Each month, our stock watch series will examine 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 now 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.
A bevy of top companies in the sports betting space, headlined by DraftKings, ended 2021 near 52-week lows as losses for some of the companies accelerated in December.
The continued sell-off presents a buying opportunity for bullish investors in the nascent U.S. sports betting industry, with several prominent states in line to legalize sports wagering in 2022. At the same time, the slump among top gaming stocks gave short-sellers another chance to thump their chests in December.
DraftKings ended the year as one of the most heavily shorted stocks on the market, as concerns about the company’s long-term profitability persist. As of Dec. 15, short interest in DraftKings topped $1.1 billion, according to Ihor Dusaniwsky, managing director of Predictive Analytics at S3 Partners LLC. With more than 39 million shorted shares on Dec. 13, the company set fresh record highs for short interest as percentage of float, Dusaniwsky told Sports Handle.
#DraftKings turns to another period of expansion in 2022 in an attempt to erase the sour taste of heightened short-selling this year.
(by @MattRybaltowski) $DKNGhttps://t.co/emOUhSLcda
— Sports Handle (@sports_handle) December 16, 2021
As a result, DraftKings closed on Dec. 31 at $27.47 a share, down 41.5% from its price at the start of the year. DraftKings peaked around $74 during March Madness, but it has not been above $50 since late October. On Wednesday, DraftKings fell below $25.50 for the first time since May 2020. Despite the large sell-off in 2021, DraftKings is still trading above April 2020 levels when the company jumped 10% on its first day of trading on the NASDAQ Global Select Market.
Among top sports betting companies, the steep losses in 2021 were not limited to DraftKings. Flutter, the parent company of FanDuel Sportsbook, ended the year down more than 23%. Also, Penn National Gaming, which owns a 36% stake in Barstool Sports, fell below $44 on Dec. 17, a far cry from its price last March when it hit a 52-week high at $142 a share.
At year’s end, several other top names in the space, Wynn Resorts, Bally’s, PointsBet, and Rush Street Interactive, closed at levels far below their opening price last January. The considerable declines underscore investor bearishness toward the industry, as cascading customer acquisition costs raise questions of whether top operators can turn a profit in the intensely competitive business environment.
Here is an overview of stock movement among top sports betting companies in December.
DraftKings
DraftKings’ (DKNG) opening price on Dec. 1: $34.75
DraftKings’ closing price on Dec. 31 (last trading day of the month): $27.47
Monthly percent gained or lost: (-20.9%)
Year-to-date change: (-41.5%)
Market cap: $10.8 billion (as of Jan. 4)
One upside to the second-half rout for DraftKings is that the company could be primed for a rebound at the start of 2022. After falling to 52-week lows, DraftKings has become a popular name on the Reddit forum Wallstreetbets, known most for stifling short sellers last January during the GameStop saga. What’s more? The Wallstreetbets crowd is interested in sticking it to famed short-seller Jim Chanos, who has taken short positions in Tesla, Uber, and Enron in the past. Unlike GameStop, the float in DraftKings may be too large for a short squeeze. At one point last January, GameStop had more than 138% of its float sold short, the highest among all stocks. DraftKings, by comparison, has hovered around 10-12%.
But there are other reasons to consider DraftKings. Goldman Sachs recently included DraftKings on a list of 40 stocks that could see an “average upside potential of 45% over the next year.” DraftKings, which ranked sixth on the list, has an immediate path to profitability by 2024, Goldman Sachs analyst Stephen Grambling wrote in a Dec. 14 research note. The path could be determined by a myriad set of complex factors, according to Grambling, involving inputs such as promotional intensity, user stickiness, tax rates, customer acquisition costs, and fixed-variable marketing. Grambling’s projections run contrary to other analysts in the industry, who contend that it could take longer for DraftKings to become profitable in the race to the bottom to acquire customers.
$DKNG
Goldman Sachs Adjusts DraftKings PT to $63 From $66, Maintains Buy Rating pic.twitter.com/RWny8Rabnz— Michael Rosenberg (@AdvRosie) December 15, 2021
Still, Grambling foresees a “catalyst rich path ahead” for DraftKings. Grambling predicts a similar trajectory for Penn National, which retained a “buy” rating from the analyst last month.
“As existing markets mature, external marketing/promotions rationalize, and operators provide incremental color on profits through earnings results or investor events, the potential for U.S. online gaming companies to be as profitable as their international counterparts will become apparent,” Grambling wrote in the note.
DraftKings’ promotional spending as a percentage of revenue hovered around 33% in 2021, based on state disclosures where available and Goldman Sachs’ estimates. There are estimates that, upon maturity, the figure will be cut in half based on historical trends on promotions in the U.K. and Australia. DraftKings spent a whopping $304 million on sales and marketing expenses during the third quarter of 2021, remaining on track to spend more than $800 million in the category on the year.
Flutter Entertainment (FLTR.L)
Flutter’s opening price on Dec. 1: £10,285 pence
Flutter’s closing price on Dec. 31: £11,760 pence
Monthly Percent gained or lost: 14.3%
Year-to-date change: (-23.8%)
Market cap: $20.4 billion (as of Jan. 4)
Unlike DraftKings, Flutter rebounded from a poor November when gaming stocks in general tumbled amid rising inflation. Flutter rose more than 14% in December, ending the month at £11,760 pence. Still, Flutter closed 2021 down nearly 25%.
Moving forward, Flutter may consider the divestiture of its U.S. business at some point in 2022. Last May, Flutter indicated that the departure of former FanDuel CEO Matt King could delay the spin-off. Since then, Flutter appointed Amy Howe as permanent CEO of FanDuel. Flutter is also entangled in a legal battle with Fox over the latter’s option to purchase a stake in FanDuel.
Days before Christmas, Flutter announced the purchase of Italian gaming operator Sisal for $2.16 billion. In the wake of the purchase, U.K. analysts have called on Flutter to settle the legal dispute with Fox to free up additional cash.
MGM Resorts (MGM)
MGM Resorts’ opening price on Dec. 1: $40.32
MGM Resorts’ closing price on Dec. 31: $44.38
Monthly percent gained or lost: 10.1%
Year to date change: 40%
Market cap: $21.3 billion (as of Jan. 4)
MGM Resorts also regained momentum in December, following a difficult period around Thanksgiving. One catalyst last month centered around the company’s sale of The Mirage to Hard Rock International for $1.08 billion. MGM expects to realize net cash proceeds after taxes and estimated fees of $815 million from the sale, the company said in a statement.
The transaction is expected to close in the second half of 2022, subject to regulatory approvals and other customary closing conditions, according to MGM Resorts. MGM vowed to remain “disciplined allocators of capital” in order to maximize value to shareholders, Chief Financial Officer Jonathan Halkyard noted. MGM plans on maintaining a strong balance sheet and intends to pursue “targeted growth opportunities” throughout 2022, he indicated.
Hard Rock International purchased The Mirage for $1 billion this week. @MattRybaltowski on plans for a guitar-shaped hotel and implications for the Nevada sports betting landscape: https://t.co/wnNza0AaZR pic.twitter.com/eHacFOKKg1
— US Bets (@US_Bets) December 15, 2021
Other stock movement
Caesars Entertainment closed on New Year’s Eve around $93 a share, gaining approximately 27% on the year. Last May, Caesars completed a $3.7 billion acquisition of William Hill before rebranding the prominent company as Caesars Sportsbook. At the time, Caesars CEO Tom Reeg sent indications that the company will spend at least $1 billion on its sports betting and iGaming divisions over the next several years to remain competitive with its peers.
Wells Fargo analyst Daniel Politzer pointed to Caesars and Flutter as “compelling risk/reward” stocks to consider in the sports betting space, citing their intentions to become cash flow positive in 2023. In addition, Barron’s identified 22 undervalued stocks for 2022 based on the price targets of a compendium of Wall Street analysts. While the 22 stocks contain an average upside of about 32%, Caesars ranked near the top of the list with an implied upside of 45.7%.
Caesars is one of nine mobile sportsbooks set to launch in New York, possibly before the Super Book. A few others that are nearing their Empire State debut did not perform as well in 2021.
| Company | Jan '21 Opening Price | Dec '21 Closing Price | Percent change |
|---|---|---|---|
| Wynn Resorts | $113.15 | $85.04 | (-24.8%) |
| Rush Street Interactive | $21.20 | $16.50 | (-22.1%) |
| PointsBet | A$11.80 | A$7.05 | (-40.2%) |
| Bally's | $50.32 | $38.06 | (-24.4%) |
Among sports betting data providers, Genius Sports closed on Dec. 31 at $7.60, increasing losses from a tough stretch in November. Genius plunged more than 30% on Nov. 23 amid margin concerns regarding the company’s data partnerships with U.S. sportsbooks. Sportradar, the company’s archrival, ended the year at $17.57, down considerably from its September IPO of $27 a share.
Investors should keep an eye on sports betting companies with plans to expand into Canada as a growth opportunity in 2022. One such company, Rivalry Corp., announced this week that customer registrations increased to approximately 600,000 through October 2021, up from around 350,000 at the end of 2020.
The Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund that tracks the top sports betting and iGaming stocks in the industry, traded on New Year’s Eve around $25 a share. The ETF peaked in April around $33, but it ended 2021 down fractionally.
