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.
Shortly after the start of the NFL regular season, a bevy of sports betting-related stocks experienced a bounce assuaging concerns among gaming investors about whether top industry names were ready to break out of the doldrums.
But with little sign that inflation is abating, stocks of leading companies in the sector moved lower in September, extending deep losses from earlier in the year. Three prominent companies — DraftKings, Flutter Entertainment, and MGM Resorts — fell several points on the month as broad macroeconomic factors outweighed any momentum from an encouraging start to the NFL season. More disconcertingly, some companies that had exhibited signs of emerging out of a bear market retreated again in the final weeks of the month.
DraftKings, for instance, closed September at $15.14 a share. It was down only fractionally on the month, but a late swoon sent it tumbling nearly 24% from its monthly high. While DraftKings is not in danger of testing 52-week lows of $9.77, it is still far below 12-month highs around $50.
U.S. equities have struggled over the past six months, with the leading indices down about 25% from their spring peak. Last week, Goldman Sachs’ Sentiment Indicator posted a negative reading for the 31st straight week, approaching a record for consecutive weeks in negative territory.
Commented on $US12M $SP500 $SPY – Goldman Sachs Sentiment Indicator comes in negative for a near-record 31st straight week. https://t.co/Ge2kyHj9Yd
— We Trade Setups 📈 (@prosperousguy) October 4, 2022
At the U.S. Federal Reserve’s September Federal Open Markets Committee meeting, the Fed increased short-term interest rates by three-quarters of a percentage point, marking the third straight meeting that the U.S. central bank lifted rates by 75 basis points. The Fed also made projections that it would increase its benchmark interest rate to 4.6% by 2023. By employing a hawkish stance in aggressively lifting interest rates, the Fed is signaling that it is attempting to tamp down on the highest levels of inflation in more than four decades.
Shaun Kelley, a gaming analyst for BofA Global Research, estimates that higher rates would shave off about 5% of 2023 free cash flow for a litany of gaming companies across the industry. Among the companies covered by Bank of America are MGM Resorts, Caesars Entertainment, PENN Entertainment, and Boyd Gaming.
On a long-term basis, however, there is still optimism that the U.S. legal sports betting market has room for considerable growth. In a note released Tuesday, Spectrum Gaming Group identified key trends in the gaming industry to watch in 2023. While four additional states are about to launch legal sports betting, the industry still waits for California, Florida, and Texas to follow suit, Spectrum notes. The Big 3 represent approximately 25% of the nation’s population.
So the California sports betting battle is just the youngs vs the olds pic.twitter.com/RJm0jiVcK6
— Eric Ting (@_ericting) October 5, 2022
The nation’s three largest states are critical to the expansion of U.S. legal sports betting, but none of the three is a slam dunk to legalize the activity. Weeks before Election Day, Proposition 27, a referendum that aims to legalize online sports wagering in California, trails in several closely watched polls.
With the calendar turned to October, a host of gaming stocks surged Tuesday in line with a broader market rally. Caesars jumped more than 13% to a session high of $37.57 a share, while MGM rose about 7% to $32.92. A slew of data released Tuesday reinforced views that an economic slowdown could compel the Fed to raise interest rates at a slower pace than anticipated. When a central bank lifts rates at a slower pace than previous forecasts, it’s generally viewed as a bullish move for stocks.
Opening price on Sept. 1: $15.78
Closing price on Sept. 30: $15.14
Monthly percent gained or lost: (-4.1%)
Year-to-date change: (-45.6%)
Market cap: $7.29 billion (as of Oct. 4)
Flutter Entertainment (FLTR.L)
Opening price on Sept. 1: £10,685 pence
Closing price on Sept. 30: £9,938 pence
Monthly percent gained or lost: (-6.9%)
Year-to-date change: (-15.4%)
Market cap: $19.3 billion (as of Oct. 4)
MGM Resorts (MGM)
Opening price on Sept. 1: $32.09
Closing price on Sept. 30: $29.72
Monthly percent gained or lost: (-7.4%)
Year-to-date change: (-34%)
Market cap: $12.4 billion (as of Oct. 4)
Other stock movement
Among sports betting data providers, Genius Sports ended September at $3.67 a share, down 8.9%. Genius shares are down considerably from their 52-week high of $19.85 last October. Sportradar, Genius’ main rival, closed the month at $8.80 a share, down nearly 20%.
In a recent note, Kelley downgraded Sportradar on the company’s exposure to international markets. With more international exposure than any company in BofA’s gaming coverage, macro uncertainty in Europe could pressure Sportradar’s margins, according to Kelley.
“While we still admire key pieces of their business models, low visibility and a myriad of macroeconomic headwinds create risks,” Kelley wrote in the October research note.
Facing headwinds and crises on all sides, the European Central Bank began a super aggressive phase of monetary policy lat week, with the largest hike in the institution's 24-year history. The jumbo-sized 0.75 percentage point increase is the beginning of more to come… pic.twitter.com/GUCFkViY3B
— CB3 LIVE! (@CB3_LIVE) September 21, 2022
Elsewhere, the Association of Gaming Equipment Manufacturers (AGEM) index ended September at 739.77, down 29.3% from the same month a year ago. On a monthly basis, the AGEM index fell about 11% from August. The index contains about a dozen components, most notably Light & Wonder, IGT, and Everi Holdings Inc.
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 September at $13.05, down 11.9% on the month. At one point in September, the ETF eclipsed $15.80.
BETZ is still far below levels from a record high of $32.65 in April 2021. At that point, the ETF more than doubled its level from its June 2020 debut. As of Tuesday, DraftKings, Flutter, and Genius Sports ranked as the top three holdings in the portfolio, as each stock represented upward of 5% of the overall basket. DraftKings is the top holding with a portfolio weighting of around 6.7%.