Super Bowl/sports betting: turf war means hard yards for investors

Sports betting companies will perform what is technically known as a “Hail Mary pass” during the Super Bowl this Sunday. This describes a desperate attempt to gain ground. Over 100mn people are expected to watch the big football game. The contest between gambling groups DraftKings and FanDuel will be every bit as fierce as between the Philadelphia Eagles and the Kansas City Chiefs.

DraftKings and FanDuel are the league leaders. Both companies have hired celebrity spokespersons, spent millions on big advertising campaigns and are offering plentiful free bets to attract new users.

A record 50.4mn Americans are expected to wager some $16bn according to the American Gaming Association. That is more than twice the amount wagered in last year’s match, reflecting rapid growth in sports betting.

Investors should beware. Sports betting companies have already spent aggressively on market share. That topline growth has not come cheap. DraftKings and FanDuel, a division of Irish bookmaker Flutter Entertainment, control 45 per cent and 27 per cent of the US mobile sports betting market. Neither is profitable on a full-year basis.

Rising interest rates mean investors no longer have much patience with lossmaking companies. Since hitting a high in March 2021, DraftKings has lost more than three-quarter of its market value. Flutter’s shares have fallen by a third. At its peak in 2020, DraftKings traded at 61 times estimated revenue. This has fallen to 4 times.

Both companies argue their short-term investments will yield long-term gains. FanDuel has said it will become ebitda positive for the full year in 2023. DraftKings expects adjusted ebitda will turn positive in the fourth quarter of 2023.

Lex suspects this will depend on the absence of big states legalising sports gambling. Since the Supreme Court overturned a ban on sports wagers nearly five years ago, online sports betting became legal in 23 US states. The only big holdouts are Texas, California and Florida. Should any one of these states give the green light, expect DraftKings and FanDuel to once again bet the farm.