GGB is committed to providing updated news and analysis on our weekly news site, GGBNews.com.

To the Victors Go the Spoils

The start of NFL season marks the beginning of a bloody market share battle

To the Victors Go the Spoils

Football season has begun, and that means one thing—the race is on among online sports betting operators.

Coincident with pigskins flying, Jefferies has released a gambler survey that should offer encouragement to investors in those operators, and to Penn Entertainment and its new ESPN Bet endeavor.

The good news for operators is that more people are wagering on sports, more people intend to wager, and more of them are sticking with their providers, which should aid as companies cut back on marketing spending in efforts to finally convert their ballyhooed revenues into investor-friendly profits.

The survey shows that 44 percent of respondents have bet on sports in the past year, up from 37 percent in Jefferies’ last survey in January.

Further, while American football remains the biggest attraction, they are betting more throughout the year, 25 percent versus 15 percent in the previous survey. Betting on baseball is up to 26 percent of respondents compared to 19 percent earlier this year, and the percentage of soccer bettors jumped from 22 percent to 28 percent. Those figures could be sustained if they reflect fan approval of faster baseball games and Messi Mania converting more Americans to soccer.

That is good news for all operators, but especially interesting is that 89 percent of respondents intend to stick with current providers, a figure especially encouraging for established leaders DraftKings and FanDuel.

The opportunity for other operators is that most fans intend to use more than one account. That might be where Penn fits in. ESPN is a powerful brand. Eighty percent of respondents cited it as their main source of sports news. And 53 percent—let me repeat, a majority, 53 percent—say they are willing to try ESPN Bet.

That compares to 13 percent who used former Penn sports betting operator Barstool, and even exceeds usage of other operators, the leaders being:

  • DraftKings 51%
  • FanDuel 42%
  • BetMGM 23%
  • Caesars 19%
  • Bet Rivers (Rush St.) 14%

This represents a big opportunity for Penn’s stock, which has been on a roller-coaster ride. From a price in the $20s a share before sports betting mania hit, Penn stock soared to $130 at the peak of investor giddiness. Now, it has crashed back into the low $20s. Penn’s land-based business alone should be worth appreciably more than the current share price, and if sports betting can contribute “$500 million to well over $1 billion” in EBITDA as CEO Jay Snowden says, then a bargain is there to be had.

Caveat: As of this writing, Charter cable channels are not carrying programming from ESPN parent Disney as the companies wrestle over rights fees and building subscription streaming businesses versus holding on to cable TV customers.

The dispute, which might have been settled by the time you read this, is costing ESPN 15 million potential viewers. No doubt, there will be a settlement, as Disney wants the revenue that those millions of viewers provide and Charter wants them, too.

But it does raise the issue of just how complicated, and unpredictable, media agreements are in this age of companies building competing streaming services and fighting for eyeballs. Until it shakes out, investors in all media and content enterprises would do well to practice some degree of caution.

Hail Caesar(s): An interesting nugget in the Jefferies survey is that Caesars leads with the largest share of the biggest bettors. Twenty percent of its players responding to the survey report wagering more than $200.

One of the advantages that established brick-and-mortar casino companies claim is that they have databases of tens of millions of proven gamblers who can be tapped to wager online. Caesars has the biggest database, at more than 60 million players.

Caesars CEO Tom Reeg has made it clear that his company is pursuing profitability, and that revenue is a component of profitability, not its own end.

The Jefferies survey may be one bit of evidence that Caesars is on its way.

A Cautionary Note

Readers of this space will not be surprised that we continue to caution that concerns over problem gambling could constrain sports betting growth.

Understand, the operable word is constrain, not stop or reverse. More states will continue to legalize and recently opened states will ramp up. There will be growth. But there also is reason for caution.

The most recent examples include Ontario’s decision to bar athletes, active and retired, from sports betting advertising and of using celebrity endorsers who may appeal to minors.

In the U.S., a bill in Congress would ban sports betting TV commercials.

And in the U.K., where attitudes might long have settled on sports betting, the Social Marketing Foundation says the public mood is right for tougher regulation. In part, the foundation cites a 2019 survey in which 29 percent of respondents said sports betting ought to be banned.

In this environment, the stealth winners may be the affiliate media companies that can develop and deliver proven gamblers to operators less expensively and controversially than by direct marketing. Such affiliates include publicly traded Gambling.com, Catena Media and Better Collective. They aren’t household names today, but they may be worth exploring.

 

    Related Articles

  • Little Giants

    Several small-cap companies offer value in a bear market

  • Best in Class

    There are a few stocks that truly are investment-grade

  • Show Me the Money

    Growth stories need to be written—and demonstrated—by the companies

  • A Calm Year?

    Views on the financial expectations for 2024

  • Post-Earnings Potpourri

    As always, another wave of earnings reports has garnered a smattering of observations and predictions