Each month, our “Stock Watch” series examines recent trends inΒ sports bettingΒ 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,Β 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.
From a business perspective, it is no secret that 2023 will be a critical year for the nation’s top sportsbook operators.
After years in the red, leading sports betting companies are feeling the heat from investors. Encumbered by costly promotional wars, sportsbooks smartened up last year by taking a more disciplined approach to marketing — and the cost-cutting measures are finally paying dividends.
As earnings season heats up, three major operators have already guided toward profitability later this year. The companies hope to be next in line to follow FanDuel, after the industry giant became the first U.S. sportsbook last fall to turn a profit in a single quarter. The runaway market leader across the country, FanDuel now has its sights set on becoming profitable for the entire year. Two other operators, BetMGM and PENN Entertainment, have recently forecast that their online sports betting divisions will swing to a profit in the second half.
From our just-published U.S. Sports Betting Market Monitor: U.S. OSB GGR share is increasingly concentrating w/in FanDuel and $DKNG as rivals like BetMGM and $CZR continue to trim bonusing spending.
Indeed, in 4Q22, we est. FanDuel and DKNG had nearly 75% combined GGR share. pic.twitter.com/Fke20kvJyn
— Chris Krafcik (@ckrafcik) February 14, 2023
In the first month of the year, several prominent sports betting companies jumped 20%, erasing some of the losses from a dreadful 2022. Since then, operators have received a tailwind from the Super Bowl — the largest customer acquisition event on the sports calendar.
Ahead of the Super Bowl, FanDuel CEO Amy Howe told CNBC that the game could bring the company approximately half a million new customers. Following the Kansas City Chiefs’ narrow win over the Philadelphia Eagles last Sunday, CNBC reported that FanDuel’s platform processed a peak of 50,000 bets per minute on the evening.
“The Super Bowl is all about customer acquisition. That’s why you see such a high level of advertising,” Citizens Capital Markets Head of Gaming & Leisure Christopher Lynch told Yahoo! Finance. “All signs point to a very good outcome on that front.”
As sportsbooks in mature states shift from the acquisition to retention phase of the business cycle, companies are becoming more creative in tailoring promotions to core customers, he added.
For the first time ever, the NFL hosted a Super Bowl in a state with legal mobile sports betting. In Arizona, GeoComply recorded more than 100,000 geolocation checks in the general vicinity of State Farm Stadium. Overall, GeoComply logged more than 100 million checks in states with legal sports betting, a spike of 25% from last year’s Super Bowl.
Investors will receive further indications on the state of the industry when DraftKings reports 2022 fourth-quarter and full-year earnings on Thursday afternoon. While DraftKings has already projected that it will reach profitability by this year’s final quarter, the company estimates that 2023 full-year adjusted EBITDA will fall in the range of negative $475 million to $575 million .
DraftKings (DKNG)
Opening price on Jan. 3: $11.66
Closing price on Jan. 31: $14.99
Monthly percent gained or lost: 28.5%
YTD change: 52.5%
Market cap: $7.4 billion (as of Feb. 15)
Ahead of earnings, DraftKings announced the elimination of approximately 140 positions on Feb. 1. With an increased focus on achieving operational efficiencies, DraftKings eliminated about 3.5% of its workforce, primarily cutting ties with global workers outside the U.S. The headcount reduction will help lower stock-based compensation and certain general and administrative (G&A) costs that have been a point of contention for bearish investors, JMP Securities analyst Jordan Bender noted.
In response to the news, DraftKings shares soared 10% to $17.50, their highest level in five months. Since then, DraftKings has continued on an upward trajectory, reaching $17.99 during Super Bowl week, a level not seen since last September. Over the last year, a number of tech companies have focused on efficiencies, DraftKings CEO Jason Robins told CNBC, adding that “reorganizing some teams” at DraftKings appeared to be the best way to become more efficient.
Over the fourth quarter, DraftKings is expected to report a net loss of $0.63 per share, up 21% from the year-ago quarter, according to Zack’s Consensus Estimate. Revenues at DraftKings are also projected by Zack’s to increase on the quarter to $797.1 million, up 68% from the same three-month period in 2021.
Flutter EntertainmentΒ (FLTR.L)
Opening price on Jan. 3: Β£11,450 pence
Closing price on Jan. 31: Β£12,550 pence
Monthly percent gained or lost: 10%
YTD change: 14.4%
Market cap: $23.2 billion (as of Feb. 15)
Several months after a New York arbitration court ruled on a high-profile case between Flutter and Fox Corp., Flutter announced Tuesday that its board is considering a secondary listing in the U.S. Under the ruling, Fox retained the right to purchase an 18.6% equity option in FanDuel Group for $3.72 billion, with a 5% annual escalator.
With the escalator, Flutter’s U.S. business received an implied valuation of about $22 billion. By 2030, Flutter’s U.S. revenues could triple that of its other businesses around the world, according to Jeffries.
Flutter cited several factors for the pursuit of a U.S. listing:
- Enhancing the group’s profile in the U.S.
- Enabling the recruitment and retention of U.S. talent
- Access to deeper capital markets, and to new U.S. domestic investors
- Greater liquidity in Flutter shares
According to Fox Corp., Flutter cannot proceed with a potential IPO without approval from the arbitrator or a settlement between the two parties. The arbitrator is expected to issue a binding decision on the IPO by the end of the second quarter, an industry source told Sports Handle. Flutter shares rose moderately on the announcement.
MGM Resorts (MGM)
Opening price on Jan. 3: $33.93
Closing price on Jan. 31: $41.41
Monthly percent gained or lost: 22%
YTD change: 30.2%
Market cap: $16.7 billion (as of Feb. 15)
MGM Resorts CEO Bill Hornbuckle silenced any speculation of a potential merger with Entain when he stated last week that MGM is not interested in making a bid for the U.K. conglomerate. MGM Resorts and Entain are shareholders in BetMGM, a 50-50 joint venture. Days earlier, Entain indicated that it will cease its financial commitment to BetMGM if the venture is profitable in the second half. BetMGM expects to generate revenue of $1.8 billion to $2.0 billion in 2023.
#BetMGM charts a course to profitabilityβnot soon enough for some on Wall Street but you can't please everybody. https://t.co/pVFd6Pv7jn
— David McKee (@Stiffs_Georges) January 27, 2023
Other stock movement
Among sports betting data providers, Genius Sports and Sportradar both had strong months, surging 51.1% and 25.2%, respectively. Genius Sports, which has exclusivity on the distribution of the NFL‘s official data feed to U.S. sportsbooks, unveiled a new suite of marketing products several days before the Super Bowl. Sportradar, Genius’ main rival, also rolled out a new artificial intelligence platform this month aimed at assisting its sportsbook clients in optimizing risk management services.
When Bally’s pre-released 2022 fourth-quarter earnings on Monday, the company also announced the impending departure of CEO Lee Fenton. At the same time, Bally’s noted that it doesn’t face any liabilities associated with the potential bankruptcy of Diamond Sports Group (DSG). Earlier this week, DSG, a subsidiary of Sinclair Broadcast Group, announced that it has opted to not make an interest payment to creditors due on Wednesday.
By avoiding the $140 million debt payment, the Sinclair subsidiary triggered a 30-day grace period to work with creditors. Prior to the announcement, DSG reportedly considered restructuring its $8.6 billion debt through a Chapter 11 reorganization. DSG is the nation’s largest owner of regional sports networks (RSNs), known primarily for local broadcasts of top North American professional sports games. Bally’s also indicated that it plans to continue to market its brand through media partnerships with Sinclair and the RSNs, Truist Securities analyst Barry Jonas wrote in a research note.
Under comprehensive restructuring plans, Bally’s also announced Monday that it is looking to divest fantasy sports division Monkey Knife Fight. When Bally’s acquired the company in January 2021, Monkey Knife Fight ranked as the third-largest daily fantasy sports operator in North America.
Fenton, who has led Bally’s for less than 18 months, will be succeeded by Robeson Reeves on March 31. Reeves has served as the president of Bally’s Interactive since the company’s acquisition of Gamesys in October of 2021. Bally’s shares jumped 4% on Wednesday to $20.70, but they are still down 44% from their 52-week high last February.
Diamond Sports Group (Ballyβs RSNs) skipping their debt payment today and preparing for bankruptcy, leaves $1.78B in media rights fees and 42 pro sports teams reevaluating all options for local broadcast.
— Daniel Cohen (@AnotherDanCohen) February 15, 2023
Elsewhere, PENN Entertainment indicated during a quarterly earnings call that it anticipates a $100 million swing in profitability in 2023. For the fourth quarter of 2022, PENN said it generated positive adjusted EBITDA from its interactive segment, inclusive of expenses related to online sports betting launches in Ohio and Maryland.
In Ohio, PENN’s Barstool Sportsbook reported record levels of first-time depositors at launch, the company said. PENN will complete the acquisition of the remaining 64% of shares ($388 million) it previously did not own in the Barstool Sports media operation on Thursday, the company said last week.
Caesars Entertainment closed January around $52 a share, up more than 20% on the month. In Nevada, William Hill’s sportsbook platform remained offline on Tuesday, two days after crashing during the Super Bowl, the Nevada Independent reported. On the East Coast, a New York bettor hit a $1.2 million wager on the live total (over 62.5 points) placed around halftime. Caesars is scheduled to report fourth-quarter earnings next Tuesday.
JUST IN:
A NY bettor just put $π.ππ on the Live OVER 62.5 π€― pic.twitter.com/5lvEK4VZaj
— Caesars Sportsbook (@CaesarsSports) February 13, 2023
TheΒ Roundhill Sports Betting & iGaming ETF (BETZ), an exchange-traded fund (ETF) that tracks the top sports betting and iGaming stocks in the industry, ended the month at $16.20, up about 13%. The ETF closed a challenging 2022 in December around $14, down approximately 42% on the year.
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.
