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.
With the S&P 500 crashing nearly 20% in 2022, sports betting stocks suffered their worst year since the U.S. Supreme Court legalized nationwide sports wagering.
Pummeled by runaway inflation and fears of a global recession, the three major indexes closed lower for the first time since 2018 — the same year the Supreme Court repealed a federal ban on sports betting. Top names in the sports betting space were not spared from the carnage, as several industry heavyweights ended 2022 with declines of more than 25%. These companies fell sharply as institutional investors and hedge funds grew impatient with the industry’s inability to turn a profit.
Despite continued robust industry growth, shares of U.S. sportsbook operators have declined meaningfully across the board in 2022.
Amongst the group, profitable and/or diversified companies have fared the best. pic.twitter.com/9MwF2ywA67
— Roundhill Investments (@roundhill) December 22, 2022
Nevertheless, major sports betting corporations pledged to take a more disciplined approach to marketing, signaling that an initial period of profligate spending cannot be sustained on a long-term basis. In February, Caesars Entertainment abandoned plans to spend $1 billion to grow its online gaming division, blaming excessive customer acquisition costs. A plethora of others followed, assuaging some concerns from investors about when the companies’ sports betting segments will finally break even.
While flexing its muscle as the first U.S. sportsbook to report a quarterly profit, FanDuel anticipates a full year of profitability in 2023. Although FanDuel’s rivals are less confident they will turn a profit for the entire year, some companies project to finish in the green by the fourth quarter. Three of the top five U.S. sports betting companies could break even for full-year 2023, with the other two potentially reporting a profit in the final quarter, BofA Securities analyst Shaun Kelley wrote in a research note.
For smaller players, the path to profitability will be more challenging. Last year, four operators — Fubo Sportsbook, theScore, Churchill Downs, and MaximBet — announced they would shutter their U.S. sports betting divisions, citing an intensely competitive market and global macroeconomic concerns. As a result, boutique gaming firm Eilers & Krejcik thinks there is a strong likelihood that a major online sports betting company will go private in 2023.
“With valuations continuing to be depressed and capital hard to come by, the benefits of being publicly listed are arguably outweighed by the costs — especially for smaller firms,” Eilers & Krejcik wrote in the company’s newsletter, The EKG Line.
Riding the momentum of record online activity in the first year of the COVID-19 pandemic, several sports betting stocks peaked in the first quarter of 2021. DraftKings, for instance, reached an all-time high of $74 in March of that year, after the NCAA Men’s Division I college basketball tournament returned after a one-year absence.
Though a number of sports betting companies bottomed in 2022, a few stocks rebounded from new lows as the market continued to re-rate, according to Truist Securities analyst Barry Jonas. While several industry names outpaced the S&P 500 in December, top companies such as DraftKings, Caesars, and PENN Entertainment underperformed on the month.
— Axios (@axios) March 21, 2022
During the final month of 2022, sports betting stocks fell moderately, ending a challenging year on a down note. The three leaders of the pack — Flutter, DraftKings, and MGM Resorts — all closed lower on the month, providing investors with another opportunity to buy on the dip in the first quarter of 2023.
Despite the sell-off, 2022 proved to be a record year for sportsbooks from a wagering standpoint. Over the first 10 months of the year, bettors wagered $73.3 billion at legal U.S. sportsbooks, a year-over-year increase of 98%, according to the Variety Intelligence Platform. Compared to betting activity from 2019, the 10-month figure represented a spike of around 2,000%.
Opening price on Dec. 1: $15.40
Closing price on Dec. 30: $11.39
Monthly percent gained or lost: (-26%)
2022 change: (-58.2%)
Market cap: $5.21 billion (as of Jan. 5)
Flutter Entertainment (FLTR.L)
Opening price on Dec. 1: £12,150 pence
Closing price on Dec. 30: £11,289 pence
Monthly percent gained or lost: (-7.1%)
2022 change: (-3.9%)
Market cap: $20.7 billion (as of Jan. 5)
MGM Resorts (MGM)
Opening price on Dec. 1: $36.81
Closing price on Dec. 30: $33.53
Monthly percent gained or lost: (-8.9%)
2022 change: (-25.2%)
Market cap: $ 13.6 billion (as of Jan. 5)
Other stock movement
Among sports betting data providers, Genius Sports closed the year at $3.57 a share, down more than 50% from its level at the end of 2021. Genius traded around $24 in May 2021 in the wake of its historic multi-year partnership with the NFL. Sportradar, the archrival of Genius, also had a rough year, ending 2022 around $10, a year-over-year decline of 25%.
During the week between Christmas Day and New Year’s Eve, reports surfaced that PointsBet was considering the sale of its Australian business to Betr, a gambling startup backed up by Rupert Murdoch’s News Corp. (The Australian Betr is not affiliated with the U.S. sportsbook co-founded by celebrity boxer Jake Paul that goes by the same name.) PointsBet later confirmed that it entered discussions with NTD Pty Limited, the owner of Betr, the Australian operator. Earlier in 2022, PointsBet reportedly rejected an offer from Betr in the range of A$220 million and A$300 million, but the proposal was not placed before shareholders.
On the Australian Stock Exchange, PointsBet shares spiked 10% to A$1.49 on the takeover reports. Still, PointsBet fell about 80% in 2022 after ending the prior year around A$7 a share. PointsBet is down approximately 90% since peaking at A$14 in June 2021.
Murdoch’s Australian interests getting deeper into gambling. No wonder they push horse racing with a fervour. 😡
“Gambling group PointsBet is considering selling its Australian business to News-Corp-backed wagering startup Betr.”
— Rick (@colonelhogans) December 28, 2022
Earlier this week, Fanatics confirmed that it will use Amelco’s source code to power its sports wagering platform. Shares in Kambi, a leading sports betting tech provider, fell as much as 14% in response, suffering its worst single-day sell-off since late October.
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 2022 at $14.31, down about 45% on the year. The ETF closed December moderately lower after clearing $16 at the start of the month.
BETZ hit a record high of $32.65 in April 2021, underscoring consumer appetite for online betting throughout the pandemic. At that point, the ETF more than doubled the level from its June 2020 debut.
As of Friday, Flutter, DraftKings, PENN Entertainment, and Rush Street Interactive were among the top holdings in the BETZ portfolio, as each stock maintained a weighting of at least 4%.