Q2 2023 DraftKings Inc Earnings Call

Participants

Jason D. Robins; Co-Founder, Chairman & CEO; DraftKings Inc.

Jason K. Park; CFO; DraftKings Inc.

R. Stanton Dodge; Chief Legal Officer & Secretary; DraftKings Holdings Inc.

Barry Jonathan Jonas; Gaming Analyst ; Truist Securities, Inc., Research Division

Bernard Jerome McTernan; Senior Research Analyst; Needham & Company, LLC, Research Division

Brandt Antoine Montour; Research Analyst; Barclays Bank PLC, Research Division

Carlo Santarelli; Research Analyst; Deutsche Bank AG, Research Division

Daniel Brian Politzer; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division

David Brian Katz; MD and Senior Equity Analyst of Gaming, Lodging & Leisure; Jefferies LLC, Research Division

Jed Kelly; Director & Senior Analyst; Oppenheimer & Co. Inc., Research Division

Jeffrey Austin Stantial; Associate ; Stifel, Nicolaus & Company, Incorporated, Research Division

John G. DeCree; Director and Head of North America Equity & High Yield Research; CBRE Securities, LLC, Research Division

Jordan Maxwell Bender; Director & Equity Research Analyst; JMP Securities LLC, Research Division

Joseph Robert Stauff; Credit Analyst; Susquehanna Financial Group, LLLP, Research Division

Michael Patrick Graham; MD & Senior Equity Analyst; Canaccord Genuity Corp., Research Division

Robert S. Fishman; Analyst; MoffettNathanson LLC

Robin Margaret Farley; MD and Research Analyst; UBS Investment Bank, Research Division

Ryan Ronald Sigdahl; Partner & Senior Research Analyst of Institutional Research; Craig-Hallum Capital Group LLC, Research Division

Shaun Clisby Kelley; MD in Americas Equity Research & Research Analyst; BofA Securities, Research Division

Stephen White Grambling; Equity Analyst; Morgan Stanley, Research Division

Stephen William Glagola; VP of Technology, Media and Telecom; TD Cowen, Research Division

Presentation

Operator

Good day, and thank you for standing by. Welcome to the DraftKings Q2 2023 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Stanton Dodge, Chief Legal Officer. Sir, please go ahead.

R. Stanton Dodge

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 our 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 quarterly report on Form 10-Q filed 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, DraftKings, who will provide a review of our financials, and we will then open the line to questions. I will now turn the call over to Jason Robins.

Jason D. Robins

Good morning, and thank you all for joining. I'm excited to be with you today to talk about our outstanding second quarter and significantly improved outlook for fiscal year 2023. Revenue and adjusted EBITDA exceeded expectations in the second quarter. And importantly, we generated significant positive adjusted EBITDA. Second quarter revenue increased 88% year-over-year to $875 million. Our revenue growth trajectory has been very strong due to our continued focus on enhancing our products and improving our customer experience, which is driving excellent retention and rapidly improving monetization. At the same time, we remain relentlessly focused on efficiency, and our mantra of revenue growth and cost efficiency is now a core tenet of the organization.
As a result of our strong revenue growth and ongoing efforts to capture efficiencies, we delivered $73 million of positive adjusted EBITDA in the second quarter. We are increasing our full year revenue guidance to a range of $3.46 billion to $3.54 billion, implying growth of 56% year-over-year at the mid-point. Our fiscal year 2023 revenue guidance includes our expectation of nearly $1.2 billion of revenue in the fourth quarter of 2023. We are also improving our full year adjusted EBITDA guidance to a range of negative $190 million and negative $220 million, an improvement of 35% at the midpoint versus our May full year guidance.
Our fiscal year 2023 adjusted EBITDA guidance includes our expectation of $150 million to $175 million of adjusted EBITDA in the fourth quarter of this year. Turning to our OSB product. We have continued to focus on powering our own Same Game Parlays and differentiating our live betting content. We now have live Same Game Parlays built in-house for most of the major sports, including NFL, NBA, MLB, college football and college basketball and added to our live markets for golf, tennis and MLB. We are improving our product at a very fast velocity with very high quality.
In iGaming, we're executing our 2-brand strategy while focusing on differentiating through more in-house content, including Live Dealer and Jackpot Offering. Our persistent focus on product differentiation is already apparent in share trends. In the states where we are currently live, we achieved OSB handle share of 35% and OSB GGR share of 32% in the quarter, which were the highest they have been since the COVID impacted second quarter of 2020. We also maintained #1 iGaming GGR position and set an all-time record for our iGaming GGR share at 27%. Looking ahead, we are very excited for football season. Our entire organization has dialed in and ready for the start of NFL and NCAA football. I am proud of the team and the culture we have put in place. In particular, I am proud of our team for their relentless focus on efficiency and expense management over the past 12 months. Our work of achieving (inaudible) is not done, and we feel great about the trajectory of the business. With that, I will turn it over to Jason Park.

Jason K. Park

Thank you, Jason. I'll hit on the highlights, including our Q2 performance and our improved 2023 guidance. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, the organization is executing very well, and that is showing up in our results. We achieved $875 million of revenue in the quarter, which is 88% higher than our second quarter 2022 revenue, and our adjusted EBITDA of positive $73 million significantly outperformed our expectations and improved by nearly $200 million on a year-over-year basis. Customer retention and engagement outperformed expectations, as we successfully transitioned customers from the NBA season into MLB.
We have seen significantly better-than-expected engagement on MLB, due to our enhanced product. Structural hold was also above expectations at approximately 9% for the quarter, while promotional intensity improved together supporting more than 550 basis point year-over-year improvement in our adjusted gross margin rate to 47%. Fixed expenses were slightly better than expected as we manage vendor-related costs and exerted discipline on our compensation expense. We were particularly pleased with the results in our more mature online sportsbook, iGaming States. In our states that launched from 2018 through 2021, combined handle growth accelerated quarter-over-quarter and increased more than 35% compared to the same period in 2022.
In these states, revenue increased more than 70% year-over-year. Adjusted gross margin rate increased more than 800 basis points and external marketing declined more than 10%, while total unique customers increased approximately 25%. These strong results and our visibility into continued improvement have enabled us to raise our full year 2023 revenue guidance range to $3.46 billion to $3.54 billion from $3.135 billion to $3.235 billion or by $315 million at the midpoint.
We are also improving our full year 2023 adjusted EBITDA guidance range to negative $190 million to negative $220 million from negative $290 million to negative $340 million or by $110 million at the midpoint. The bridge from our May full year 2023 guidance to our current full year 2023 guidance includes increases due to stronger customer retention, acquisition and engagement, structural sports book hold improvement and favorable sport outcomes in the second quarter. These items are partially offset by Kentucky now launching this year and being included in our forecast and Ohio's tax rate increasing effective July 1.
Customer retention, acquisition and engagement are exceeding expectations and account for $225 million of the revenue improvement and $100 million of the adjusted EBITDA improvement. Our structural sports book hold percentage forecast is also higher, supported by our introduction of in-house same game parlay capabilities and new live betting markets. This trend accounts for $40 million of the revenue improvement and $30 million of the adjusted EBITDA improvement. Favorable sport outcomes in the second quarter contribute $30 million to the revenue improvement and $20 million to the adjusted EBITDA improvement. We are very excited that Kentucky's Horse Racing Commission recently set a target launch date of September 28, 2023, for online sports betting, which is sooner than we previously anticipated.
As a result, we expect $20 million of additional revenue in 2023, and a headwind of $30 million to 2023 adjusted EBITDA. Last, we expect Ohio's increased tax rate from 10% to 20%, which went into effect July 1 to result in $10 million of additional costs this year. In terms of our full year 2023 adjusted gross margin percentage, we now expect to be in the 43% to 45% range, an improvement from our previous guidance of 42% to 45%.
We expect contribution profit, which we define as adjusted gross profit less external marketing to grow to approximately $700 million in fiscal year 2023, which includes our investment into Kentucky.
With regard to our balance sheet, we ended the second quarter with $1.1 billion of cash and now plan to end the year with more than $1 billion. As a reminder, we expect approximately $120 million of capital expenditures and capitalized software development costs for fiscal year 2023 and change in net working capital to be slightly positive for the year.
In sum, we had a strong second quarter and are very excited for the upcoming football season. That concludes our remarks, and we will now open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question will come from Shaun Kelley of Bank of America.

Shaun Clisby Kelley

Jason or Jason, maybe just to start off, obviously, dramatic market share gains, and I think a lot of this comes back to just truly core product improvement. So I was wondering if you could give us just a little bit of color on what you think the big success stories have been over the last 3, 6, 9 months on the product side? And then maybe to put it in quantification terms, what would it take to narrow the gap between your OSB handle share that you outlined at 35% and the OSB GGR share at 32%, is that a realistic goal?

Jason D. Robins

Thank you, Sean. So first on the question around product, it's been a lot of things. I think it's a very complicated product, and there's a lot of things that can create customer friction if you're not careful. And I think really a big focus for us over the last 1.5 years has been removing customer friction throughout the journey. So that's been a big deal. We've obviously greatly enhanced our same game parlay offering. That's been a huge part of the story over the last 6 to 8 months. And I think our live betting options have gotten better as well. I can objectively say, I think in H2, we feel we're going to have the best product in the market. So really excited about that. And I think that's the big difference maker as you noted. As far as whole rate goes, we're continually working to improve that.
We've obviously closed the gap quite a bit between handle share and GGR share, and I have no reason to believe that we can't continue to do that.

Operator

(Operator Instructions) Next question will come from Stephen Grambling of Morgan Stanley.

Stephen White Grambling

I'm going to change over to marketing and costs. It looks like in the back half, the assumption is for effectively, I think, very much lower growth. So it seems like you're continuing to be focused on reducing costs, are there still big contracts out that could be up for renegotiation or that we could be considering as we look into the second half or into next year as we look at the guidance or beyond?

Jason D. Robins

Yes, it's a good question. I mean, we always are reevaluating every time we have a deal come up, whether it makes sense to continue and at what price. And that's a continual thing. So we're going to continue just over the course of our lifetime to see optimization there. I think same thing across the board with marketing, promotion and I do think there's opportunity also if we can gain more market share to generate better top line as well. So those are really the core areas of focus for the company. I think on the corporate cost side, we really -- there's probably a little bit here and there. We've really spent so much effort on that for the last 1.5 years or so that I think the low-hanging fruit there has been picked. But certainly, the intent is to have significantly slower fixed cost growth next year. And I do think there's some room to optimize some of the levers that I mentioned.

Stephen White Grambling

But as a quick clarification, are any of the bigger kind of national marketing contracts embedded in the guidance in terms of cost reductions? Or are those still kind of outstanding?

Jason D. Robins

No, we don't have any cost reductions embedded in the guidance from any of that. We, certainly, as I mentioned, always look at when things come up, but we're at this point not building any favorable renegotiations into the guidance.

Stephen White Grambling

Makes sense. Thank you.

Jason D. Robins

Stephen, as you know, our approach to guidance in general has been -- we're going to bake what we know. If we have lots of things that we're working on, some of them may come through, some of them may not. So we don't kind of forecast like a probability adjusted number. We really bake what we know. And then we look at anything like you're describing as well as potentially any additional market share gains or anything else that might drive top line. We look at that as upside.

Jason K. Park

I would add, Stephen, that these types of team and league deals are a much smaller percentage of our total marketing expense than some of the other operators in the industry. And as a general philosophy, we have implemented more short duration deals to give us the chance to evaluate actual performance more frequently.

Operator

(Operator Instructions) Our next question will come from David Katz of Jefferies.

David Brian Katz

So in the comments, you talked about backward-looking friction removal as a product focus. Can you just talk a bit more about how that focus looks going forward and what the to-do list is to sort of keep your product on a winning track?

Jason D. Robins

It's a great question. I mean, I think that this is an area that there's still a lot left to do. It's true of any product in the digital space that there's always going to be room to optimize your funnels and improve the experience, but particularly in regulated gaming, where there's a lot of requirements that you have to follow and there's a lot of states that launch very quickly. So the focus for us has been on how do we get live and make sure that we're complying with all relevant laws and regulations.
I think as you then kind of say, okay, let's take a look at along the way, what is that done that might have created bad experiences for customers? Flags that go off that were misfires or things that were actually correct, but don't really properly give the customer a path to resolving them even with better explanation. I think there's so much there. And for us, it's really about the customer experience. We look at the product and we say, if you're a customer, what elements of it would be frustrating, what elements of it would make you feel like I'm just going to go try somewhere else. And we try to improve that the best we can, obviously, making sure that we continue to follow all compliant -- stay compliant with all regulations and laws in every jurisdiction that we operate.
But I think there's a lot there and just will continually be because of the sort of nature of the regulated gaming industry. And I think particularly now given how many states launched now quickly, there's just a lot of low-hanging fruit still available on that front.

David Brian Katz

Understood. And as my follow-up, I do have to ask, periodically, there's a lot of discussion, and I think it's been obviously ramping up M&A. What are the boundaries and what thoughts might you be able to share in terms of what you might want for or need to keep the momentum going?

Jason D. Robins

I know there's a lot of chatter about M&A. At this point, we're about -- I mean we had a great quarter. We're really excited about that, but we're kind of on to this quarter. It's about to be the most important time of year seasonally for us. We have fall coming up with the NFL and call it football calendar, NBA. Lots of things happening this fall. So this is the most important time of the year. This is when we acquire the most customers, when we have the biggest opportunity to gain more market share, to where we generate the most revenue, we'll generate the most EBITDA.
I think this is so important moment for DraftKings that we as a team laser focused on executing and everybody's really dialed in now. We have a lot of exciting stuff coming for NFL and college football and basketball and hockey and everything else, and we're pretty excited about that.
And listen, there's always talk of things happening in the background, and we have small teams that make sure they're aware of what's going on. But as a company, we're very, very focused on executing and winning in the U.S.

Operator

(Operator Instructions) Our next question will come from Robin Farley of UBS.

Robin Margaret Farley

I wonder if you could talk a little bit about the percent of players that migrate from the OSB side to the iGaming side and how that's kind of changed from before Golden Nugget till now?

Jason D. Robins

Robin, thank you. So it's been pretty consistent actually around 50% in states that have both products tend to cross over. That hasn't really changed with Golden Nugget because Golden Nugget is such a smaller piece of the pie. It's less than 5% of our revenue. So that doesn't really move the overall needle. We do see Golden Nugget is certainly a more dominant casino brand. So the crossover is a little bit less there. But it doesn't really move the needle on the overall business. The overall businesses stay pretty consistent in the 50-ish percent range.

Robin Margaret Farley

Okay. And do you expect that to change when you talk about migrating in the next couple of months to the DraftKings' tech stack or not necessarily, it sounds like?

Jason D. Robins

I don't think so, at least not in the short term because it's such a small piece of the revenue. But certainly, we hope that, that's a brand that grows and becomes bigger and bigger, and it could potentially impact long term. But I don't think we expect an immediate change when we migrate. I think, if anything, the focus will be on continuing to build out the casino audience and the CRM and cross-sell, multi-brand strategy within casino.
But as time goes on, I think that we'll have to see how the brand is growing and developing and if it can become more of a sports brand than it is today. But I think as of now, we think of it as more of a casino brand.

Operator

(Operator Instructions) Our next question will come from Joe Stauff of SIG.

Joseph Robert Stauff

I was curious I guess just in terms of understanding maybe the speed of adoption, especially looking at newer states. You've reached about 7% adult penetration of the adults in the newer states. And I'm wondering how you think about maybe that continuum in terms of the level of penetration that you have in some of your older states, call it, New Jersey or whatever? And then the second question I had was whether it be the number or the percentage of jurisdictions you operate in that are now contribution positive?
(technical difficulty)
All right. I'll ask the questions, I guess, again. I was curious of the speed of adoption especially as we think about maybe the newer states, you've reached about 7% penetration there. And just wondering how quickly now do we think about that continuum reaching penetration of some of your older states, whether it be New Jersey or so? And then the second question was really about the percentage or the number of jurisdictions that you operate in where you're contribution positive now?
(technical difficulty)

Jason D. Robins

Yes, this should be hopefully better. So you're asking about the penetration of new states being -- I apologize. I missed the last part of the question.

Joseph Robert Stauff

Yes, no problem. Just trying to understand the newer states, right, you've reached about 7% penetration or so in the newer states and wondering how quickly you think that adoption rate will get to levels in those newer states that you have in New Jersey or so?

Jason D. Robins

It's hard to say. I mean still very new. I think we're continuing to see good acquisition in those new states. And then we're going to know a lot more in a couple of months after NFL starts (inaudible). This will be the first time, for example, in Massachusetts that there's NFL betting available online. So one would expect you'll see another wave of customer acquisition, but we'll know more how things are tracking in the next couple of months, and we'll certainly be able to update you on the next earnings call.

Jason K. Park

And I'd add, Joe, our older vintage states, we continue to see really healthy acquisition. We're obviously bringing marketing spend down in those older states to match the level of acquisition and achieve appropriate CAC. But we haven't really found a ceiling in even our older -- our most mature states.

Joseph Robert Stauff

Interesting. And one follow-up, if I could. Are you willing to maybe share with us maybe the percentage of jurisdictions or the number where you're contribution positive?

Jason D. Robins

Yes. We'll definitely be talking more about that this fall on our Q4 earnings call and at the preceding Q3 earnings call in November and at our Investor Day. So I don't want to front run the team on that one, but we have a...

Operator

(Operator Instructions) Our next question will come from Dan Politzer of Wells Fargo.

Daniel Brian Politzer

First one, one specific question and maybe one more high level. Just in terms of the quarter, (inaudible) was 10%, I think adjusting for the favorable sport outcomes around 9%. Can you maybe give us just some more detail there in terms of parlay mix and late count? And then in terms of how you're thinking about this over time, I think your largest competitor has called out a goal of 12%. So it feels like you're closing that gap pretty quickly. How do you think about this evolving over time? And maybe any guidepost for how you think about this year versus next year?

Jason D. Robins

Yes. It's a great question on ceiling. I think we're still trying to figure out what we think the right level and appropriate level to get to is and we'll continue to follow the data. I don't feel like we have enough yet to say that we have a long-term target there other than I think there is still room to increase. And we thus far have seen really no material impact to handle, so definitely room to go up.
And parlay mix is actually right on expectation for us this quarter. There's definitely some upside, I think, in average like count with the rollout of our new bet slip that will be powered by our in-house SGP models. I think that will improve the leg adding experience in the UI, and that should hopefully increase average like count this fall. But as far as Q2 goes, we are really at where we...

Operator

One moment, please. Speakers, are you able to hear us?

Daniel Brian Politzer

Yes. Yes. Could I just squeeze in one more for my follow-up.

Operator

(technical difficulty)
Actually, one moment, please, sir. Mr. Robins, Mr. Park, are you able to hear us?
Just a moment. We're just having a technical difficulty. Please stay on your lines.
(technical difficulty)
And pardon me, Mr. Robins, Mr. Park, are you able to hear us?

Daniel Brian Politzer

Can I just squeeze in one quick follow-up.

Jason D. Robins

Yes, sure.

Daniel Brian Politzer

Okay. Okay. Yes, just looking out the next few years, maybe more long term. As you think about seasonality involving, do you envision a scenario where you could be EBITDA positive in all 4 quarters? Are you going to always kind of have this big jump just given the start of sport season and then maybe the shoulder season?

Jason D. Robins

No. No. We definitely expect that as the business inflects towards more permanent profitability there...
(technical difficulty)

Operator

(technical difficulty)
One moment, please.
Everyone, we ask you to please standby. Speakers will be back on momentarily.
(technical difficulty)

Jason D. Robins

Hello?

Operator

Yes, speakers, we are able to hear you.

Jason D. Robins

Line service, I apologize. I don't know if there's a technical issue on the service provider's end, but we've tried several different phones here. I apologize to those listening the call.

Daniel Brian Politzer

That's all for me.

Operator

(Operator Instructions) Next question will come from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli

You guys previously -- I believe it was back in March of 2022, more or less articulated a longer-term goal with sales and marketing representing about 10% of revenue and promotions -- sorry, 10% of net revenue and promotions, about 22% of gross revenue. Given the experience over kind of the last several quarters of reducing promotions, seeing how the customer reacted as well as the experience you've had in your vintage states taking out some of the external marketing. Are those still kind of where you're thinking? And do you believe that -- do you have any sense around the time line of when you think you can get to those levels?

Operator

(technical difficulty)
Speakers, are you there?
Mr. Santarelli, if you could please repeat your question?

Jason D. Robins

(technical difficulty)
Is there a way to fix this issue. It doesn't seem to be on our end.
(technical difficulty)

Operator

One moment, please.

Jason D. Robins

Should we join as a participant?
(technical difficulty)

Operator

Actually it is possible that you can -- maybe you can call in on a different line. Maybe give me one moment. I'm going to pause the call and I will -- and we will work something else.
Everyone, we ask you to please stay on your lines. We'll be resuming the conference shortly.
(technical difficulty).
Pardon me, we do apologize. I'm afraid that we do have the (inaudible) what has happened. We do have the speakers back.
One moment, Mr. Carlo Santarelli, I'm going to place you back and you may ask your questions. One moment, please.
Carlo Santarelli, are you able to hear us?

Carlo Santarelli

I could hear you, yes. Thanks.

Operator

Welcome. If you could please repeat your questions?

Carlo Santarelli

Is the management team there?

Jason D. Robins

Yes, we're here.

Carlo Santarelli

While you guys were gone, I just gave guidance for '24 to the rest of the (inaudible) on the call, if that's all right.
My question related to, with some of the experiences that you've had now reducing promotions, reducing sales and marketing, I believe back in March of '22, you guided sales and marketing kind of as a longer-term target to be about 10% of revenue with promotions about 22% of GGR. Based on kind of your experience in working those expenses lower, do you guys feel there's an appropriate time line? Or do you feel those targets have shifted at all?

Jason D. Robins

So we'll definitely talk more about this at our upcoming Investor Day in Q4. But I don't think that there's going to be a material change to either of those targets from what we're seeing today. But obviously, over the next few months, we'll continue to do the work to prepare and we'll have more to say on that in the fall.

Operator

(Operator Instructions) Our next question will come from Bernie McTernan of Needham & Company.

Bernard Jerome McTernan

Jason, in -- can you just expand on some of the comments in the letter on AI? Should we think about them more as revenue-generating opportunities or cost efficiencies and just any specific initiatives or products to point to there in the works?

Jason D. Robins

I think it's definitely both. When you can do more for less, that drives both revenue and cost efficiency. And so I think that's really the thematic. Obviously, depending on what it is and where in the stage of development, it is that will affect the relative ways that we use it. I think, for example, right now with our developer efficiency initiatives, we're focused on how do we get more done with our development team. So I think that -- what that probably means is over time, we don't need to add as many engineers to get the work done that we didn't want to do as we continue to scale the business and build out the product and serve the customer. But I do think it's a combination, if you think about it from a P&L standpoint of both cost opportunity and revenue opportunity.
None of that is baked into any of our guidance or any of the things we've shared in the past at Investor Day. This is something that we really view is upside. And it's in the category of the long list of things that we're working on that we think could create even better long-term economics for our shareholders.

Bernard Jerome McTernan

Is it helping some of the product road map that's coming out for this current NFL season? Or is that too early, and it's more of a '24, '25 event?

Jason D. Robins

I think the -- there will be some impacts. We've been working on machine learning for a long time and base-level AI. I think some of the advances in what third-party tools are out there and available are really hitting inflection point in the last months. And I think that's where really the opportunity lies to take it to the next level. But there's things we've been working on in and around this space for years. So there will be some impact of the machine learning and AI work in the coming season. But I think some of the really big more like things that can kind of fundamentally change the outlook of the business, those are still on...

Operator

(Operator Instructions) Next question will come from the line of Jed Kelly of Oppenheimer.

Jed Kelly

Great. Two, if I may. Are you now just seeing structurally lower tax just on getting better amortization from your brand spend. And then can you speak to, I know, that the product enhancements, but what is keeping players more engaged outside of football? Is some of the merchandising you're doing on the front page or products? Just can you talk about the engagement trends you're seeing?

Jason D. Robins

Yes. So great question. I think on the CAC side, it's a combination of several things. One, certainly, what you're mentioning, this national scale of the brand that we've built and the leverage we're getting out of that. It's also -- this is another area of the business. It's constantly being analyzed and optimized. We have a team of analytics people. We have machine learning and now we're actually starting to implement AI as a means of helping with things like betting on PPC platforms or creation of multiple -- many multiples more of different types of creative that you can test and optimize in the market.
So that's just a continual thing that we've been doing, and I think it's going to continue and potentially could be even with some of the AI work that we're exploring in for another sort of step function improvement, but it is what you're saying, too, absolutely. I think that there's sort of an underlying advantage that we have and that we have a brand, we have national scale. But then we also have a team that's really been honing and optimizing the marketing engine. It's a complicated thing, right? I mean this is very not straightforward analysis. We're, at any given point in time during our peak season, spending in so many different places with so many different partners, so many different creatives in market. So it's really just the opportunity to just continually optimize an engine like that, I think, should be a continual tailwind for us for many years to come.

Jed Kelly

And then on player engagement like...

Jason D. Robins

All right. So I think the big difference this year was the way that we are able to continue to retain NFL players into NBA season, and that's continued into baseball season as well. Those have both exceeded our expectations. We also have seen excellent cross-sell into iGaming. Robin was asking about that earlier. That's continued as we -- it's kind of like this halo effect of when you retain better and cross more people into NBA, on the sports side, that then has some spillover effect on iGaming because more active players on the OSP platform cross-sell more into -- more active players on the iGaming products. So that's really, I think, what I would attribute Q2. If you look at past years, we've typically seen revenue decline, Q2 to Q1.
We weren't expecting this. I mean, this was the result of a huge market share gain year-over-year. Lots of really just metrics that for last 1.5 years we've been testing and really just hit a great point where the optimization is really kicking in. And just the culmination of a ton of grid product work. I mean the product is so much better year-over-year from where it was last year. And as I said earlier, I feel like in the back half of the year, we're going to have the best product in the market.

Jason K. Park

Yes. I think -- look, I think all the work we do in that sport retention or sport to sport cross-sell, however, you want to think about it. You got to cross-sell them, but most importantly, the product's got to be great when you're bringing NFL player into NBA or an NBA player into MLB, and we're just super proud of how strong both our NBA product and MLB product improved on a year-over-year basis.

Operator

(Operator Instructions) Our next question will come from Michael Graham of Canaccord.

Michael Patrick Graham

Awesome quarter, guys. I wanted to ask on the growth outlook for the rest of the year. Can you maybe deconstruct that from the perspective of the vintages of your states, like how much of the growth do you think is going to come from some of your newer states versus more established ones? And related to that, just maybe a layer of depth into how you layered the launch of Kentucky into your outlook for Q3?

Jason D. Robins

Absolutely. So definitely, the bulk of the growth is going to come from the states that we launched from 2018 through '21. We are starting to get some real good contribution from some of the 22 states as well. But I think the degree to which we are still seeing growth in our older states, it's very significant, and they're obviously a bigger piece of the pie. So when you can get that kind of growth in your older states, it makes it a very big impact on the overall business. And then I'm sorry, what was the second part of the question?

Michael Patrick Graham

Kentucky.

Jason D. Robins

Kentucky, Kentucky. So Kentucky, I think we had a slide on this, but we're projecting roughly -- we're expecting, I should say, $20 million of revenue and $30 million EBITDA loss from Kentucky in fiscal year '23. And I think that assumes September 28 launch date. Last time when we guided, we did not actually have a clear launch date for Kentucky and now that we do, we put it into the guidance.
And I'll note that despite that not being in our prior guide and now being in our current guide, we still had a massive improvement in the guide. So that shows that not only can we fund new state launches through the results that we're generating in old states and the cost efficiencies we're finding, but we can do that and continue to see upside on top of that, which is a great story, I think, from years past where we always had to kind of increase the loss outlook every time that we've had a new state launch.

Operator

(Operator Instructions) Next question will come from Brandt Montour of Barclays.

Brandt Antoine Montour

Just one from me. So back to the same game parlay enhancements for the upcoming NFL season, it sounds like you're pretty confident chasing that product is going to be the best as you call it, I guess, it sounds like you baked in higher holds for this. It sounds like you baked in higher retention and no share gains, if I'm reading your comments correctly.
I guess the question is, are the product enhancements differentiated enough that it could be a driver of market share or is it the kind of thing where you would have to go out and get people to flip from your main competitor to try it? How does the mechanics work of gaining share of something like that?

Jason D. Robins

I mean, you're right. It's a combination of two things. It could be actual wallet that was going to your competitors, customers that were using your competitors before or it could simply be just better engagement and monetization of customers on your platform. And I think what we felt like in Q2, it was a combination of both definitely being able to increase whole rate year-over-year, made a big difference in share.
But it was a combination of both. We think we got handle share from people that were playing NBA with competitors last year as well. And I think that's really a result of just the product improvement year-over-year. So to answer your question, absolutely, could there be upside? Yes. I mean the goal for the team is to go out and beat anything that we put out there. And I think that we feel like we have quite a few initiatives that could help us gain share and could help us further retain, engage and monetize our users in the back half of the year. We've just consistently taken approach of not putting things that we don't feel we have full line of sight to -- in the guide, our guide, we consider to be what we commit to. And then we go out and we try to deliver above that by executing better and hopefully, some of the things that you hope come through, but we don't put hope in the guide. We put what we know in the guide.

Operator

(Operator Instructions) Our next question will come from Stephen Glagola of TD Cowen.

Stephen William Glagola

Thanks for the question. On the updated implied second half guidance and quarterly cadence versus your prior guide, could you just walk us through your assumptions for the greater implied EBITDA upside to Q3 versus Q4, particularly in light of the Kentucky launch and favorable sport outcomes in Q3 last year? And then also just what are the hold percentage rates you're assuming for Q3 and Q4?

Jason D. Robins

Thank you. Yes. So we're assuming a similar hold rate to what we had in the back half of last year. I think for the Q3, Q4 question, Kentucky definitely made a little bit of a difference but the fact that we were able to increase the guide for the back half of the year, increased the Q4 guide, I think really had to do with just the overall performance of the existing states that we're in and of the overall business on the cost efficiency side.
And I think that, that's more than enough to offset the Kentucky EBITDA that we're -- negative EBITDA that we're expecting to generate in the back half of the year. So we're pretty optimistic about a really great second half and I think we'll have to see exactly what ends up happening with states like North Carolina and Vermont. But right now, we feel like Kentucky is going to provide a great opportunity for us to go and invest in acquiring customers and in our existing states. And there's also several new states that haven't had a full NFL season. Massachusetts hasn't had any NFL season. Ohio didn't launch until January last year. So there should be a lot of upside in any customer acquisition numbers in H2 this year.

Stephen William Glagola

Jason, just one more, if I can. In light of the Ohio move to double its tax rate, could you maybe just discuss the long-term risk to your business and state governments would look to take increase in taxes on gross gaming revenue. And sort of what are the incentives that would keep state governments maintaining lower tax rates?

Jason D. Robins

Yes. I think it's a great question. Obviously, disappointing to see, but I think most state governments understand that if you start taxing this too high, you kind of defeat the purpose because it makes it really impossible for the legal regulated operators to compete with the illegal offshore operators that are not paying some of them onshore now. They're not paying taxes that are not following regulations.
There is, I think, great awareness of that in state legislatures. So I'm optimistic that states are going to keep taxes at a reasonable level. I think that they understand that they're ultimately going to drive volume back into the illegal market if they try to tax the industry too heavily.

Operator

(Operator Instructions) Next question will come from Robert Fishman of MoffettNathanson.

Robert S. Fishman

Two questions on partnership. First, ahead of the NFL kickoff, can you help us understand how the Amazon Thursday Night Football partnership helped your business last year and whether there are more opportunities to build upon that success this year? And then anything you can share on how the ESPN partnership has been a driver of your strong (inaudible) growth or overall business? And would you be willing to expand your ESPN partnership depending on which direction Disney ends up going with its strategic review?

Jason D. Robins

Yes. So Amazon has been a great partner. Last year, we were really happy with Thursday Night Football results. That was big driver of customer acquisition for us. Those games are also really well built for same game parlay offerings to really help drive a lot of parlay mix through better promotion of same game parlays on Thursday Night. We have a few extra things that we're going to be doing on Amazon this year. I'm pretty excited about that we'll be, I think, coming to everybody in and do order once the season launches.
So it really should be a great year with Amazon, and we're really just thrilled with that partnership, and as far as the ESPN goes, same story. We've been really happy with them as a partner. They've been great. We continue to get great value out of that relationship. And we'll have to see. I think, obviously, we saw the same comments everybody else did from Bob Iger and I think it's still fairly early days for them, but I don't want to speak for them.
They'll know better than I will, what their plans are. But we're always happy with great partners like ESPN. If there's a way to have a deeper relationship, that makes sense for both companies and something we would certainly consider. And if it doesn't make sense, and there's something that doesn't really work for us or for them, then we won't. We're perfectly happy with the relationship as it is now. So I think that's how we're thinking about it.

Operator

(Operator Instructions) Our next question will come from the line of Ryan Sigdahl of Craig-Hallum Capital Group.

Ryan Ronald Sigdahl

Just one for us. You mentioned MLB has been a positive surprise. Is there specific product that's resonating better with the player, whether it be live, same game parlay, et cetera?

Jason D. Robins

Yes. I think first of all, MLB itself has made some great changes that have helped increase engagement with the sports, so they're getting credit for that. But I think betting has helped a lot too. And MLB, first of all, is very well built for live betting. So that's been a real product that works very well with that sport, and we're excited about the offering we have there this year. Also, the same game parlay product has been significantly enhanced this year. We brought our own models into the fold, and I think really just improved both the UI and the overall offering of same game parlays for MLB and there's been a number of other things we've done. We've done some work on the cash-out feature. I mean there's a lot of different areas that we've worked on that I think have really helped improve the MLB offering year-over-year and that, combined with really strong engagement, from a viewership perspective, I think has driven unexpectedly positive to the upside results for MLB season so far.

Operator

(Operator Instructions) Next question will come from Barry Jonas of Truist.

Barry Jonathan Jonas

You've previously given some advice on how to think about NFL results and corresponding hold. Last year, it correlated maybe a little less as the season went on. Just curious as we head into football season, if there's anything you can give us to help think about sort of that week-to-week success?

Jason D. Robins

Yes. I think it's very similar to what we had shared last year that the results can definitely range between negative 10% and probably positive 20% depending on -- if you're really taking like that 95% confidence interval, it can get that wide in any given week, obviously, over the course of several weeks, over the course of the season, that (inaudible) but that's how I would think about kind of a week-to-week thing. And really, it's a result generally in NFL of two things. One, do the favorites win or lose? And second is how the player props do?
And that second part has become increasingly important as the industries evolve because so much betting is now happening on player props and so much same game parlay it depends on player props. So that's really made a big difference. I think given Q3 is always one that -- for our business planning group, it's their least favorite quarter because so much volume comes in the last 3 weeks of the quarter and not that it's the only thing going on, but like relatively speaking, July and August are slower months. So it's really the last few weeks to get always NFL volume and a few good or bad weeks can definitely swing the results a little bit. But I think that as we've gotten bigger and our customer base has become more diversified, the effects of that are lower as we've gotten more of a mix of player parlays, so it's not just straight game outcomes that -- so I think we'd have to look at this season.
I think this year, we might see a little bit tighter band, certainly over 3 weeks, we will. But I think still fair, given what we know today. I think week-to-week about that minus 10% to plus 20% possibility on hold depending on the game outcomes and player parlay outcomes.

Barry Jonathan Jonas

That's helpful. And just a quick follow-up. Wanted to get your thoughts on Florida, given the recent court decision. Do you see a pathway for DraftKings to compete in the state?

Jason D. Robins

I think too early to tell what the path is, but I'm optimistic there will be a pathway there because I think people in Florida want great products. And so I do think that it will get figured out. But right now, I think it's really hard to say. There's still going to be a few steps to play out and a few things with court rulings and other things. So it's really at this point, a little bit murky, and I think we'll know a lot more in the coming months.

Operator

(Operator Instructions) Next question will come from Jordan Bender of JMP Securities.

Jordan Maxwell Bender

So you gave comments on where your GGR margin could potentially go over time, more of a wait and see. But maybe just on the NGR margin side, that still lags international markets. Just given the parlay mix, can we maybe exceed 10% to 12% NGR margin that we see in the international market?

Jason D. Robins

Yes. I think that at this point, we have no reason to believe that we can't get to the same sort of NGR margins that we see internationally. But obviously, there's still -- it's still early days here. So let's see how it plays out. But given the fact that we've, over the last couple of years, continued to optimize the hold rate, continue to optimize the promo mix and we've actually seen better customer engagement, better retention, I'm pretty optimistic and have no reason to believe that we can't reach similar type of numbers that you're talking about that more mature markets across the globe have been able to get to.

Jordan Maxwell Bender

Great. And then just on the follow-up, you called out some states that have legalized, but not launched yet. A market that we don't talk about is Nevada. Is there any interest from DraftKings to go into that state at any point in time?

Jason D. Robins

Yes, we're definitely interested. I mean, Nevada is obviously an important state for gaming. There's a robust sports betting market there. It is in-person registration. So I would temper any expectations for the possible contribution there, but I do think it's an important state because people go there who are our customers, and they want to be able to make bets. And so I think being able to give them that option as well as to be able to access the Nevadans that are now betting with others and I think would like to try DraftKings' product is definitely something that we're exploring.

Operator

(Operator Instructions) Next question will come from Jeffrey Stantial of Stifel.

Jeffrey Austin Stantial

My question is on the continued structural hold rate expansion. It seems that a lot of time is spent talking about the parlays and the impact on mix, but maybe not as much on the optimized trading and risk management improvements you guys have made. Can you just unpack this a bit more for us. I guess, are there specific bet types or sports or you've been getting better at minimizing these trading inefficiencies? And how do you think about further upside here? Are there any comps you would point to or perhaps you're tracking an even better spread between, call it, the underlying (inaudible) and the realized hold rates?

Jason D. Robins

Very good question. I think you're absolutely right that we've talked and everybody has talked a lot about parlay mix and average like count and those are certainly very important drivers of hold rate improvement. But there is also -- there are also the other levers that you mentioned. I would say that really across the board, we feel we've improved. In fact, the Q2 outperformance is really more a function of those other things that you mentioned because parlay mix, even though was way up year-over-year, was kind of on track with our expectations. So it was really the customer risk management, the trading improvement. We've spent a lot of dev effort on tooling for our traders to make it easier for them to adjust lines, spot soft lines to move them faster and to better optimize them. We've also really significantly invested in our modeling and approach for customer risk management.
So I think those are things that are really paying off as well as you look at the hold rate improvement and the outperformance in Q2.

Operator

(Operator Instructions) Next question will come from the line of John DeCree of CBRE Securities.

John G. DeCree

Maybe one back to the roots on DFS, a much smaller piece of the business now, but I was wondering if you could give us a little insight as to how that business is trending in the context of customer acquisition. So as you enter new states, are you still getting a similar kind of initial cross-sell out of DFS that you did maybe 2 to 3 years ago in your older vintage states? And then is DFS still kind of an ongoing tool in those older vintage states? Are you still acquiring customers via DFS first?

Jason D. Robins

Absolutely. I mean DFS actually has had a great year so far, and that's been driven by a lot of improvements we've made across the product. That fall has seen a big jump year-over-year and that's something that you can sort of use as a little bit of a litmus test for -- or maybe the advanced test for how NFL season is going to go because a lot of those graphs happen in the July, August time frame.
So very exciting year for DFS. We have some really good stuff planned for the back half of the year on that product. And it is continually adding new customers. We have seen really strong crossover continue from DFS when we launch new states. So everything seems to be working on that front and it continues to be a big source of engagement for customers and states that don't have sports betting as well as a great funnel for new states that launch.

John G. DeCree

I think you answered my follow-up in there, but just to ask it explicitly, customers that cross over from DFS to sports and/or iGaming, are they still retained as DFS or you're seeing customers play going back and forth still? Or what's the -- what happens when they cross over OSB? Did they kind of reduce their time on DFS? Or are you still seeing multiproduct use across the customer base?

Jason D. Robins

Definitely seeing multiproduct use. I mean there's some cannibalization, of course, but it's not very significant. The products are pretty different. And people like them for different reasons. People also are not spending a ton of money on DFS. So it's really not like a big wallet thing to -- it's more of an engagement thing. And they are different products, and I think that they provide different types of experiences for people. So we are seeing a great deal of crossover, but we're also seeing great retention across all of those products as well. It appears that the cannibalization is fairly minimal. And a lot of it also happens in the initial launch stages.
People are very excited about sports betting, maybe forget about DFS for a little bit, but we're seeing in some of our older state vintages, as time goes on, they come back and some of the cannibalization, even though it wasn't that significant to begin with, even that small bits of cannibalization, we're seeing reverse in some of our older states.

Operator

Thank you. And this will end the Q&A session. I would now like to turn the conference back to Jason Robins for closing remarks.

Jason D. Robins

Thank you all for joining us on today's call. We had an excellent first half of '23. We are laser-focused on the back half and on the fall, and we're very excited about the rest of the year and beyond. I look forward to speaking with you over the next few weeks and hope you all stay safe and well. Thank you.

Operator

This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a pleasant day, and enjoy your weekend.