This year will be the biggest yet for the industry – and that’s because it’s the first Super Bowl since New York State legalized mobile sports betting.
But these betting operators may need to generate a lot of money in New York to turn things around this year. So far in 2022, like the rest of the market, most gambling stocks have not been winning propositions.
So far, six companies have been approved to set up online sports betting in the Empire State: DraftKings, FanDuel, Caesars, Rush Street Interactive’s BetRivers, MGM and PointsBet.
The house can eventually win after all
Wall Street, however, sees better days on the horizon. Morgan Stanley analyst Thomas Allen upgraded DraftKings shares last week to an “overweight” rating, which is essentially a buy.
Allen said in a report that early numbers from New York State show the industry is off to a good start and “remind us that the U.S. sports betting/iGaming market is likely to be very large, with only a handful of market share winners”.
He expects DraftKings to be one of those winners, “and with sentiment at an all-time low on near-term loss issues, we see now as a good time to invest for the long term.”
Now, you might be wondering what Allen means by “short-term loss concerns.” Isn’t gambling a profitable business where the house always wins? That’s generally true, but the problem these days is that the major gambling companies all spend a lot on promotional campaigns to try and attract customers, eating away at short-term profits.
Lots of money spent on star-studded TV commercials
Many gaming companies offer hundreds of dollars in free bets to attract new users. They also invest a lot of money in expensive commercial campaigns during the National Football League playoffs and other live sporting events.
DraftKings and FanDuel are also aggressively advertising, but with fewer celebrities.
Morgan Stanley’s Allen expects a jolt to be inevitable. Only a few companies are likely to come out on top in legal sports betting once the dust settles.
“While there has been a lot of negative headlines about promotional activity around the US sports betting industry, it has resulted in a highly concentrated market that should be positive in the long run,” Allen said. “Scale matters and to date it appears only FanDuel, DraftKings and BetMGM have been able to consistently gain outsized market share.”
There are plenty of opportunities beyond New York, however.
Macquarie Research analysts pointed out in a report this month that Ohio, Nebraska, Kansas, Vermont, Massachusetts, Missouri, Maine and Wisconsin could all legalize sports betting this year. And California, Florida, Georgia and Kentucky could follow next year.
“As a result, we expect 60% of the US population to have access to legalized sports betting in 2022, rising to 83% in 2023,” Macquarie analysts wrote.
This is one of the main reasons Macquarie upgraded Penn National Gaming shares to “outperform”.
“We believe the market places little or no value on the online business” of Penn and Barstool and they should not be ruled out as a potential winner in online betting, Macquarie analysts said.
