Are Lottery Courier Services the Next Big Thing?

By: Steven Eichorn

On February 15, 2024, DraftKings announced that it would acquire lottery app Jackpocket (which is a lottery courier services provider- i.e. it enables customers to obtain lottery tickets such as PowerBall and MegaMillions directly from their mobile app) for about $750 million in cash and stock. The company said it would pay about 55% of the consideration in cash and the remainder in common stock. Thus, the actual out-of-pocket cost for DraftKings to buy Jackpocket was approximately $410 million.  DraftKings said it does not require an additional capital raise for the purchase, which is expected to close in the second half of 2024 (pending regulatory approvals).

The main benefit for the transaction is certainly as a customer acquisition vehicle deal. Jackpocket has proven highly capable of tapping into the demand for lottery courier services, as it has over five million registered users. The acquisition appears to be an obvious win for all parties. Although one may wonder whether lottery customers become big bettors with DraftKings and whether  this is a cost-efficient method to grow revenue, it is likely that this type of acquisition was necessary to spur continued growth for DraftKings and should develop into a significant driver of future growth for the company.

For instance, DraftKings raised its 2024 revenue outlook and it is now expecting $4.65 billion to $4.9 billion, which is higher than its previous revenue guidance of between $4.5 billion to $4.8 billion. DraftKings also raised its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance to between $410 million and $510 million for the year, which also increased from its previous guidance of $350 million to $450 million.

While the revenue numbers look positive, in this period of high interest rates and coupled with the incredible revenue and profit growth in the tech industry, it appears that investors are seeking more certainty about the profitability and long-term viability of DraftKings.

For example, last February, DraftKings CEO said the operator expects its first fully positive year in FY 2024. However, DraftKings is still not expected to have any net revenue for 2024 and analysts forecast a full-year loss of 29 cents per share (on $4.67 billion in revenue).

Investors and others have been concerned about the amount of marketing spending that DraftKings has spent in recent years, but the CEO explained that marketing spend will be reduced (particularly with the expiration of certain sponsorship deals that would not be renewed). Likewise, the Jackpocket acquisition is really another form of customer acquisition and while a significant marketing spend, in the long-term it should help reduce its large marketing spend and still grow revenues in line with investors’ expectations.

The overall online gaming market in the U.S. continues to grow and will likely expand as additional states legalize fantasy sports, sports betting, and especially online casino (“igaming”). However, time will tell whether DraftKings is able to successfully integrate the lottery courier services into its overall brand, and, to what extent the customers gained by lottery courier services will further support the company’s growth and  capability to operate as a profitable company? In other words, do lottery courier service customers translate into online betting customers?

The answers to these questions will likely strongly influence whether we see additional acquisitions of lottery courier services by other online gaming operators and/or the development of internal lottery courier services by online gaming operators.