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.
November proved to be a challenging month for prominent sports betting stocks, perhaps the most frustrating since the height of the COVID-19 pandemic when a host of top gaming companies sunk to near all-time lows.
Industry heavyweights DraftKings and Flutter Entertainment, the parent company of FanDuel Sportsbook, plummeted in excess of 25% amid mounting concerns surrounding their paths to profitability. Others such as Rush Street Interactive, Penn National Gaming, and PointsBet also fell sharply on the month, underscoring profitability concerns across the industry.
Reeling from a difficult third quarter, casino stocks tumbled further this week as concerns stemming from the spread of the Omicron variant of COVID-19 intensified. Though a second wave of casino shutdowns appears unlikely, the initial panic on Monday hit leading gaming stocks, as Caesars fell nearly 3% on the news, while Wynn dropped 6% earlier this week.
Speaking at this week’s SBC Summit North America in New Jersey, Bally’s Chairman Soo Kim downplayed the possibility of a massive casino shutdown due to Omicron. Kim did emphasize that sportsbook operators such as Bally Bet could feel a strain if a number of leading pro sports leagues postpone their respective seasons again because of COVID-19. Three of the top four North American pro sports leagues — the NBA, NHL, and MLB — postponed their seasons in March 2020 in the face of the global pandemic.
Bally’s closed at $38.34 on Nov. 30, down approximately 16% on the month.
“This latest variant, I think we’ll survive — this too shall pass,” Kim said during a fireside chat with Contessa Brewer of CNBC.
— Smart Responsible Gaming (@GamingguyM) December 1, 2021
While the downturn was squarely on the minds of numerous panelists at the summit, investment analysts maintained a bullish long-term sentiment concerning sports betting. Scott San Emeterio, founder and chief executive officer at Ball Street Trading, largely brushed off the pullback. Despite the correction, San Emeterio is encouraged about the prospect of Fortune 500 companies like Disney and Fanatics entering the sports betting market. There is little to no evidence that the total addressable market (TAM) for U.S. sports betting will be smaller than initial projections, according to San Emeterio. If anything, Disney’s potential entry into sports wagering, along with Fanatics, creates the opportunity for an even larger TAM, he indicated.
“Because of that, it gets much more people involved, and it gets them to spend money into the ecosystem,” San Emeterio told Sports Handle.
On Disney’s fourth-quarter earnings call Nov. 11, CEO Bob Chapek indicated that sports betting presents a significant opportunity not only for ESPN, but for the Disney brand itself. Consequently, Chapek’s comments reignited speculation that ESPN could pursue a deal in the coming months to license its sports betting brand.
Other stock movement on the month
While DraftKings had third-quarter revenue of $213 million, a year-over-year increase of about 60% from the same quarter last year, the company continued to spend in droves in an effort to acquire customers. During the three-month period ended Sept. 30, DraftKings spent $304 million on sales and marketing expenses, representing the fifth straight quarter in which those expenses topped $150 million. Though the spending blitz may give some investors pause, CEO Jason Robins tried to allay concerns with projections on long-term profitability in New York.
Last month, the New York Gaming Commission issued conditional mobile sports betting licenses to nine companies, including DraftKings. The companies may go live with online sports wagering as early as January.
“We’ll approach it just like we do with other states and look for that two-to three-year path of profitability,” Robins said during the company’s third-quarter earnings call on Nov. 8.
Beyond DraftKings, one theory for the stock rout revolves around New York’s 51% tax on the gross gaming revenue of mobile sportsbook operators. Wynn, another recommended bidder in New York, abandoned a $3.2 billion merger with Austerlitz Acquisition, a blank-check firm, due in part to escalating customer acquisition costs across the industry.
Robins also made waves earlier this week with comments on the distinction between recreational and sharp bettors. The latter is not the “kind of player” that DraftKings hopes to attract, Robins indicated. A large number of those players, he noted, are “bargain hunters” who tend to shop for the most favorable odds among a bevy of sportsbooks.
“It’s less than 10% of the audience, but those are not the most profitable customers, for obvious reasons,” Robins said at a Canaccord Genuity gaming conference.
To all the haters out there, we will see. Check back with me in 2025
— Jason Robins (@JasonDRobins) November 30, 2021
Citing DraftKings’ high marketing expenses in relation to its revenue, famed short seller Jim Chanos disclosed Thursday that he has maintained a short position in DraftKings for most of 2021.
“You can believe in sports betting, but this business model is flawed,” Chanos told CNBC.
Chanos’ comments may trigger a short squeeze similar to the infamous GameStop fiasco that gripped financial markets in January. Within hours, the disclosure from Chanos generated a vigorous response on Reddit forum WallStreetBets. As with the GameStop short squeeze, recent trading activity in DraftKings stirred a debate on the role of short sellers in financial markets. Consider two posts from a WallStreetBets’ sub-forum entitled: “The same Boomer that shorted Tesla just shorted DraftKings.”
As the melodrama plays out, Robins continues to defend the company’s long-term viability. In an interview on Friday with CNBC, Robins fired back at Chanos, telling Brewer that DraftKings is not trading anywhere close to the valuation of “30 times runway revenue,” the short seller suggested. At the moment, the valuation according to Robins, is less than half of that. Robins also alerted investors to valuation trends in the pre-PASPA era, in explaining how DraftKings rebounded from a downturn five years ago. ESPN backed out of a DFS sponsorship agreement with DraftKings in February 2016 around the same time the industry as a whole dealt with legal uncertainties in numerous states, most notably New York.
For those who don’t know the $DKNG story:
We were valued at $12m in 2013. $1.8B by 2015. We plummeted to $500m in 2016. Now we’re $13B. Investors who came in at $1.8B saw 70%+ short term price reduction but those who held on absolutely crushed it. I’ll always play long term
— Jason Robins (@JasonDRobins) December 1, 2021
Meanwhile, several DraftKings’ directors made share purchases over the last month reiterating their faith in the company in spite of the sell off. Steven Murray, managing partner at Revolution Growth and a DraftKings’ director, bought 10,000 shares at a per-share average of $36.66 on Nov. 19. Another director, Harry Sloan, paid approximately $2 million for 50,000 shares in a transaction made three days earlier.
Sloan, vice chairman of DraftKings, purchased the shares at prices ranging from $39.42 to $39.63 a share, according to an SEC filing.
Investors are also closely monitoring any movement from Ark Invest, an investment management firm founded by Wood in 2014. Though Wood already owned more than 12 million shares in DraftKings early November, she added 400,000 more shares in the company through two other Ark ETFs last month.
On a macro-level, sports betting companies retreated over the last month amid general bearishness for growth stocks, in a high inflationary environment. Wood, however, believes that inflation will “unwind pretty quickly.”
Robins also garnered headlines this week for a Twitter burner account that surfaced late last month.
DraftKings’ (DKNG) opening price on Nov. 1: $46.95
DraftKings’ closing price on Nov. 30 (last trading day of the month): $34.55
Percent gained or lost: (-26.4%)
Year-to-date change: (-26.5%)
Market cap: $12.7B (as of Dec. 2)
Flutter Entertainment (FLTR.L)
Flutter’s opening price on Nov. 1: £14,010 pence
Flutter’s closing price on Nov. 30: £10,190 pence
Percent gained or lost: (-27.2%)
Year-to-date change: (-34%)
Market cap: £18.0B (as of Dec. 2)
MGM Resorts (MGM)
MGM Resorts’ opening price on Nov. 1: $47.44
MGM Resorts’ closing price on Nov. 30: $39.58
Percent gained or lost: (-16.6%)
Year to date change: 24.9%
Market cap: $19.9B (as of Dec. 2)
$MGM's 10-day Moving Average moved below its 50-day Moving Average on November 22, 2021. View odds for this and other indicators: https://t.co/PhKeXjmFIL #MGMResortsInternational #stockmarket #stock pic.twitter.com/8iGJ1eYqLz
— Tickeron (@Tickeron) December 1, 2021
The Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund that offers investors exposure to the sports betting and iGaming industries, traded below $25 on Nov. 30, down about 19% on the month. The losses illustrate the struggles among sports betting stocks over the course of November.
Despite the recent cooling off period, Crispin Neiboer, a partner at U.K-based advisory firm Orange Cap Ltd. is still cautiously optimistic on the sector’s long-term prospects.
“They’re still in a really strong place because there’s so much upside,” Neiboer told Sports Handle. “I think we’re still going to keep seeing softening and until we see these companies putting something back into the business whether it is acquisitions, a different product line, or a different way to get values up, you’re going to keep seeing this gradual erosion.”