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 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.
Hampered by long-term profitability concerns over the last six months, major sports betting stocks continued to tread water in April as the industry turns to a critical earnings period early this month.
Despite a challenging stretch when prominent sports betting-related stocks cratered in excess of 50%, top industry executives can see the light at the end of the tunnel. Already, several prominent sportsbook operators have reported earnings this week, with more to come before Friday’s end of business.
Caesars Entertainment CEO Tom Reeg reiterated on Tuesday that its digital business should break even by fall of 2023, while Flutter Entertainment projected average paybacks within 12 to 18 months for the U.S. states in which it currently operates. Analysts will receive further updates this week when DraftKings and Penn National Gaming hold 2022 first-quarter earnings calls.
Stocks throughout the sports betting ecosystem have been battered in recent months, tag-teamed by soaring inflation and increased skepticism about the major sportsbooks’ ability to emerge out of the red. The correction comes amid an intense marketing arms race among top sportsbook operators for the consumer’s betting wallet. But the industry may have reached an inflection point in February when Reeg asserted that the spending wars had spiraled out of control. Leading sportsbook operators were routinely spending hundreds of millions per quarter on attempts to attract new bettors.
The sports betting correction does not indicate investors have soured on the opportunity.
More likely it is a convergence of short-term headwinds that have contributed to the snapback in valuations. https://t.co/WZnLopnbbZ
— JohnWallStreet (@HowieLongShort) December 1, 2021
A shift in marketing spending
In declaring that the economics of the sports betting playbook were unsustainable beyond the initial push to acquire customers, Caesars abruptly pulled a glitzy ad campaign that featured comedian J.B. Smoove, actress Halle Berry, and the Manning brothers. Reining in ad spending, Caesars has cut about a quarter of its previously announced $1 billion marketing campaign aimed at growing the company’s digital business, according to Reeg.
During the first quarter, Caesars still reported adjusted EBITDA of -$554 million from its digital segment, about $400 million of which the company attributes to online sports betting launches in New York and Louisiana.
Reeg is pleased that Caesars continues to maintain a market share in the range of 15-20% in New York despite the reduction in ad spending. Caesars bolted out of the gates in the Empire State with a generous promotion that awarded new customers as much as $300 in free bets and $3,000 in matched deposits. Caesars achieved an initial market share around 40% in early January before relinquishing its New York lead to FanDuel, after considerably reducing the sign-up bonus.
“We got to our handle share goals far earlier than we anticipated,” Reeg said on Tuesday’s earnings call. “Since we started cutting in February, we’ve seen no degradation in handle share other than our planned retrenchment in New York.”
For the quarter, Caesars reported a loss of $2.11 per share — a narrower loss than analysts’ per share expectations of -$2.15 over the three-month period. While Caesars increased revenue by 34.9% from the year-ago quarter to $2.29 billion, the company slightly missed revenue targets from the Zack’s Consensus Estimate by less than 1%.
Still, Caesars jumped 2.5% in Tuesday’s after-hour session to 69.40 on the earnings beat. Caesars’ shares are down more than 20% year to date.
Turning to the second half of 2022, sportsbook operators will continue to transition to the customer retention phase in new states with large population bases such as New York. The companies are focused on extracting a high lifetime value from returning sports bettors while constraining costs.
The sportsbook operators that solve the complicated puzzle may be the ones that rise in valuation over the long term. By 2028, the global sports betting industry is projected to generate approximately $179.3 billion in revenue per year, Zion Market Research estimates.
Sportsbook finance and marketing teams grapple with customer acquisition costs and extracting long-term value from them.@MattRybaltowski explores the calculus as New York enters the fold.https://t.co/ZaN1qGKGCO
— Sports Handle (@sports_handle) January 13, 2022
Opening price on April 1: $19.05
Closing price on April 29: $13.68
Monthly percent gained or lost: (-28.2%)
Year-to-date change: (-50.9%)
Market cap: $6.29 billion (as of May 4)
DraftKings appears on the verge of completing its highly anticipated acquisition of Golden Nugget Online Gaming (GNOG). The merger was anticipated to become effective at 12:01 a.m. Thursday after GNOG’s final day of trading on May 4, according to a Nasdaq delisting notice. DraftKings shares surged 9.5% Monday on the news of the delisting, while GNOG jumped by nearly 9%.
Under terms of the merger, Golden Nugget shareholders will receive 0.365 shares of DraftKings stock for each share of GNOG. Despite recent delays in completing the acquisition, GNOG Chairman Tilman Fertitta recently made waves with comments that DraftKings could eventually hit $100 a share.
DraftKings is down considerably from its all-time high of $74.38 a share last March. When DraftKings releases first-quarter earnings on Friday, the company is expected to report revenue of $404.2 million, an increase of 29% from the previous year’s quarter. DraftKings is also expected to report a net loss of $1.24 per share, an estimate that has been revised downward by 2 cents over the last 30 days, according to consensus estimates from Zacks.
Flutter Entertainment (FLTR.L)
Opening price on April 1: £8,968 pence
Closing price on April 29: £8,130 pence
Monthly percent gained or lost: (-9.4%)
Year-to-date change: (-30.8%)
Market cap: $15.3 billion (as of May 4)
Flutter remains pleased with its U.S. business over the first quarter of 2022. During the period, FanDuel had revenue of £429 million ($574 million) while acquiring 1.3 million new customers, according to Flutter, its parent company. At quarter’s end, FanDuel maintained a 37% U.S. online sports betting market share in the locations in which it operates, according to the company.
FanDuel led the U.S. market for the most downloaded sportsbook app during the Super Bowl and March Madness, Flutter added. Flutter also credited activity from the two sports events with bolstering the company’s iGaming growth over the quarter.
MGM Resorts (MGM)
Opening price on April 1: $41.87
Closing price on April 29: $41.04
Monthly percent gained or lost: (-1.9%)
Year-to-date change: (-8.08%)
Market cap: $18.0 billion (as of May 4)
On Monday, MGM Resorts sent notice that the major casino conglomerate could expand its online gaming business into Europe, with a $607 million proposal for LeoVegas AB. LeoVegas, which is listed on the Nasdaq Stockholm exchange, accepts sports betting and online casino wagers in several European jurisdictions. The LeoVegas board of directors recommended on Monday that shareholders of the company accept the proposal from MGM.
MGM Resorts currently has a 50% stake in BetMGM, an online sports betting and iGaming joint venture with Entain. Although the potential acquisition of LeoVegas could add regulatory complexity for MGM Resorts, the deal will ameliorate some of the shortcomings of BetMGM’s ownership structure, Morgan Stanley analyst Thomas Allen wrote in a research note. Allen points to MGM Resorts’ reliance on Entain’s proprietary technology for powering the BetMGM online platform, as MGM Resorts seeks to broaden its omnichannel offerings.
Investors will receive further updates on BetMGM’s business plans for the rest of the year at its investor day presentation on May 12.
Other stock movement
Among sports betting data providers, Sportradar closed April at $12.54 a share, down about 24% on the month. Sportradar still has a market capitalization of around $3.75 billion, one that is significantly higher than that of main rival Genius Sports. Genius ended April at $3.82 a share, translating to a market cap of about $820 million. Genius, which fell by 16.9% on the month, made its public debut last April at $18 a share.
Genius is scheduled to report first-quarter earnings on May 12, while Sportradar is set to report its results six days later.
Rush Street Interactive jumped 9% on April 27 on an upgrade by Wells Fargo to “overweight” from “equal weight.” Rush Street, the parent company of BetRivers, increased revenues 21% in the first quarter to $135 million. Rush Street also reported a loss of $50.0 million from operations, compared with losses of $27.3 million for the year-ago quarter.
When Penn National reports first-quarter results Thursday, the company is expected to report earnings per share of $0.45, down from $0.55 in the previous year’s quarter, according to Zacks. Penn received a high ranking from Zacks, however, due to Barstool’s “differentiated omnichannel strategy” and a disciplined marketing approach.
The Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund that tracks the top sports betting and iGaming stocks in the industry, closed April at $17.27, down about 14.2% on the month. By comparison, BETZ topped out at a record high of $32.65 in April 2021, hitting a level that more than doubled its June 2020 debut.