Talking about the leading sport betting websites, Draftkings can never be overemphasized. Hence, we shall be discussing the Draftkings business model today.
DraftKings is an online betting website that provides daily fantasy sports, gambling articles, sports betting, etc. to its prospective visitors.
What is Draftkings business model?
This sporting betting platform was established in 2012, and ever since then, the company has went to become one of the largest and most patronized online gambling betting in the United States.
Both seasoned and new users have the luxury of enjoying their products via the company’s website or by downloading the Draftkings official mobile app.
Although the company went viral in April 2020, Draftkings business model include percentage cut from sports bettors, playing tournaments, and gambling products.
Plus, the company also generate revenue via adverts placed on its platform, as well as charges collected from its B2B offering.
How Does DraftKings Make Money?
Talking about how Draftkings make money is akin to discussing the Draftkings revenue model. Hence, we shall unravel all the available ways.
But note that all the means of generating revenue implore by Draftkings are legit and legal, they are open and well known —even to its users.
Without further ado, the following are the draftkings business model and the methods used by the company to make money.
1. Daily Fantasy Sports
Like any other online betting company, Draftkings major revenue stream is the money realised from the daily fantasy sports.
The company generate money from the daily fantasy sports by hosting and organizing competitions so that passionate bettors can stake on them.
Each and every player is expected to pay a certain amount of money as buy-in before they are allowed to participate in the tournament.
Thus, DraftKings makes money by taking a 10 percent cut out of the money staked by users before they entered into the tournament.
That is to say, if all the participants pay the sum of $2 million before entering the tournament, then DraftKings as the organizing company will gets $200,000.
Another wonderful Draftkings business model that you wouldn’t believe is the adoption of sportsbook.
Remember that in 2018, the United States of America Supreme Court struck down a particular Gambling Act that allows licensed betting company to have sportsbook in any state.
Hence, Draftkings take advantage of this and extend its tentacles to far and beyond their comfort zone in the United States thereby increasing their revenue stream.
DraftKings, therefore, offers sports betting using the instrumentality of its Sportsbook app. Thus, variety of states in the United States now use it with Colorado and Virginia inclusive.
Just like any other traditional bookmaker, Draftkings equally generates revenue from its users (both new and existing) losing their bets.
After all, betting is akin to gambling and gambling is a game of chance. So where the bettors lose, all the money they stake goes into the company’s pocket.
In the same vein, DraftKings has another app (separate from sportsbook) that allows its users to play casino games like blackjack or roulette online.
The app alone offers over 400 playable games which in turn brings in profit into the company’s coffers whenever the gamblers bets against the house and loses that bet.
Most importantly, DraftKings generate revenue by paying its users winnings that are lower compare to the odds that would make games break even.
This means that where a coin is tossed, there is a 50 percent chance of you winning. DraftKings would, however, alter the game so that your winning odds are a bit lower.
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Adverts is another notable Draftkings revenue model. The company has it own official platform and as such, decided to utilize some space for running ads.
DraftKings began to offer adverts opportunities to brands and companies that wishes to use its platform to promote their goods, services, or activities as recent as 2016.
And ever since it made such decision, Draftkings has closed advertising deals with big brands like Sprint, Jägermeister, Buffalo Wild Wings, Hooters, etc.
As a result of most of these advertising agreements, the company’s partners would then run a branded tournament together with DraftKings.
A clear and perfect example of this is what Jägermeister did in 2018 World Cup where it ran a soccer tournament called The Real Shot, giving players the opportunities to pick their team.
From the Jägermeister example cited above, the company could for instance pay DraftKings $1 million just to organize the tournament.
In this regard, there will be another clause foe additional incentive, such as hitting 100,000 participants, which would yield additional payments.
Another thing is that, engagement of Draftkings visitors on the ads can be tracked easily.
DraftKings can provide all of its advertising partners with a series of data (like impressions and clicks) or the overall numbers of times the participants played.
5. B2B Offering
The last business model employed by Draftkings to make money enough to sustain the company’s budget and beyond is the B2B offering.
In April 2020 when DraftKings went public, it did so through a merger with SBTech and Diamond Eagle. In fact, most of the company’s betting and gambling products were handled SBTech.
With its Business to Business offering, DraftKings makes money through revenue model called managed service fee.
What this simply means is that DraftKings gets to keep a certain percentage of the income that the particular platform it works with generates along the line.
What’s more, the actual percentage to be shared is dependent on the terms of the contract between the two parties.
And to be honest, it’s somewhere between the range of 10 to 20 percent. The company itself had projects that the merger would help it save over $100 million per year.
More importantly, it eventually turned one of its largest cost centers into a revenue generation model that has been perfected by the likes of Amazon, AWS or Fulfillment.
It’s immaterial whether you are wondering on how does Draftkings make money or looking for the best Draftkings business model.
The explanation made above are the only means through which Draftkings make money and efficiently run the company.