DraftKings Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the filing notes that customer engagement and revenue are typically strongest in Q4 because NFL and NBA seasons overlap. Financial amounts below are in U.S. dollars.
Business context
DraftKings operates online Sportsbook, iGaming and daily fantasy sports (DFS), along with retail sportsbooks, media and other consumer offerings, NFT Marketplace and gaming software services. Online gaming represented 96% of 2023 revenue. Growth priorities include product and technology investment, expansion into newly legalized jurisdictions, improving state-level unit economics and broadening consumer offerings.
Financial results and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $3,665.4 million | $2,240.5 million | +63.6% |
| Cost of revenue | $2,292.2 million | $1,484.3 million | +54.4% |
| Gross profit and margin | $1,373.2 million; 37.5% | $756.2 million; 33.8% | Margin +3.7 percentage points |
| Operating loss | $(789.2) million | $(1,511.8) million | Loss narrowed |
| Net loss | $(802.1) million | $(1,378.0) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $(151.0) million | $(721.8) million | Loss narrowed |
| Net cash used in operating activities | $(1.8) million | $(625.5) million | Use of cash substantially reduced |
- Revenue growth was principally driven by Sportsbook and iGaming, including customer acquisition and retention, new jurisdiction launches, improved hold and promotional reinvestment. Online gaming revenue rose 68.9% to $3,557.2 million.
- Average monthly unique payers increased 39.5% to 2.7 million; average revenue per MUP rose 17.7% to $113. Cost of revenue fell as a share of revenue, partly reflecting improved Sportsbook hold and promotions, although online gaming generally carries higher costs than mature DFS.
- Sales and marketing expense was $1,200.7 million, up 1.2%; product and technology expense was $355.2 million, up 11.6%; general and administrative expense fell 20.6% to $606.6 million, mainly due to lower stock-based compensation and transaction and advocacy costs.
- Cash and cash equivalents were $1,270.5 million at year-end; the company also reported $11.7 million of restricted cash and $341.3 million reserved for users. Management said cash on hand was sufficient for working capital and capital expenditures for at least 12 months. The filing also expects annual operating losses to continue over the next 12 months.
- Convertible notes had a $1,253.8 million carrying value, net of issuance costs, and $1,265.0 million aggregate principal; they mature in March 2028. No amount was outstanding on the $125 million revolving credit facility; reported available capacity was $122.7 million, with maturity in December 2024.
- Contractual obligations included $1,404.6 million of vendor and other purchase commitments, of which $467.6 million was payable within 12 months, and $117.8 million of lease commitments. These obligations are distinct from reported debt.
Material changes and unusual items
- Net loss improved by $575.8 million year over year, while Adjusted EBITDA improved by $570.7 million. The 2022 comparison includes GNOG only from its May 5, 2022 acquisition date, so periods are not fully comparable.
- Operating cash use declined sharply to $1.8 million. The cash-flow statement reports a $155.3 million decrease in cash, restricted cash and user-reserved cash combined; this total includes funds held for users and differs from cash and cash equivalents alone.
- DraftKings recorded a $57.5 million loss from remeasurement of warrant liabilities in 2023, compared with a $29.4 million gain in 2022. This non-cash fair-value item affected reported results.
- Stock-based compensation remained substantial at $398.5 million, down from $578.8 million. It is excluded from Adjusted EBITDA under the company’s non-GAAP reconciliation.
- The indirect-tax contingent liability was $71.2 million at year-end, up from $60.3 million. The company is also under IRS audit concerning, among other matters, fantasy sports excise tax and information reporting and withholding.
- On February 11, 2024, DraftKings agreed to acquire Jackpocket for $750 million, approximately 55% cash and 45% stock, subject to approvals and customary closing conditions. On February 14, the CEO and two other senior executives agreed to reduce base salaries to $1 for fiscal 2024.
Outlook, risks and contingencies
- Management expects profitability to improve as jurisdictions mature, revenue and gross profit grow, marketing and fixed costs stabilize or grow more slowly, and customer retention and monetization improve. It describes annual Adjusted EBITDA profitability as dependent on contribution profit exceeding fixed costs, among other factors. The filing does not provide a specific numerical 2024 revenue or Adjusted EBITDA forecast.
- Key operating risks include intense competition and promotional spending, unpredictable sports outcomes and hold rates, seasonality, dependence on continued legalization and licensing, gaming taxes, third-party market-access partners and service providers, cybersecurity and technology disruptions, and changes in consumer spending.
- DraftKings disclosed multiple pending legal matters, including litigation and a Massachusetts regulatory subpoena concerning whether Marketplace NFTs are securities, an ongoing SEC inquiry related to allegations concerning SBTech, patent disputes and consumer class actions. The filing generally states that loss amounts cannot be estimated for these matters. A settlement in principle was reached in January 2024 in Delaware litigation related to the GNOG transaction; an estimated loss was accrued, but the amount is not stated in the provided filing text.
- The company reports that its financial statements received an unqualified audit opinion and that internal control over financial reporting was effective at December 31, 2023. It remains a controlled company with a dual-class structure; the CEO held approximately 89% of voting power, limiting Class A stockholders’ influence.
Most important facts for investors to verify
- Track whether revenue and payer growth translate into sustained gross-margin improvement and progress toward the company’s stated annual Adjusted EBITDA profitability objective.
- Reconcile operating cash flow with working-capital movements, user-reserved funds and the reported cash decline; assess usable liquidity against debt, vendor commitments and the Jackpocket cash consideration.
- Review the convertible notes’ conversion conditions, the 2024 revolving-credit maturity and any refinancing or liquidity developments.
- Monitor the outcome and potential financial exposure of the Marketplace NFT cases and inquiry, SEC inquiry, tax audits and other litigation; confirm the amount and status of the GNOG-related settlement accrual.
- Assess the Jackpocket transaction’s closing, financing mix, share dilution and integration impact, and confirm the scope and implications of executive salary reductions.