Per a recent survey by the American Gaming Association, Americans expect to wager over $23 billion on the “Big Game” in just a few short days. That would make it the most-bet Super Bowl ever, but likely just the first of more to come as legal online sports wagering continues to grow throughout the U.S.
A quick caveat on that figure: that estimated $23 billion includes a big chunk of casual and “extra-legal” wagering and only a fraction of it is likely to be placed in traditional sportsbooks or online. (Part of the reason FanDuel’s parent company, Flutter Entertainment (FLUT), expects the addressable U.S. online wagering market to grow to “only” $40 billion by 2030.)
Even so, that figure is only expected to grow, with some industry insiders calling for a decade straight of “most-bet” Super Bowls as the sportsbooks duke it out for a bigger and bigger market share.
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With that in mind, we wanted to break down the sportsbook stocks in a manner most befitting the gridiron: a power ranking. Unlike the NFL, where only one team can hoist the Lombardi Trophy, there are likely to be two winners among sportsbook stocks, while a handful of others battle in the trenches for, perhaps charitably, “three yards and a cloud of dust.”
The Sportsbook Stocks Power Ranking
The Contenders
With the Chiefs’ fourth Super Bowl appearance in the last five years, it’s Patrick Mahomes’ world and we’re all just living in it. And as much as the San Francisco 49ers would like to prove otherwise, the last time the Niners met Mahomes in the postseason, he chased them back to San Francisco with their tails between their legs, leading the Chiefs to a 31-20 victory in Super Bowl 54.
The match-up between our top two sportsbook stock contenders is unlikely to end so definitively but for the foreseeable future, it’s DraftKings (DKNG) vs. Flutter’s FanDuel.
Both Flutter and DraftKings have been spending lavishly to gain market share (the “land grab phase,” as Mike Cintolo would call it), offering outsized bonuses for new users, free bets and the like, with the assumption that once they’ve laid claim to a user, they’ll be able to effectively monetize them in the years ahead.
Flutter, which recently moved its listing to the NYSE, seems to have something of a head start on that front, reporting cash flow profitability for FanDuel users (to the tune of $100 million) in its most recent quarter.
But DraftKings is hot on their heels and expects to flip to positive free cash flow in 2024. Their upcoming earnings report (February 16) should offer additional insight into their progress.
Interestingly, both companies lay claim to the title of #1 sportsbook by market share, with DraftKings claiming it had taken 47% revenue market share in its most recently reported quarter, which prompted Flutter’s CFO Paul Edgecliffe-Johnson to dismiss those claims to SBCAmericas, saying, “NGR [net gaming revenue] is the right metric to look at because that doesn’t take account of generosity. It is 47% NGR for us which is up 5% year-on-year, and it’s good.
“But now we’ve got nine states that are publishing that and we are encouraging the rest of the states to do the same because I think that’s really the metric that matters. And I think that demonstrates our strength as our NGR share is more than DraftKings – and that’s the key metric.”
As for the stocks, DKNG has risen 139% in the last year but is down 10% since the beginning of 2021, while FLUT is up 34.7% in the last year and up 1.3% since the beginning of 2021. (DKNG came public via SPAC in April 2020, making full-year comparisons tricky beyond 2021).
These two sportsbook stocks are likely to be the perennial favorites, and, much like the upcoming face-off between the Niners and the Chiefs, you’re probably well-served betting on either.
The Also-Rans
Aside from DKNG and FLUT, the field of sportsbook stocks is made up largely of casino/resort operators that happen to have an online betting component (Caesars (CZR) calls their segment “digital,” PENN Entertainment (PENN) calls theirs “interactive,” while MGM Resorts (MGM) cuts to the chase and just calls their segment “BetMGM”).
None of those segments are major profit drivers for the companies, and BetMGM, which is the third-largest operator behind FanDuel and DraftKings with a 17% market share, has been losing share over the past year, although it did achieve profitability ($13 million in the most recent quarter).
With market share harder to gain, these companies still seem to be fighting a “land grab” battle they may have already lost.
Caesars’ digital segment is a good case in point, growing from 5% of total revenues in last year’s third quarter to 7.7% this year. Those gains came at a price: Caesars lost $80 million in the first nine months of this year on digital (down from a $755 million loss last year).
Similarly, PENN Entertainment’s interactive segment grew from 9.7% of revenues in Q3 of 2022 to 12.1% in revenues in Q3 of 2023, losing $50 million in each quarter (although their nine-month losses trimmed from $80 million to $69 million in 2023).
As for the stocks, PENN is down 36% in the last year and Caesars is down 21.5% in the same period, while MGM has risen 7%.
If you want a piece of the growing online sportsbook market, my bet is on the contenders; leave the also-rans on the bench.
For more investing lessons we can garner from the gridiron, read “5 Investing Lessons from the NFL Playoffs,” or “The Detroit Lions and Turnaround Investing.”
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