Each month, our “Stock Watch” series examines recent trends in sports betting equities across Wall Street and outside the U.S. on top global exchanges. The red-hot U.S. sports betting market is expected to grow to nearly $40 billion in annual revenue by 2033, according to Goldman Sachs. One prominent investment manager, Cathie Wood of Ark Invest, has taken a large position in DraftKings. She is not alone, as a wide range of institutional investors are bullish on sports betting. Come here early each month for a review of stock moves among the top publicly traded companies in the sports betting space.
Sports betting stocks ticked up in August to reach their highest level of summer before retreating near the end of the month as long-term concerns over inflation persisted.
There are few signs that U.S. inflation will abate in the near term. The U.S. Bureau of Labor Statistics reported Tuesday that its Consumer Price Index for August rose 8.3% over the prior year and 0.1% from July, defying expectations for smaller increases in both categories. As a result, the three major stock indices each suffered their worst day since June 2020, with the S&P 500 down 4.3% on the session. Inflation weighs heavily on tech stocks, which possess similar characteristics to a number of leading sports betting equities.
Top gambling companies were not spared on Wall Street, as DraftKings and MGM Resorts fell upward of 4%. The sell-off erased any momentum gained from the opening week of the NFL season when several prominent gaming stocks moved higher. Last week, the NFL opened its second season since the launch of the league’s official sports betting program, one highlighted by an exclusive partnership with sports betting data provider Genius Sports. The multi-year deal is valued at more than $1 billion over the life of the contract.
Last year our focus was on striking new & expanded sportsbook deals. And this was very effective with over 97% of US operators taking official NFL data through Genius. (1/3) pic.twitter.com/tqo26L86hi
— Mark Locke (@marklocke) September 8, 2022
Investors are looking to sportsbook operators to spend wisely on customer acquisition while keeping sales and marketing expenses in check. Of the leading sportsbooks, Caesars Entertainment will be closely monitored. When Caesars completed its acquisition of William Hill in August 2021, the company made waves with a pledge to spend $1 billion to grow its rebranded online division. But after a costly campaign last fall, Caesars abruptly pulled a popular ad spot featuring the Manning family and actor J.B. Smoove after the Super Bowl.
Although Caesars Digital posted a net loss of nearly $700 million over the first half of the year, CEO Tom Reeg has been pleased with the company’s cost-cutting efforts, as the digital unit has slashed about $250 million from its long-range budget forecasts. Reeg does not expect the division to lose $100 million in a single quarter again. The Street reacted positively to Reeg’s comments, as Caesars’ shares rose moderately in response.
Since Caesars set the market with the aggressive campaign, analysts will keep a close eye on the company’s spending patterns during the NFL season. The sportsbooks that retain market share, without burning through cash on ads and promotions, will likely be the ones to prevail. After a lengthy hibernation, the Mannings and Smoove returned to the airwaves for a new Caesars Sportsbook commercial last week.
Speaking of promos, for the week ended Sept. 10, promotional activity among a group of operators tracked by Susquehanna Financial Group rose 19% from the first week of September. Promotional activity at those sportsbooks is still down about 58% from last year at this time. The models for promotional spending have also shifted somewhat, according to Susquehanna, with operators focused more on boosted bets for certain wagers such as parlays rather than doling out free bets.
With a lesser promo environment, there is an increased probability that gross margins can come in above Wall Street expectations, Susquehanna analyst Joe Stauff wrote in a research note Tuesday. Shaun Kelley, an analyst with BofA Global Research, echoed the sentiments, describing the promotional environment as more rational this NFL season. There are indications, he said, of a pullback in traditional media spending coupled with a shift toward performance-based channels.
In general, sports betting stocks continue to rebound after numerous companies fell in excess of 70% from their 52-week highs earlier this year.
Opening price on Aug. 1: $13.58
Closing price on Aug. 31: $16.06
Monthly percent gained or lost: 18.3%
Year-to-date change: (-42.3%)
Market cap: $7.8 billion (as of Sept. 14)
As DraftKings remains under $20 a share, Wood, the CEO of Ark Invest, continues to invest heavily in the stock. It is a positive sign for DraftKings’ investors following a tense period this summer when the stock slumped below $10, falling to an all-time low. This week, DraftKings announced a deal with Amazon to become the exclusive odds provider for Thursday Night Football. Amazon Prime opens a 15-game weekly package on Thursday when the Kansas City Chiefs face the Los Angeles Chargers.
Flutter Entertainment (FLTR.L)
Opening price on Aug. 1: £8,222.00 pence
Closing price on Aug. 31: £10,765.00 pence
Monthly percent gained or lost: 23.6%
Year-to-date change: (-8.4%)
Market cap: $18.3 billion (as of Sept. 14)
Flutter, the parent company of FanDuel Sportsbook, enters the football season in a comfortable position. On last month’s quarterly earnings call, Flutter stated that FanDuel maintains a whopping 50% share of the online sports betting market in the U.S. FanDuel also became the first major U.S. sportsbook to deliver a profit over a full quarter. Moving forward, FanDuel is focused on broadening its market share within its online casino segment. Flutter also expects arbitration proceedings over the fair market value of Fox Corporation’s minority stake in FanDuel Group to conclude by the end of October.
MGM Resorts (MGM)
Opening price on July 1: $32.52
Closing price on July 29: $32.64
Monthly percent gained or lost: 0.01%
Year-to-date change: (-27.8%)
Market cap: $13.3 billion (as of Sept. 14)
Other stock movement
While PENN Entertainment fell 6% on Tuesday, in line with the broader market sell-off, the company is still trading around $30 a share. Before the recent decline, PENN moved above $38 in mid-August, hitting its highest level in three months.
While PointsBet peaked above A$4.00 a share in mid-August, the Australian-headquartered company is now back under A$2.30.
Among sports betting data providers, Sportradar traded above $10 a share on Wednesday, producing a market capitalization in excess of $3 billion. It climbed as much as 32% in August to a monthly high of $14.56 before closing the month at $11 a share. Genius Sports, meanwhile, traded around $4.30 on Wednesday, remaining near three-month highs. Genius surged more than 60% in August following positive earnings results.
— Investing.com News (@newsinvesting) September 12, 2022
The Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund (ETF) that tracks the top sports betting and iGaming stocks in the industry, closed August at $15.23, down fractionally on the month. At one point in August, the ETF eclipsed $17.50, its highest level in two months.
BETZ is still far below levels from a record high of $32.65 in April 2021. At that point, the ETF more than doubled its level from its June 2020 debut. As of Tuesday, DraftKings, Flutter, and Genius Sports ranked as the top three holdings in the portfolio, as each stock represented upward of 5% of the overall basket.