Home Gambling Online sports betting is a home run, but not yet with investors

Online sports betting is a home run, but not yet with investors

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Online sports betting has proven to be a big hit with Americans as more states legalize it, with record breaking players on the Super Bowl and March Madness. But one group has so far been more skeptical: investors.

Share prices of major sports betting companies have fallen despite the betting boom, raising questions about how quickly public enthusiasm for online betting will translate into bigger profits for the companies behind it all. this game action.

Over the past 12 months, DraftKings shares have fallen 73%, to $18.20 on Friday — below the $20 the stock was trading at when the company went public in April 2020. Flutter shares Entertainment, the parent company of FanDuel, are down 47% during this period, while Caesars Entertainment’s stock price is down 5%.

DraftKings brought in $1.3 billion in revenue and $615 million in profit for 2021, while the Flutter division that includes FanDuel brought in $1.8 billion in revenue and nearly $1 billion in profit.

In the short term, the biggest problem plaguing sports betting platforms is the huge amount of money they have spent on advertising and marketing to acquire customers – a difficult situation for start-ups looking to drive growth by gobbling up market shares.

Players like DraftKings and FanDuel have spent so aggressively that they’ve drained their money, said Daniel Adam, principal analyst at Loop Capital Markets. In 2021, DraftKings and Flutter spent $981 million and $875 million on marketing, promotions and advertising, respectively, according to regulatory filings.

“That’s really the biggest driver of the stock price underperformance,” Adam told CBS MoneyWatch.

Adam remains optimistic about their longer-term prospects, although he said it could take two or three years for the additional revenue to be generated. At some point in the future, gambling operators will start spending less on advertising and more money from dedicated customers will flow in and bolster profits. He predicts that DraftKings stock price will reach $35 per share in the next 12 months, while Caesars could reach $109 per share.

Certainly, the explosion of online sports betting is expected to spur industry growth, with Arkansas, Louisiana and New York all legalizing them this year. New Yorkers alone placed $1.6 billion in online sports bets during the first month of Paris, while Arkansas and Louisiana also had lucrative deployments. About 30 states now offer legalized online sports betting.


New Yorkers place $1.1 billion in online sports betting

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Betting companies are also heeding Wall Street’s call to control costs and lay the foundation for profitability. Caesars Entertainment CEO Tom Reeg said in an earnings call last week that the company was waiving advertising. For viewers and viewers, that will mean seeing fewer spots for the casino and sports betting company’s “We are all Caesars” campaign, featuring actor Jerry Brooks, known as JB Smoove.

“You’re going to see us significantly reduce our spending on traditional media with immediate effect,” Reeg said on the call. “We accomplished what we set out to do.”

DraftKings also plans to cut ad spend in New York and other markets, CEO Jason Robins said during an earnings call last month.

“One of the reasons you’re seeing such a rapid pace toward 100,000 users in recent states like Arizona and New York is because of competitive advertising, ironically,” Robins said. “I think a lot of that is accelerating our ability to launch faster and grow faster, and it could even lead to a faster path to profitability in the states.”