A bevy of industry heavyweights traded at near 52-week lows on the month, far below levels from late 2020 when online sports betting operators capitalized from a surge in activity near the height of the COVID-19 pandemic. The industry-wide correction has ignited speculation that several top companies could be ripe for takeover at bargain-basement prices.
Still, there are signs of a potential rebound. During the month, six of the nine mobile sports betting licensees in New York opened up shop in the Empire State. Over the first 16 days of online sports wagering in New York, the handle astoundingly eclipsed $1.1 billion, translating to $88 million in gross gaming revenue. The sizzling start in what is now the nation’s largest market assuages some concern among analysts on the long-term challenges operators will face in achieving profitability in the state.
— Chris Altruda (@AlTruda73) January 28, 2022
On the basis of New York’s better-than-expected start, Bank of America increased its sports betting Total Addressable Market (TAM) forecasts for North American digital GGR. For DraftKings, specifically, BofA projects 2022 revenue of $2.12 billion, an increase of 6% over previous estimates. Among newly launched states, New York alone could represent about 65% of all online sports wagering revenue this year, according to BofA projections.
By April, another top market will join the industry with the highly anticipated rollout of Ontario’s private iGaming marketplace. A who’s who of sports betting companies are expected to establish a presence in Canada’s largest province, including DraftKings, FanDuel, BetMGM, PointsBet, and theScore, among others.
BofA is also raising revenue estimates for others such as MGM Resorts, Penn National Gaming, and Wynn Resorts to reflect slightly better-than-anticipated regional revenue. Here is an overview of stock movement among top sports betting companies in January:
DraftKings’ (DKNG) opening price on Jan. 3 (first trading day of month): $27.84
DraftKings’ closing price on Jan. 31 (last trading day of the month): $22.06
Monthly percent gained or lost: (-20.7%)
Year-to-date change: (-20.7%)
Market cap: $9.3 billion (as of Feb. 2)
DraftKings enters February as one of the closest-watched stocks on Wall Street. The Boston-headquartered pure-play U.S. sports betting operator ascended to as high as $74 last spring around March Madness. But as profitability concerns intensified, DraftKings became embroiled in a bitter fight with famed short-seller Jim Chanos. By Jan. 24, DraftKings fell to a 52-week low at $17.41.
However, there are some indications that DraftKings is about to crawl out of an extended malaise. On Jan. 26, DraftKings jumped 5% on a note from Morgan Stanley, which upgraded the company’s rating to “overweight.” The New York figures provide a reminder that the U.S. sports betting market will be “very large” with only a handful of market share winners, Morgan Stanley analyst Thomas Allen wrote in the research note.
“We expect DraftKings to be one of them, and with sentiment at an all-time low on near-term loss concerns, we see now as a good time to invest for the long term,” Allen wrote.
Near the end of the month, The Walt Disney Co. unleashed speculation that ESPN could be close to licensing its sports betting brand when the company posted a listing for a senior sports betting manager. The manager will be responsible for overseeing ESPN’s sports betting and fantasy sports business, as well as ensuring compliance with all contractual and regulatory obligations, according to the listing. At the same time, rumors on ESPN’s potential acquisition of DraftKings regained momentum when the company hired two former Disney/ESPN executives late last month, Sports Business Journal reported.
ESPN initially signaled that it could enter the sports betting business last August when the Wall Street Journal reported that the company held discussions with DraftKings and Caesars Entertainment on a sportsbook licensing deal. On Tuesday, DraftKings rose another 6% on the latest news, hitting a session-high of $23.66.
Will DraftKings get into live sports rights? The company just hired two experienced media execs: Stacie McCollum from ESPN and former Disney and Universal exec Todd Dubester.
SBJ Media: https://t.co/8XJ1u8j3zV
— John Ourand (@Ourand_SBJ) January 31, 2022
MGM Resorts (MGM)
MGM Resorts’ opening price on Jan. 3: $45.04
MGM Resorts’ closing price on Jan. 31: $42.72
Monthly percent gained or lost: (-5.2%)
Year to date change: (-5.2%)
Market cap: $20.5 billion (as of Feb. 2)
Much like its counterparts in New York, BetMGM enjoyed a hot start in the Empire Start during the month. When BetMGM launched in New York on Jan. 16, the venture set first-day state records for most registrations, first-time deposits, bet volume, and overall deposits, CEO Adam Greenblatt said on an investor call. BetMGM became the fifth mobile sportsbook to go live in New York, following BetRivers, DraftKings, FanDuel, and Caesars Sportsbook.
On the Jan. 19 call, BetMGM projected full-year 2022 net revenue of at least $1.3 billion. BetMGM is a 50-50 joint venture between MGM Resorts and UK-based Entain. The two companies are expected to invest $450 million this year in the venture, BetMGM disclosed. The venture maintains a sports betting and iGaming market share of 20-25% in the U.S. markets it operates in, BetMGM noted on the call.
Flutter Entertainment (FLTR.L)
Flutter’s opening price on Jan. 4: £11,750
Flutter’s closing price on Jan. 31: £11,185
Monthly percent gained or lost: (-5%)
Year-to-date change: (-5%)
Market cap: $19.9 billion (as of Feb. 2)
Other stock movement
Bally’s Chairman Soo Kim made waves on Jan. 25 when New York-based hedge fund Standard General sent a letter to Bally’s Corp. declaring its attempt to take the company private. Kim, managing partner of Standard General LP, the largest shareholder of Bally’s, made an offer to acquire the remaining Bally’s shares at $38 a share. While Bally’s surged 22% on the news, closing the Jan. 25 session at $35.85, trading has been sideways ever since. Bally’s closed on Jan. 31 at $35.74, about 6% below the offer price.
The offer by Standard General could serve as a starting point, with the expectation for a potential takeout price to move higher, Macquarie analyst Jordan Bender wrote in a research note.
Bally’s Chairman Soo Kim talks to me about his takeover proposal of $38/share and where he sees the future of gaming. https://t.co/esfAai8gX1
— Contessa Brewer (@contessabrewer) January 26, 2022
Wynn Resorts formally completed a leadership change on Feb. 1 when, in a previously announced move, CEO Craig Billings inherited the position from Matt Maddox. From a sports betting perspective, Wynn is at a crossroads. Wynn Interactive, an online betting division that includes Wynn’s sports wagering app, initially planned to go public with blank check company Austerlitz Acquisition Corp. in a deal that valued the company at $3.2 billion. Last fall, however, the parties terminated the proposed merger amid escalating customer acquisition costs throughout the sports betting industry.
Maddox described the intense spending wars, rife with boosted bets and other promotional offers, as unsustainable for Wynn. On Jan. 24, speculation mounted that Wynn Interactive may be up for sale when the New York Post reported that the price tag for the online division could drop to as low as $500 million. Wynn Resorts jumped 3.5% on the news, closing the session near $85. The company ended the month at $85.45 a share.
Two names to watch as potential suitors, according to Wall Street analysts, are Penn National and Fanatics, the latter a newcomer to the sports betting space. Both companies failed to secure mobile sports betting licenses in New York when the New York State Gaming Commission completed the competitive bidding process in November.
Hail to Caesars
Through Jan. 23, Caesars Sportsbook remained the early frontrunner in New York, outperforming FanDuel, DraftKings, and BetMGM for top billing in the market. Caesars handled $229.7 million in wagers over the first two weeks of online sports betting in New York, resulting in online GGR of $19 million. It is important to note that the state gaming commission does not release promotional spending levels in its weekly online sports betting reports.
While Caesars is encouraged by customer betting activity in the Empire State, the company has already dealt with platform outages and customer service issues related to its New York app. Caesars Entertainment closed on Jan. 31 at $76.14, down 18.5%. Caesars Entertainment plans to spend around $1 billion on its online sports betting and iGaming division over the next several years in an effort to grow the segment.
Total: $373.33M/$30.65M/8.23% hold
— Chris Altruda (@AlTruda73) January 28, 2022
Among sports betting data providers, Sportradar closed the month at $13.40, down 25% for January. Genius Sports, Sportradar’s archrival, also closed lower in January, ending the month at $6.48 a share, down 17.2%. Genius projected full-year 2022 guidance of $340 million in group revenue and $15 million in group-adjusted EBITDA during an Investor Day presentation on Jan. 27.
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 Jan. 31 at $21.76, down about 13% on the month.
One prominent casino company, Las Vegas Sands, has yet to enter the sports betting landscape. Speaking to analysts last month, Sands CEO Rob Goldstein indicated that there has been a good amount of “blood spilled” from top companies that are engaged in the costly battle to acquire sports betting customers.
Goldstein’s comments may underscore the difficult balance in extracting a high return on investment from sports bettors when acquisition costs are so exorbitant.
“We’ll wait patiently,” Goldstein said. “It hasn’t been a bad idea to wait for the last six to eight months to see how this shakes out.”