Good day and thank you for standing by. Welcome to the Fourth Quarter 2022 DraftKings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stanton Dodge, Chief Legal Officer. Please go ahead.

Good morning, everyone, and thanks 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 SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. 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. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation, which can be found on our website and in our filings 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 an update 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. First off, I am very excited about 2023. We are more focused than ever on expense management. Since our previous earnings call in November, we have made surgical decisions backed by strong analysis about our expenses and have actioned items that totaled an expected $100 million of adjusted EBITDA relative to our prior guide. Including the impact of the increase in our 2023 revenue guidance, we have improved our adjusted EBITDA guide from a range of negative $475 million to negative $575 million to a range of negative $350 million to negative $450 million, and notably expect to generate more than $100 million of adjusted EBITDA in the fourth quarter of 2022. As you can see, we are in a great spot and are seeing an acceleration in our contribution profit and adjusted EBITDA. And we will continue to explore ways to drive efficiencies, both in our compensation and non-compensation expense categories. To be clear, the top line is performing very well, and we have strong momentum heading into 2023. We grew revenue 81% year-over-year in the fourth quarter and had an adjusted gross margin rate of 49%. Jason Park will speak more about what drove our strong fourth quarter results. Turning to our product offerings. DraftKings' mobile sportsbook was the number one most downloaded sportsbook app in the United States since Super Bowl Sunday. For sportsbook, one of our key product highlights was the launch of our own in-house live same-game parlay product, making us the first operator to deliver this capacity end to end for the NBA. This continues our focus on enhancing our parlay offering, which drives increased hold rate. And for iGaming, we launched DraftKings Jackpot, a unique type of progressive jackpot that is shared across more than 100 slots in [table] (ph) booking. We also received approval for our first live casino game developed entirely in-house, which we expect to launch in the coming months in New Jersey. I am proud of the team and culture we have in place. In particular, I am proud of our team for their relentless focus on efficiency and expense management over the past 12 months. While our work here is not done, we feel great about our trajectory and the ability the team has shown in driving strong revenue growth, while also managing our expenses better than ever before. I also noted that it is critical for top management to not take their eye off the ball in this area. And I am personally very focused on ensuring that goals, compensation and accountability are all aligned toward this very important objective. With that, I will turn it over to Jason Park.

Thank you, Jason. Yes, let me hit on some of the highlights, including our Q4 performance, our new and improved 2023 guidance and some information on our underlying state vintages. Please note that all income statement measures, except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we have great momentum coming out of Q4. In Q4, we posted $855 million of revenue, which represents 81% growth versus Q4 2021. This brought our full year revenue growth to 73%. Adjusted EBITDA was positive in October and was positive for the entire quarter after adjusting for the roughly $75 million investment we made in our recent launches in Maryland and Ohio. Our revenue was better than our prior guidance, primarily because of structural improvement in our sportsbook hold and fundamentally better customer trends than we expected. Customers are engaging more with our products and are less reliant on promotions. We also managed out approximately $25 million of expenses in Q4. 2023 is off to a great start. This will be a year of continued revenue growth and expense management; strong customer trends, including customer retention, handle per player, hold rate and better promotion reinvestment are enabling us to increase the midpoint of our revenue guidance from $2.9 billion to $2.95 billion. And our expense management programs have already identified $100 million of cost savings for 2023, roughly $50 million from scale marketing efficiencies and another $50 million from people-related costs. These two factors, along with our higher revenue outlook, allow us to confidently increase our adjusted EBITDA guidance range from negative $475 million to negative $575 million to negative $350 million to negative $450 million. I also wanted to spend a bit of time on foundational state economics. At any given point in time, our company results are…

[Operator Instructions] Our first question comes from Shaun Kelley with Bank of America. Your line is open.

Jason or Jason, I was wondering if we could just drill down a little bit on some of what you're seeing on the kind of structural hold improvement. That seems to be a really big story and one that you called out, yes, mix shift. Can you just give us a sense about two things? What's the underlying assumption for kind of 2023 as you think about what you saw results wise in the fourth quarter? And then secondarily, what's some of the kind of product road map? How do you think you can kind of continue to migrate customers into those types of products in the medium and long term?

Great question. So, really, I think it made a ton of progress in this area, which I think has been enabled by having migrated towards the beginning of last NFL -- excuse me, the previous NFL season to our own platform, and really, I think NFL 2022, with the culmination of a year's worth of work, which has continued through. We just launched live SGP for NBA, which I think was the first stop. We were the first operator to do so, and that was an entirely in-house built and traded product. So really, I think we should expect to continue to see more and more effort towards driving a better parlay product offering, and I think that will continue to drive more mix shift. Also, we are making other changes. Certainly, mix shift is the largest driver of what we're referring to as structural hold increase. But we are also making other adjustments to our models, rolling out new and improved models, improving our data environment and doing a lot of other things that are helping us improve our trading performance. So, I do think there's some additional upside. We continue to be able to execute against those things on the product road map.

Yes. And I would add, Shaun, in terms of your question for guidance. As we saw the empirical structural hold flow-through in Q3, late Q3 and Q4, we've embedded that into our 2023 revenue guidance, which is a big part of the increase in our revenue guidance that we provided today.

Thank you. One moment for our next question. That question comes from David Katz with Jefferies. Your line is open.

And congrats on the quarter. So with respect to this kind of updated operating platform or the updates that you've made, if hypothetically, we were to see -- and I know we've talked so much about sports betting, if we were to see iGaming hypothetically go live in New York, can you shed a little light on how that might impact what the guide is, both on the loss and the cash flow side?

Absolutely. So, I think, obviously, there's a lot of moving parts, how big is the market, what's the structure around the tax rate, promotional deductions, those sorts of things. I think in general, what we've said in the past is, we assume roughly 7% to 8% of the U.S. population -- or it was 7% to 9% are new sports betting markets each year, and 3% to 4% for iGaming. So, New York, obviously, would be on the upper end of that. But overall, those assumptions are baked into our 2024 guidance. I don't think even if New York did pass the bill this year, I think it's unlikely that it will go live this year. Remember, they passed the bill the year before they went live. It was early the following year, but it took until the following year to go live for mobile sports betting. So, some states have been faster, but I think most have generally been the following calendar year. So, I think we're looking at 2024, and as I mentioned, we've built in some assumption around that, but this would be a bigger iGaming market than we had assumed.

And just to follow that up, if I may. Is it a fair assumption that the negative impact, both to earnings and cash flow from an iGaming state of size would be less than it would be from a sports betting or is that not a correct assumption?

No, I think that is correct particularly if it is a state that already has sports betting or we’ve already had a lot of customer acquisition investment like New York. So we've acquired hundreds and hundreds of thousands of players in New York already. I think the cross-sell opportunity there would be enormous. We know that some of these players are going to Connecticut, to New Jersey, to Pennsylvania to do iGaming now. So, I do think there is some incremental customer acquisition spend, but it's not the same as a fresh market where we haven't had hundreds of thousands of customers that we've acquired already. So it's an accurate assessment, I think.

Thank you. One moment. We have a question from Jason Bazinet with Citi. Your line is open.

I just have a high-level question. You guys, obviously, are making a lot of progress improving the operations, and every metric seems to be moving in the right direction. At the highest level, when you think about how these improvements compare to some of the long-term targets that you've laid out at prior Investor Days, is the implication that the goals are the same, but you'll just maybe get there faster? Or do you -- if things keep going as well, is there scope for some of those to move up?

That's a great question. We will, later this year, be providing an updated long-term outlook at an Investor Day. So stay tuned for that. But speaking to it conceptually, I do think there's some upside there. We certainly have some upside on the hold rate front. I think promotions will probably end up somewhere in line with where we think they'll be long term. And then on the cost side, I think there's always effort that needs to be going. That's something, I think, that really has resonated with the team is, yes, obviously, we're all cognizant of the market environment we're in. But we also understand that to build the most profitable long-term company, we need to be as efficient as we possibly can. And that's a message that everyone on leadership has really taken to. The Board conducted a thorough review of management incentives towards the end of 2021 and starting in '22, it's continued to '23, completely realigned management incentives. So, there was an equivalent focus on EBITDA and profitability to what we previously had on revenue. So I think that when we look at the long term, and like I said, we'll provide more specific updates later this year, I do think there's some upside if we can continue to find the efficiencies that we've been finding over the past 12 months.

Thank you. And our next question comes from Carlo Santarelli with Deutsche Bank. Your line is open.

Jason, Jason, whoever wants to take this one, as you guys think about kind of the structural hold improvements that you're making and you think about kind of the new parlay product, relative to retention and acknowledging, it's early with a lot of this stuff, but you obviously had some growth over the course of 2022 with your addressable TAM, with new states that have come online. I believe your monthly unique payers, was up high 20s this year. I'm not sure if that is in line with kind of the addressable TAM that you brought up, but it seems similar, at least. As you think about like kind of that retention effort, as holds are rising, how could you kind of comment around the balance between how to retain and kind of how to improve efficiency on a per customer basis?

I think that's an extremely important question. And really, in the end, it's all about the customer. We start there. What's nice about the parlay product is customers love it. It's something that I think helps with retention if the product offering keeps getting stronger. So we don't view it as a trade-off at all. We look at it and start with the customer, find the products that the customers want and then ideally construct those products in a way that is both really exciting and benefits the customer and also create attractive economics for the Company. And I think parlay is a great example of that. We've had DFS for years. And while certainly, DFS is a skill game, while certainly people do win, it's not as common. But when they win, they have an opportunity in these big tournaments to win very large prices. And I think the parlay product functions the same way. If somebody does a very large parlay with lots of legs, they have an opportunity to turn a very small bet into a large payday. And I think that's really the value prop that's unique about the parlay product relative to the singles bets.

Great. And then if I could, just one follow-up. In terms of adjusted sales and marketing, I think the external marketing in '22 was a little over $800 million, you guys disclosed. The total was a little over $1.1 billion. Should we expect, as soon as '23, that, that line starts to -- that, that expense starts to come down a little bit this year? Or is that relatively flat this year and maybe you leverage a little bit of the revenue growth? And then maybe in subsequent years is where we start to see that sales and marketing kind of chip away and go lower?

I think that's right. I think we'll be relatively flat this year. I think that we're -- obviously, some of this will depend on the cadence of state launches. But based on sort of a baseline expectation, I think will be relatively flat this year. And as you noted, I think as more and more states mature, as the market overall matures, you'll start to see it tail down a little bit. But this year, I think we're expecting to be basically flat year-over-year.

Thank you. One moment. Our next question comes from Ed Young with Morgan Stanley. Your line is open.

And first of all, just to say thank you for some of the extra disclosure in the presentation. It's really very useful and appreciated. I want to ask about the statement you've reiterated really, which is around producing your first adjusted EBITDA positive quarter in the fourth quarter of this year and then how that set up '24. Given as you mentioned that you were there this Q4, except for the new state investment, can you just help us sort of think about that statement? Is that due to the cadence of the cost savings that you mentioned? Is that due to conservatism around the new state launches and not having perfect line of sight to that? Or is there anything else? Is there a reason particularly why that couldn't come earlier, you just maybe just want to commit yourself to that?

Yes. I think -- so it's a great question, Ed. Certainly, there's seasonality of the business, and there are quarters where there's deeper marketing investment like Q1 and Q3. I think that, for us right now, especially given Ohio, Maryland or brand-new Massachusetts, we expect to launch, hopefully, sometime in March, I do think that, that's really the reason behind us staying with the Q4 message. I think because of those launches, we expect an even better Q4. And what we're seeing is that those states so far, Maryland and Ohio, at least are ramping faster, even in Arizona. Arizona was the fastest-ramping state we had, and some of our more recent states like Maryland and Ohio have really even been faster. So, I think the good news is that, that's going to contribute more contribution profit sooner. I just don't know if Q2 is too soon to expect that. But either way, I think that we'll be continuing to focus on efficiency, continuing to focus on trying to get profitable sooner. That's the goal of the Company. And right now, I think we're comfortable to committing to $100 million plus in EBITDA in Q4. But we're trying to get that number up, and we're trying to get every quarter to do better than what we're thinking right now. And there's a number of efficiency-oriented initiatives around the Company that I think could potentially contribute some upside.

Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Great. Maybe following up on Carlo's question. Can you just talk about your churn rate this football season, I guess, with the higher holds, and you did have a better football outcome, too, versus last year? And what's kind of driving the underlying churn rate? And then just question just on 1Q. Can you talk about sort of some of the dynamics around the first quarter? I think last year, March Madness was a negative or lower than you thought. So can you talk about sort of some of the comps we should be thinking about for 1Q?

Yes, I think -- so on the first question, we've seen really strong retention rates. Obviously, we've been keeping an eye on this as hold has increased. We have other market comps that we see at even higher hold levels than us that has, I think, had decent retention. So we feel confident there's still room to increase hold without affecting churn. And thus far, we've seen only positive trends on the retention rate side. As far as March Madness, I think it's been a weird last few years. You had the cancellation of March Madness in 2020. And I think college basketball is really coming back in a big way now in terms of popularity. We're seeing more adoption in the regular season than we had in the previous couple of seasons. So, we think it's going to be a great March Madness, and I'm really looking forward to it. It will be -- hopefully, if Massachusetts gets live, it will be the first time that residents in Massachusetts will be able to bet and stay. So, I think that will be a big opportunity, and then obviously, continuing to learn more and get better on figuring out ways to drive better bet mix. That said, college sports, I will say, is one of the tougher ones on the bet mix side because a number of states don't allow player props and also people are generally just less familiar with the players, so they're more likely to combine parlays on multiple teams. So, we'll be focusing there, obviously, still trying to drive the same game parlay product, too, but I think college sports, multi-game parlay is a little bit easier than same-game parlay, given some of the dynamics I described.

Great. And then just one quick follow-up. Is there anything to call out from the World Cup in 4Q that won't be in there this year?

World Cup was great, I mean, no doubt about it. That said, it was low single digits percentage of our revenue. And I think we don't believe that there's anything really that you should adjust accordingly from World Cup. I think that was a nice little boost, but didn't have a tremendously material impact on our financials last quarter.

And I would just add, Ed -- I would just add, on World Cup that was obviously already included in the Q4 guidance that we provided in November. And when we look at the data on a customer-by-customer level, it felt more as much like a handle shift between sports that were very prevalent in Q4 as it was sort of true incrementality.

Thank you. And our next question comes from Robert Fishman with MoffettNathanson. Your line is open.

You called out how you're looking for more efficiencies around not renewing certain team league and media rights going forward. I'm just wondering if you can expand upon these different relationships and maybe how they've changed over the past year or two since you first signed the deals, now that some of the other OSB players have pulled back.

Yes, I think what you're describing is one of the many efforts around the Company aimed at becoming more efficient. And obviously, marketing being a big expense category, team and league deals being a big expense category, we feel there's room there. We've had a number of partners that have been very constructive and have agreed to reductions that would make these deals efficient in a way that we need them to be. And there's others that we will be discontinuing when the deals come up and have discontinued as they've come up over the past year. So it's really been a mix. There's been a lot of really great partners, though. They recognized that the market's changed, have said, "Look, we want long term to be in business with DraftKings. And we realize that this is not an efficient part of the portfolio right now, and we need to rework it." And there have been others that we've had to unfortunately discontinue the deals with. So it will be a mix of things, but it's really part of an overall effort that we have to be more efficient as a company. And I think there is an opportunity in this category to get even better.

If I could just ask one quick follow-up. Any update you'd care to make about the future partnership with Disney? And whether the relationship has changed at all since the early days since Bob Iger is back?

No. I mean we've continued to have a great relationship with Disney. ESPN, Jimmy Pitaro and his team have been great partners. So, we've really enjoyed that relationship, gotten a lot out of the partnership. And we always talk to our partners about ways that we can improve and extend and grow the relationship. And Disney and ESPN have been a great partner thus far.

Our next question comes from Clark Lampen with BTIG. Your line is open.

I've got just one for Jason Park. Jason, if we assume you guys are finishing '23 with, I guess, let's just say, it's a wide range, $600 million to $800 million of cash, and you're going to be at that point, a lot closer to breakeven on a cash flow basis, does it make sense to be a little bit more aggressive with cash usage or explore debt financing options in a market where so many of your competitors are now leaning out, at least on the sports betting side and you're past the point of having to illustrate to the market that you won't need to raise capital just to remain a going concern?

Yes, I appreciate the question, Clark. Yes, just to clarify, I would not say that we're like $600 million to $800 million. I would say, greater than $700 million ending 2023. So maybe $700 million plus is probably a better way to think about it. Yes, and look, I think the most important thing is we're in a great place where we can just focus on operating the business, finding efficiencies, not having to worry about any type of financing needs. And in terms of broader questions around debt's role at DraftKings, we'll continue to evaluate the entire capital structure, obviously, the macro environment on potential instruments like that. And we'll come back to you if anything comes to fruition.

Yes, I'd just add that I think that because of our cash position, were there an opportunity to be aggressive in places, we don't need capital, whether equity or debt financing. So it's something, I think, if there was some strategic opportunity or something like that, perhaps we would explore. But from an organic standpoint, we don't need to. So I think it's unlikely you'll see us take out any debt and any -- I mean, any equity capital at all. And I think it's virtually impossible to imagine a scenario where we do so for organic purposes. As far as leaning in more, we are trying to be surgical, and that means not just cutting and being efficient in places that we know we need to be more efficient, but also leaning in, in places where we have the data and the conviction. That said, you asked the wrong guy in Jason Park. I don't think he's met a cost he's liked in the last year. So sometimes we have to tell Jason, you can't cut everything. But definitely, the team is, I think, as a result of having a great analytically driven culture and a great amount of data, very confident that there are places that, yes, we certainly are cutting, but we also need to be leaning into as well.

Thank you. Our next question comes from Ben Chaiken with Credit Suisse. Your line is open.

On the SG&A side, the guide for '23 suggests maybe up 10% or 12% year-over-year, '23 versus '22. I'm kind of bucketing everything between contribution profit and EBITDA. Does that growth rate continue -- and that's relative to a 40% growth rate between '22 and '21. Does that growth rate continue to decelerate even as you add new states?

The growth rate of fixed costs?

Just the whole SG&A bucket, so everything between contribution profit and EBITDA that's growing in 10% 12% range.

No. Yes, I think there's really very little fixed cost impact of launching new states. There's some customer service sometimes, but we're also working hard to find ways to be more efficient there. So hopefully, we're able to offset any need to grow there with other efficiencies that we find. So really, it's mostly variable cost COGS that we see with new revenue coming in from new states. There's obviously marketing expense, but not really fixed cost. I think most of our functions are at scale, are pretty close. So that's why you're seeing moderate fixed cost growth this year, a significant reduction in fixed cost growth year-over-year. And I also think that the team is working hard to be more efficient. I think that there's been a real lightbulb that's gone off here that we can do more and actually grow revenue faster if we become more efficient. And there's a connection between being better focused on expense management and efficiency with revenue growth, with doing better for the customer. And I think making that connection and realizing that actually these things feed off of each other, that the better we do to manage our expenses and be more efficient as an organization, the more that we're going to be able to deliver value for the customer. And that will actually lead to market share gains and revenue growth. I think that's been a real rallying cry for the team over the past year, and it continues to be in 2023.

Thank you. Our next question comes from Michael Graham with Canaccord Genuity. Your line is open.

I just wanted to ask about some of the disclosures you had around the growth in your mature states, that 2018 to 2019 cohort. You referenced 50% year-over-year growth, and you gave some good reasons for that growth around retention and increased hold. I just wanted to ask about like what you are seeing in terms of customer growth, player growth in some of those mature states? And are you -- do you feel like you're getting close to terminal penetration? Or like what are you learning about the way the model works as you kind of get a little bit deeper into some of these mature states?

Yes, great question. So and thanks for calling that part of the letter out. I'd say if you unpack the 50% revenue growth that we experienced in that 2018, 2019 vintage, probably 70% was from existing customers and, call it, 20% to 30% was from new customers. So point is even though those states were in their third or fourth full year, they were -- we were still acquiring new customers. So, we haven't found a ceiling yet in -- even in those more mature states in terms of total population penetration.

And I think also, if you look at comps around the world, other markets, I mean growth typically occurs decades. And so obviously, growth rates go down. It's not going to continue growing at 50% forever, but I don't expect we've hit any sort of ceiling there. I know different dynamics, but the iGaming market in New Jersey, which is now coming up on almost a decade, still growing. So, I think lots of comps around really not just the world, but if you look at the U.S. lottery market and other sorts of comparisons, it's just very much a market that I think always has new customers coming into it. And I think there's an expectation that we should have that there will be a pretty steady growth for at least another decade or so.

And just super important, Mike, like the source of growth is -- the point is it's much more than just new customer acquisition. It is existing customer handle growth, that whole improvement and continued promo reduction that drives that net revenue growth.

And we're still in the phase of the market where we're finding big wins on the product front. We're finding ways that we can be more smart operationally, that we can reach customers in a more effective way. So, I think there's still many years of just innovation that will drive growth in our consumer wallet share. And when we think about wallet share, we don't just think about it within our own industry. We think about our customers' entertainment wallet share. And we believe that customers will be willing to spend more time with us and spend more with us if we create better products that they find more entertaining than other things they could be doing for fun.

Thank you, guys. Congrats on all the progress.

Thank you

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

Jason, I want to take your pulse on the M&A market. And just given everything you've talked about in the shareholder letter on profitability, does that impact your philosophy on using your stock as a currency?

I think they're somewhat independent. Obviously, the more that we can get some momentum behind the stock, the more attractive it becomes as a currency. But I don't think that it's really something that we really are focused on right now. We're very focused on our internal operations, focused on getting more efficient. Obviously, there will be a time in the market -- and hard to predict because we're in such a rapid phase of evolution right now. There will be a time in the market where those things really make sense and we can focus more on it. But right now, there's a lot of focus on just how we can make sure that this company is on a clear path to profitability and that we're operating in the most efficient and cost-effective way we can.

Understood. And then just a follow-up on parlays. I think a big question, just given the success, is where could it go? Do you guys have a sense in terms of just what the U.S. penetration of parlays is relative to the rest of the world or more mature markets?

I think that's a great question, and it's tough to compare to rest of world. I think the U.S. is a bit unique. My belief is that the U.S. consumer and the gaming market, a lot of the roots of it are in the lotteries where there have been lotteries across states for a lot longer than casinos and other sorts of gaming products. And that lottery mentality of big jackpots, I think, is carried over into other products. We even see it in DFS where our most attractive offerings are the large tournaments that you can enter for anywhere from $3 to $20 and win hundreds of thousands or million plus in prices. So I think that's carrying over into the U.S. market. And I actually think for that reason, parlays have more upside than they would in other parts of the world, not to say that they're not popular in other parts of the world. They call them accumulators in Europe. And certainly, that's been a big growth area overseas. But I think the U.S. customer is uniquely oriented towards the kind of proposition of bet a little to win a lot. So I think there's a lot more upside. And we're still at the infancy stages of this product. I mean there's so much we can do to innovate and make it more exciting and more fun for the consumer.

And our next question will come from Ryan Sigdahl with Craig-Hallum. Your line is open.

Curious to get your thoughts on the current competitive dynamics. We've seen several operators pulling back more notably on online sports betting and iGaming. But then, you have fanatics with the most notable high profile. I guess, new incumbent coming or entrant coming. How do you think about promotional and marketing intensity from an industry standpoint in 2023, better or worse year-over-year?

I think it will be better. There will be more mature states. I think that natural kind of promotional reduction that happens as states mature, we'll continue to see a tailwind from that. Obviously, there's always going to be new entrants coming in and out of the market. I think one thing we've seen, though, is that -- and I expect the same would apply to any new entrant. The market competitively has become much more rational. We talked about this in the letter. There was a period of time in 2020 and part of 2021, where there was really a message from the market that market share and revenue growth were all that mattered. And I think you saw some rational behaviors from some of our competition coming about as a result. And I think once the market started to change their tune, and there was more of a demand on accountability for efficiency and profitability, you saw that change. And I don't see that changing again. I think that we're in a new phase of the market where competing on a much more rational playing field is the norm. And I think that you'll continue to see that, whether it be existing operators or any new operators that come into the market.

One moment. Our question comes from Dan Politzer with Wells Fargo. Your line is open.

Jason, I was hoping just to clarify on the 2023 revenue guidance. I think for the fourth quarter, you guys had $30 million uptick in revenue from the structural improvement in the hold. I just want to clarify, your 2023 guide that you issued at the same time that did include the hold benefit? And then just for my follow-up, just the pace of the fixed OpEx deceleration, if you could maybe parse that out in terms of the G&A, product and tech and other corporate marketing, and I guess, where you're seeing the most efficiencies.

Yes. So in terms of your first question on hold percentage, yes, that's all embedded within the guide and the H1, H2 revenue split that we provided. So any type of empirical pattern that we're seeing that we have confidence will continue, we'll embed into our guidance. And in terms of further breakdown of P&T, S&M, G&A, fixed cost growth, I think someone earlier mentioned 10% to 12% growth, I would say that, that's pretty similar across all three of those areas.

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

I wanted to ask about iGaming. Looks like you guys have had really good success gaining share on the DraftKings side In New Jersey in the fourth quarter, Pennsylvania in the fourth quarter or Michigan in the third quarter. I was just curious if you're able to sort of break down that success between some of the things you mentioned in terms of product, like progressive jackpot or success you've had in cross-selling during this NFL season? Or if there's any sort of cross learnings you're able to -- you're leveraging from GNOG. Any color could be helpful for us.

Thank you. I appreciate it. Yes, we -- I mean, we are really pleased that in January, we had the number one market share in iGaming in New Jersey for the first time since we launched in December of 2018. So, great culmination of over four years of effort from the team, building products, optimizing our analytics and obviously, on-boarding a new brand in GNOG. And I think the most exciting thing is that we feel the biggest upside is yet to come when we migrate GNOG to the DraftKings' platform and product suite. That's going to hopefully happen later this year. And I think that will be -- give us an additional boost as well as provide ongoing cost savings due to not having to pay revenue share to as many third parties. So lots of benefit there and I think already seeing some great results from the product side. And also, you mentioned, too, I think we've gotten even more effective at cross-sell, I think, especially as we get more data. That's sort of our sweet spot. The more data we have, the more effective and efficient we can become. So not only have we gotten more effective at increasing cross-sell, we've being able to do it more efficiently as well. So that's something that I'm very proud of that the team has been able to make great progress on.

And if I may just quickly follow up on that. Is it fair to assume that 2023 guidance assumes that you're able to hold the share gains that you just recently enjoyed?

Well, there's always seasonality in the business. So naturally, we're going to do best during heavy sports periods on the cross-sell fronts, more activity in the platform. So, we've embedded that in. But yes, I think as far as like when you adjust for that and look at where we are today, I would say, yes, although the January report is brand new. So I can't say that we necessarily like looked at the implications of that. But more so, what we do is we look at the underlying cohort data, and we bake in adjustments for seasonality as well as any other initiatives or efforts or actions that we plan on taking.

Thank you. Our next question comes from Joe Stauff with SIG. Your line is open.

I wanted to follow up and ask on user growth. Jason, you had mentioned, and certainly, we can observe this that states are -- they're ramping so much faster. And so I guess, what is the right way to think about kind of how long it takes you to reach that sort of golden cohort now it is, I guess, maybe versus a year, 1.5 years ago? And then I had one follow-up, please.

Well, it's a great question, Joe. I think this is a tricky one because as we compare states, there's differences in time of year. So, we talk about Arizona ramping quickly. That was in September. And then you try to compare that to a state like Ohio or Maryland that launched Maryland towards the end of the year, Ohio Jan 1, or Massachusetts that we expect to launch in March. And you have to -- there's only a limited number of data points when you have all those different variables to really be able to say. But I think that's sort of a big-picture level. The implication is, one, there's probably some deeper investment upfront. So I think that what we've been really happy to see is that we've actually, at least through 2022, been able to absorb that by finding efficiencies throughout the rest of the business. If you look at the letter, we basically funded all of the state launches in 2022 through finding cost efficiencies elsewhere in the business. But then the other implication of it is that the inflection towards contribution profit positive happens sooner. You get greater operating leverage sooner, which means more upside from a revenue and profitability standpoint sooner. So, I think that's kind of the way to think about it. Exactly how it ends up netting out over the course of the year, I think we need a little bit more data to see. But at a macro level, that's kind of how I describe it. And it is -- no matter what, whether you take seasonality, anything else, it is unequivocally observably true that states are ramping much faster than they were three, four years ago.

That makes sense. And then maybe just a follow-up on structural hold in general. You certainly mentioned that the new in-house NBA same-game parlay sort of capabilities that you had launched, and I was wondering I know at least for part of your NFL product, you do outsource same-game parlay. I'm wondering if your '23 guide includes bringing that in-house.

So, the team is working at bringing that in-house now. As far as our '23 guide, we do expect, at some point in 2023, that, that will be the case and that is built into the guide, but it won't affect the entirety of 2023. And I noted this earlier, we have already started to roll out some of our own in-house SGP -- most recently, the live SGP MBA product we rolled out, which was the first in the industry to -- we were the first in the industry to have it. So, I think that's a good signal that we're reaching a period where we have now with over a 1.5 years under our belt, lots of data to build out some of these new models. We've gotten to a point where we feel like we can put out models that are as good or better than what we can get off the shelf from third parties.

Our next question comes from Chad Beynon with Macquarie.

First, just wanted to ask about opportunities or aspirations in non-North American markets. Given your data science and kind of all the learnings that you've had in the past couple of years, it seems like you're in a pretty good position to make it then in some of those markets, obviously, a lot to do still here in North America, but wondering if anything has changed in other markets.

I do think you're right that the technology we've built is going to be very portable to the global gaming market. And we believe that when we do decide to expand overseas, we'll have advantages over incumbent competition when it comes to product, when it comes to hold rate, things like that. That said, we are laser-focused on the U.S. and on Ontario right now. I think that the opportunity here remains very significant and growing. We have a lot of work to do to become more efficient as an organization that we need to focus on. There will be a time and a place to focus on international expansion, but it's not going to be right now. Doesn't mean that we won't look at it and start to do some exploratory work this year behind the scenes. I think we have to always be thinking about what future things we want to do and start laying some of the research and groundwork for that. But on the whole, the team is very focused on how do we continue to make progress and do better for the customer in the U.S. and how do we continue to become more efficient and cost effective as an organization.

And then a follow-up to that, just on the iGaming, iCasino legislation, I know you and your competitors on the mobile side are doing a lot of work communicating the story, but it also seems like a lot of the land-based operators are as well, as they've seen probably lower cannibalization than they may have feared. So do you think there will be more momentum? Do you think that's more based on kind of what happens in the economy? What's really going to start kind of the rolling stone for more iCasino discussions?

Yes, it's a great question. And I think that there are -- you noted one. I think, certainly, the opportunity for tax revenue, and should states find themselves more in need of that, that could have an effect. I also think that as an industry, we need to do a better job getting the story out there. There's a lot of great work that's been done by the EGA and other groups to really put the data out there about just how significant and large the illegal sports betting market is. And I think that's been a big driver of policymakers saying, "Look, we got to do something here." I don't think there's been nearly as much coverage of the illegal iGaming market, even though it exists. I mean if you go to pretty much any of the mobile sportsbooks and online sports books that you see overseas that are operating illegally, they -- almost all of them have an online casino. It's just not talked about as much. I think inherently, it's a less social product. People talk about it less. And then like I said, the industry probably just hasn't focused as much as we could have on really making that data clear. So I think it's a combination of those two things of states that see the tax opportunity and realize that there's a real way to take something that's happening already, just like sports betting is in the illegal market and bring it into the light and protect consumers and also generate revenue for the state.

Thank you. And our next question comes from Robin Farley with UBS. Your line is open.

I wonder, if you could give us a little bit of color on your guidance for states that are contribution positive? It was 11 states getting to $105 million last year. For the $500 million this year, how many states will that be to generate that $500 million? And is it still -- at one point, you talked about a three-year payback period for when a new state legalizes until it's profitable. Is that faster now, given the ramp-up in Arizona? What would you say that time line is? And then last, little clarification. You talked about the percent of population that your long-term guidance is 7% to 9% of new OSB every year. It's fair to say, though, right, that your '23 and '24 guidance, doesn't rely on your '24 guidance, doesn't rely on any states that haven't already actually legalized just not operational yet, right? In other words, no new legislation needs to happen for that to be hit?

That last point is correct. The only state that's not even live yet that we did assume in the guidance is Massachusetts. And the reason is it's pretty far down the line. So we felt it was more helpful to investors to get a view with Massachusetts included. But we have not assumed any other state launches from new legalization that happens this year. As far as -- I'm going to try to remember that. I think the first one, on a sort of state-by-state basis, we have not disclosed which states are contribution profit positive for '23 yet. We plan on covering that in more detail at our Investor Day later this year. So, we will be providing additional disclosure and data on that. We had to save something for that to keep -- to get you to show up, Robin. And then on -- I'm sorry, what was your second question? Oh speed and inflection.

Oh just the speed.

And proximity inflection. Yes, yes. So I think you're absolutely correct. One of the implications of faster ramping with new states, that the inflection to profitability and the degree of operating leverage that you get earlier is greater than what we had seen in some of the earlier states that launched in more of the 2018, '19, '20 time frame. So, there is that implication, and I think that could potentially have an effect not just with the states we're seeing launch in recent months as well as Massachusetts, but with future states that launched that again, something I think we'll address at the Investor Day. But in a nutshell, to answer your question directly, I do think it brings in the time line to path to profitability for a new state. And we'll be providing a more specific update on that later this year.

I just want to be clear, Robin, that 2024 EBITDA does include an assumption of more states legalized.

Yes. Sorry. So, '23 does not. '24, we have assumed 7% to 9% or 7% to 8%, I forget, if the population launches for sports betting and 3% to 4% for iGaming.

Okay. So, that would be some new states in this legislative session, right, would have to...

That would be, yes. And the implication, if that comes in high or low or if it's less so, while it may mean less TAM, it actually means we're probably going to have faster profitability ramp. So, I think either way, it's a good story for the Company. But obviously, we're pushing hard to get more legislation passed.

And then also, that would mean that your 2023 guidance includes the losses from those new states, right? If the profitability is in your '24 guidance, the losses would be in the '23 guidance already. In theory, that would be the part of it.

No, no, sorry. We did not -- no. We assumed, other than Massachusetts, no more state launches in '23. So there will be no effect in '23 if that occurs. If we do see more states launch in '23, yes, that will happen. But what I was referring to was launches in '24. So what that would mean is that the investment period for those states would be in '24. And it would have a downward -- sorry, if there were not launches, would have a positive impact on EBITDA in 2024.

Thank you. And our next question comes from Joe Greff with JPMorgan. Your line is open.

Just with regard to the incremental benefit in '23 -- or '23 updated guidance versus three months ago and the benefit coming from more efficient promotional activity and more efficient promotional reinvestment, how broad-based is that? Or how market concentrated is that? And then how much of a benefit from a market like New York is driving that improvement?

Well, the bulk of our guidance increase on the EBITDA side came from direct management. So about half of it came -- or about $50 million of it, I should say, came from compensation expense, about $50 million came from marketing. So, definitely a big impact there, some of the revenue increase was hold rate and promotion optimization. Some of it was some underlying handle/retention metrics we're seeing in our cohorts. As far as state by state, I don't think there's anything in particular at the state level that's different. States are maturing as expected. And the increases we're seeing, the hold rate are happening across the board. We do see in some of the newer states that we've launched that we have faster adoption of parlays and same-game parlays. I think that's largely because our product offering is in such a better place than it was a couple of years ago. But that, I think, is probably the one example. Other than that, I think the increases that we're making to hold rate and other things that are driving underlying performance on the retention and monetization front are really across state vintages.

Thank you. And that's all the time we have for questions. I'd like to turn the call back to Jason Robbins for closing remarks.

Thank you all for joining us on today's call. We had a really great finish to 2022 and are excited about 2023 and beyond. I look forward to speaking with you over the next few weeks and hope you all stay safe and well. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.