DraftKings gets ready for a strange football season

Football looms on the horizon as the next big catalyst for DraftKings. But the college football season is now in turmoil.

Major league baseball is back, albeit with some coronavirus-induced game cancellations, and the NBA and NHL are starting playoffs in bubble cities as a preventive measure. That should be great news for DraftKings -- but shares tumbled 5% Friday on downbeat earnings.

Shares of DraftKings, a sports gambling company, fell after the company bigger-than-expected loss in the second quarter. Sales topped forecasts, however, and the company also provided a bullish revenue outlook for the rest of 2020. The stock has still more than doubled since it began trading in late April.

Football looms on the horizon as the next big catalyst for DraftKings. But the college football season is now in turmoil.

Two big conferences -- the Big Ten and Pac-12 -- have canceled their fall games because of Covid-19, which means top schools (and gambling draws) such as Ohio State, Michigan, USC and Oregon won't be setting foot on the gridiron.

DraftKings CEO Jason Robins says he isn't concerned, though.

In an interview with CNN Business Friday morning, Robins conceded it's unclear what will happen with other major college football conferences. For that reason, Robins said, the company's new outlook assumes that there will be no revenue from college football betting,

"There's less certainty around the college football season," he said. "It's more tenuous."

Football, esports and hot dogs are big draws

Still, Robins said he's optimistic about the chances that professional football will have a normal season. He thinks that the NFL will benefit from seeing how baseball, basketball and hockey have managed their seasons.

Robins also noted that DraftKings customers are betting on plenty of other things beside professional team sports. For example, Robins said, DraftKings took bets on the famous Nathan's hot dog eating contest at Coney Island on the Fourth of July and it was a hit with customers.

Questions about how coronavirus will change the sports calendar for the remainder or 2020 are not the only challenge the company faces, however.

DraftKings also has to deal with increased competition: Casino company Penn National Gaming has bought a big stake in Barstool Sports, with plans to launch a Barstool-branded sports betting app. FanDuel, owned by UK-based Flutter Entertainment, is a major player too. And gambling giant MGM Resorts appears ready to ramp up its online sports betting game as well, now that the company has a $1 billion investment from IAC, the conglomerate run by media mogul Barry Diller.

"We've always viewed MGM as legitimate competition," Robins said. "This shows there is a lot of excitement about sports gambling. This market is going to be explosive, and the IAC/MGM investment further validates that."

More states are likely to legalize gambling over the next year, too, as a way to raise much needed cash as their budgets come under pressure due to Covid-19, said Jason Ader, a former Wall Street gaming analyst and CEO of SpringOwl Asset Management.

Ader added that the online sports betting business is big enough to support multiple players, and that DraftKings has an advantage over casinos because it can convert players of fantasy sports games into active bettors.

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