in this approach, especially considering the ramp-up we've seen in recent years with various state launches. The main challenge has already been addressed, which is developing a scalable technology solution capable of serving multiple states and customers simultaneously. Additionally, there are already large markets we are involved with, such as Texas, which has significant revenue potential. Texas nearly passed OSB legislation last year, and we are optimistic it may happen this year. Similarly, New York represents another major opportunity for iGaming in the near future. Overall, we believe the best is still ahead, and we are confident that this asset will continue to grow in value as more OSB and iGaming states become available, none of which are currently included in our synergy assumptions, representing pure upside.

That's super helpful. And maybe looping in Jason Park here on free cash flow. As we look further out, how do you generally anticipate free cash flow conversion evolving?

Yes. For 2024, we indicated that the difference between adjusted EBITDA and free cash flow, after considering capital expenditures and software costs along with some positive trends in working capital and interest income, is about $100 million. This translates to a free cash flow yield based on the adjusted EBITDA. I believe that the relationship between adjusted EBITDA and free cash flow will remain relatively consistent over time. Therefore, as adjusted EBITDA increases, the free cash flow conversion percentage will also rise, Stephen.

Perfect. Thanks so much. We are going to be back in.

You got it.

Thank you. Our next question comes from Bernie McTernan with Needham & Company. Your line is open.

Great. Thanks for taking the question. Just to start, Jason, in the letter, you said 87% customer retention over a five-year period on average. I think that was better than what was quoted in the Investor Day a couple of years ago. Is that true that retention is improving that much? Or are the numbers not apples-to-apples?

Yes, I think that is true. I mean I'm not sure if it's exactly apples to apples, I have to go back and check. But absolutely, retention is improving.

Okay. Any drivers to call specifically?

Yes, I believe the main factor is the product itself. We're seeing more natural organic growth as customers engage with more sports, which makes them more dedicated and active with the product. Improvements in the product are the key reason for this. Additionally, we are continually optimizing our CRM, which is also significant. We are always testing and discovering successful strategies. Therefore, the enhancements in our product over the past couple of years, along with our marketing team's ongoing testing and learning, are the primary drivers of our success. There are many factors at play, such as improvements in our customer service. Various aspects of our products and the overall customer experience have contributed to our increased retention.

Great. And I know it's early days, but just wanted to get your thoughts on Barstool and what that could be as a customer acquisition and retention vehicle for you guys.

We're very excited about this opportunity. We have collaborated with Barstool multiple times in the past and are thrilled to partner with them again. We have a deep understanding of them and a substantial amount of data to support our decisions. This collaboration is among the best we could hope for, given our historical data, and we are confident it will perform strongly for us.

Great. Thanks, Jason.

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open.

Good morning. Thanks for taking my question. With respect to the gross margin guidance improvement for 2024, should we think about the 250 basis point to 450 basis point improvement, more of just kind of a factor of the scale and the growth that you're going to have? Or are some of the, I guess, variable fees coming down, and we should expect for that to continue just given some of your partnerships and what you're able to do with payment processing and the like? Thanks.

Yes. I mean I think it's a number of different things that come with scale. Certainly, their discounts that come with volume and scale and things like payment processing. Also, promotional mix continues to trend down as we increase the ratio of existing to new customers. Those things I think are the largest drivers.

Yes, I agree. I think it's all of the above, Chad, where the improving promotional reinvestment rate due to our mix of existing versus new customers, our improving hold rate and then just ongoing optimization of our COGS vendors are all driving that improvement in gross margin rate.

Okay. Great. Thanks. And then we'll probably see the public release, at least from New York, I believe, later today. With respect to the Super Bowl outcome and kind of the hold rates there, could you maybe give us a little preview in terms of how that fit into the Q1 guidance? How you guys did in the Super Bowl from a hold standpoint?

Yes. So I think this speaks to the power of our work that we've done over the last few years to build out the same game parlay product and improve player props and really diversify the bets that despite the fact that the game outcome did not go our way at all with the Chiefs winning, we ended up actually holding right in line with what we thought we would from a hold rate perspective. So that was really, I think, a testament to the great work the team has done over the last few years to drive more diversified bets and more parlays.

Impressive. Thank you very much. Appreciate it.

Thank you. Our next question comes from Barry Jonas with Truist Securities. Your line is open.

Can you talk about whole trends in iGaming? Do you think there's maybe a path to higher structural hold over time there?

Yes. I believe iGaming is somewhat unique because of its high frequency. The hold rate is important when you look at the math, but considering customer behavior is key. Most players engage for a set time and have a budget, and typically the hold rate doesn't fluctuate more than 100 to 200 basis points up or down in any day; it's much more stable compared to sports betting because it's not dependent on outcomes. It’s important to monitor, but it remains a fundamentally different product. The same applies to live betting. If someone is betting on every play of a game, charging a very high margin doesn’t necessarily keep that person engaged for longer. This is quite different from someone making one or two pregame bets or even multiple pregame bets over a longer period with less frequent money movement.

That makes sense. Then just a follow-up on Jackpocket. I guess, I'm trying to understand the risks to Jackpocket and the broader courier model. How do you see the potential for more states to legalize iLottery over time, which would effectively remove the need for service fees?

I believe the key question is what Jackpocket can add to the overall lottery ecosystem. No matter how it develops, I think their products and customers will play a significant role. This is something that any lottery would desire, as it can enhance the lottery market and boost sales. For the majority of state lotteries, this should be an obvious choice. I feel that Jackpocket is well positioned for any changes in iLottery and other aspects. They have a strong customer base and a solid brand. This could provide significant benefits for them depending on how things evolve. Regardless of whether they maintain the current model or adapt, Jackpocket is uniquely positioned and is a valuable asset.

Thanks so much.

Yes. One other thing worth noting too is that iLottery requires legislative action unlike what Jackpocket does. I think while it could happen, it's going to be a much slower burn. The ability to get the digital lottery products that Jackpocket offers up and running in a number of states quickly is just much more seamless.

Thank you. Our next question comes from Jordan Bender with Citizens JMP. Your line is open.

Great. Thanks for taking my question. So the Barstool partnership kind of highlights the past years of using your marketing budget and your ad spend. Can you maybe help us think about some of the higher-cost legacy partnerships that are going to roll off this year versus some of the opportunity for incremental marketing agreements like a Barstool maybe into 2024 and into 2025? And the positive ROI you might see off of those? Thank you.

Sure. I mean, as you know, our relationship with ESPN ended late last year, so that is certainly one. But I wouldn't say there's like any one thing. We're constantly optimizing it out. Most of our spend is not committed. Most of our spend is done through buying that we can pull in and out of at different points in time. So there are a ton of different levers that we can pull as we think about funding different agreements. Right now, I think given the pace and cadence of what we expect state launches to be in 2024, barring some big surprise, I don't think you're going to see an increase in marketing this year. It's going to be much more of a focus on deploying our dollars much more effectively. I think Barstool is a great example of that.

Great. And then on the follow-up on Jackpocket, with CAC going down and LTVs going up, does the acquisition help your margin targets long-term just for the core business, I think it's around 30% still. Should we expect any incremental lift through this acquisition?

It's a great question. At this point, we haven't dug in as much on that, but I think it's certainly something that you could see. What we get with Jackpocket is the ability to acquire a lot of customers at a fraction. It's about 10% to 15% of our current customer acquisition costs. And that's something that, obviously, will provide a lot of levers for being able to optimize margin over the long run, assuming that we can continue to do that, which I have no reason to believe we can't. I think on the other side of it, being able to cross-sell will provide some revenue lift. We don't view this necessarily. It's more like DFS, right? DFS is a nice little product, makes money for us, but it's not something that is going to drive the massive top-line growth. That's really the OSB and iGaming, and it's more of a vehicle to be able to continue to acquire customers and engage customers in states that don't have that yet. I think Jackpocket, much like DFS, will do the same thing. Also, I think in states that do have OSB and iGaming, it will provide us another vehicle to acquire cheaply. One of the cool things, I think, is if you look at where a lot of customer acquisition happens now, it's during these big moments, whether that's the Super Bowl or March Madness coming up or any of those things. Those are big tentpole moments. What Jackpocket does is it creates more of those big mass, cheap customer acquisition opportunities during the year. It could be any time, right? It could be the middle of August when there's suddenly a $1 billion jackpot, and we're the only ones who are able to actually acquire in mass right before the NFL season starts. Those types of advantages, I think, you're going to see really pay off over time.

Great. Thanks, Jason.

Thank you. Our next question comes from Jed Kelly with Oppenheimer & Company. Your line is open.

Hey, great. Thanks for taking my question. Has your structural hold improved, theoretically, you're going to be able to promote at a higher incremental gross dollar. So can you talk about what that does for retention? And then my follow-up is, we're seeing these new streaming services start to pop up. Can you talk about where the category leading gaming companies are going to be in terms of in this new streaming wave and sort of helping around the distribution? Thanks.

Great question. I think on the first one, it gives you the ability to do that. It doesn't mean we will. I think for us right now, we feel there's a lot of room to just continue to drive engagement through product and customer service and other things. But certainly, having a little bit more cushion to be able to find other new sorts of promotions that works is another advantage. It doesn't necessarily mean that's going to be something we're looking to do. But I do think it provides an ability to do so, which is certainly an advantage over time. And then on the streaming side, I think it's early to say. There are a lot of moving parts right now. At the same time, we know there’s a lot of disruption going on in sports media. We've seen a ton of disruption and have seen kind of how the evolution of non-sports media and sports is still very much right in the thick of the evolution that's occurring, and it will be interesting to see how it plays out, and no doubt there'll be opportunities created, and we're always looking for new partners and interesting ways that we can take advantage of any disruption happening in an adjacent market to us.

Thank you.

Thank you. Our next question comes from Brandt Montour with Barclays. Your line is open.

Hey, good morning, everybody. Thanks for taking my question. So the first one, another one on Jackpocket. I'm just thinking about the non-overlap portion of the database. I mean I think we think about lottery and think of a very wide diversified range of demographic and income levels. And I'm just curious if you've done any work on the non-overlapping piece, give us a sense on who those folks are. Is it older people? Is it men or women? And is that a richer cross-sell opportunity for iGaming or OSB in your mind? And how do you compare that?

We conducted extensive research on our overall customer base and the overall lottery market. Our findings indicate that customers purchasing lottery tickets through Jackpocket primarily use mobile devices. This group tends to be younger and more tech-savvy, representing a different demographic compared to the typical lottery player. This shift is contributing to growth in the market, which is encouraging. Much like the distinction between online bettors and those who bet in retail settings, this demographic is more inclined to use their smartphones, including iPhones. This represents an appealing disruption in a market where customers increasingly prefer these digital options. Many people may not buy lottery tickets simply due to convenience, similar to the way online betting has gained popularity in legalized markets, where it comprises a significantly larger share of total bets compared to retail betting. Providing people with digital and mobile choices will likely expand the market and attract new customer segments. This is what we discovered during our analysis. What was the second part of your question?

iGaming or OSB?

We discovered something interesting during our analysis. Initially, I believed there would be a stronger tendency to cross-sell to iGaming customers. However, the overlap analysis showed that the overlap between OSB customers and iGaming customers was actually quite similar. This finding increased our confidence, which makes sense considering the high overlap and cross-sell rates between iGaming and OSB. I had expected a greater skew toward iGaming, but the results were more comparable than anticipated.

That's really interesting. Thanks for that. And then maybe more on the sort of competitive landscape. This is a disruptive technology service that is growing based on penetration. And I think this is the number one player in the space, but you guys mentioned that the regulatory structure wasn't exactly a high problem. So, maybe we wonder about barrier to entry, if that's sort of low. Are there sort of second, third, or fourth sort of apps out there nipping at the heels of this one? And what's the competitive landscape look like?

There will undoubtedly be more competition in the future. However, it's important to note that while the regulatory aspect might not be very challenging, the technology side poses significant difficulties. The fulfillment process is complex, and each state has its own unique requirements. A flexible solution is necessary, similar to our multistate regulatory framework for OSB and iGaming. The additional hurdle for others is managing fulfillment at scale in a cost-effective way, supported by an effective technology system. They possess patents on various components they've developed, and creating a system capable of quickly launching in different states cannot be accomplished overnight. While entry barriers may not be prohibitively high, the current players do have a substantial head start.

Helpful. Thanks, Jason.

Thank you. Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

Thanks. Good morning, guys. Just staying on Jackpocket. Curious get all the cross synergies you mentioned. But are there any features that Jackpocket has that could potentially be useful, whether it be OSB or iGaming? Thinking pool play, where they split winnings? There's an auto play feature, so on?

Yes, I haven't put much thought into that. They have developed quite a few interesting products, including a recently launched bingo product. There could definitely be some opportunities to leverage that. I've considered how they are enhancing the lottery experience and how we can integrate the iGaming and OSB experiences we've developed with their lottery offerings. I believe that integration holds significant potential. You might be right that there are valuable features and elements that could be adapted for other products, so we will need to explore that further.

Great. And then just as a follow-up on DFS, any early metrics and thoughts on the Pix6 product? And then how should we think about the take rate, gross margins, etc., relative to your traditional DFS business?

We are very excited about that product. We haven't talked as much about it because it just launched, but it's something that we think could really reinvigorate DFS growth in a meaningful way. Right now, we're seeing really good early signal, very strong retention numbers, good monetization. The fees that we take, they are guaranteed price pools that are actually higher than the average DFS fee. So that's good, too. So a lot of things to like about that product, and I think it's something that we could really see be a meaningful contributor in the future.

Thanks, Jason. Good luck, guys.

Thank you.

Thank you. Our next question comes from John DeCree with CBRE. Your line is open.

Good morning, everyone. Thanks for taking my questions. You covered a lot of ground, but maybe a high-level question on iGaming. So a lot of success for you over the past year. Can you talk a little bit about if we talk sports and Jackpocket; but about some of the stuff you have planned for iGaming? I think your proprietary content has been a big driver of some of your success. But as we think about 2024 and where you're going in iGaming, high level, what should we think about?

Yes. I mean, first, we are just in the process of completing the migration on GNOG. So that's going to be a real exciting one and really just at the very early stages of deploying our multi-brand strategy, and I think that's going to be a real tailwind for us. We also have a number of product features and new games that we're working on as well as things that we're working to increase and build out like our jackpots offering, which I think is a real differentiator for us. So there's a lot going on in that space. We're working on a lot of new gamification stuff. There's a lot. I think really front and center is that GNOG migration and having those products become on the same platform, I think will allow us to really get even more leverage out of each additional feature and game that we launch.

Got it. Thanks. You touched on a little earlier, iGaming, your view on New York perhaps getting close, and we probably feel the same way. There's quite a few bills circulating out for gaming this session. But curious if you have a view or if your team has a view on, at least directionally, over the last couple of months or quarters, if you've seen greater progress at the state legislative level or if there's maybe anything out there that people aren't thinking about it's not major headlines like New York that might be interesting over the next kind of one or two years on the iGaming regulatory front?

Yes. Several states are gaining momentum in iGaming, and while it's difficult to predict, I believe we might see one or two new laws this year. States like Maryland and Wyoming are showing interest. Illinois could also be a dark horse. There are two primary factors at play. First, many states opted to focus on online sports betting initially to see how it performs, and they are still adjusting to that. The incentive for new tax revenues from online gaming is less impactful when states are still evaluating online sports betting. Secondly, we discussed a few years back how post-COVID circumstances would drive states to seek tax revenue. However, the influx of federal funds into state budgets delayed that timeline. Many states are now facing budgets reminiscent of those from four or five years ago, with fewer surpluses. This shift will influence how states approach regulatory measures and responsible gaming, especially since there is currently no legal online casino market, which is a concern. States should prioritize disrupting illegal markets that lack consumer protections and do not generate tax revenue. The potential for funding various programs from iGaming revenues may also serve as a strong motivator. Initially, we expected considerable momentum for online sports betting, but I was pleasantly surprised by the number of states that pursued iGaming simultaneously. As online sports betting legislation advances, we can anticipate a wave of iGaming regulations emerging in the next year or two.

Thanks, Jason. We agree. That's all helpful commentary. And congratulations to you and the team on a great 2023.

Thank you so much. Really appreciate it.

There are no further questions at this time. I'd like to turn the call back over to Jason Robins for any closing remarks.

Well, first, thank you all for joining us on today's call. Really, 2023 was an excellent year for DraftKings, and we're so excited about the opportunities in 2024 and beyond. I think 2024 is going to be an even bigger year for us. I hope everyone stays safe and well and look forward to chatting with you in the future. Thank you.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.