This year stands to be the biggest one 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 big bucks in New York to turn their fortunes 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 sportsbooks in the Empire State: DraftKings, FanDuel, Caesars, Rush Street Interactive’s BetRivers, MGM and PointsBet.
The house may eventually win after all
Wall Street does see some better days on the horizon, though. Morgan Stanley analyst Thomas Allen upgraded shares of DraftKings last week to an “overweight” rating, which is essentially a buy.
Allen said in a report that early figures from New York State show the industry is off to a solid start and “remind us that the US 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 concerns, we see now as a good time to invest for the long term.”
Now, you might be wondering what Allen means by “near-term loss concerns.” Isn’t gambling a profitable business where the house always wins? That’s usually true, but the issue right now is that the top gambling companies are all spending heavily on promotional blitzes to try to attract customers — eating into near-term profits.
Big bucks being spent on star-studded TV ads
Many of the gaming companies are offering hundreds of dollars of free bets to lure in new users. They’re also plowing a lot of money into expensive commercial campaigns during the National Football League playoffs and other live sporting events.
DraftKings and FanDuel are also advertising aggressively, albeit with less celebrity star power.
Morgan Stanley’s Allen expects a shakeout is inevitable. Only a few companies are likely to emerge as winners in legal sports betting once the dust settles.
“While there have been a lot of negative headlines over the promotional activities around the US sports betting industry, it has resulted in a highly concentrated market that should be positive long term,” Allen said. “Scale matters and to-date, it appears that only FanDuel, DraftKings, and BetMGM have been able to consistently gain outsized market share.”
There are plenty of opportunities beyond New York, however.
Analysts at Macquarie Research pointed out in a report this month that Ohio, Nebraska, Kansas, Vermont, Massachusetts, Missouri, Maine and Wisconsin may all legalize sports betting this year. And California, Florida, Georgia and Kentucky could follow suit next year.
“As a result, we expect 60% of the US population will have access to legalized sports betting in 2022, rising to 83% in 2023,” the Macquarie analysts wrote.
That’s one of the main reasons why Macquarie upgraded shares of Penn National Gaming to an “outperform.”
“We believe the market is giving little to no value for the online business” of Penn and Barstool and that they shouldn’t be ruled out as a potential online betting winner, the Macquarie analysts said.