Sports Betting and Casinos: Together but not equal, as online sportsbooks generate revenue, but not profits
The Casino and the Sports Betting Industries are synonymous in that most casinos have a sports book on their physical property. There is a distinct attraction for both customers. The inequality is regarding the business model. This is where the two industries differ.
The model for sports betting is not profitable in its present state. The tax rate erodes revenue from the margin and the companies are still spending lots of money on customer acquisition. The two leaders in Sports Betting are FanDuel and DraftKings with approximately 75% of the market. When you see at how investors view DraftKings, however, it remains a futures bet – The company's stock (symbol: DKING) price peaked in March of 2021 at close to $72/share. Now it's trading in the $26 range. And while the company is raking in revenue, over $2 billion in 2022, it's not profitable. Flutter Entertainment (formerly Paddy Power and owner of FanDuel, Betfair, PokerStars, etc.) is a little different because it's a foreign company with longer term foreign betting businesses – you can't but shares in FanDuel directly. Flutter (symbol: PDYPF) traded as high as $230 in March of 2021, dropped as low as $90.75 last July, and now has rebounded back to the $195 range. Flutter did more than $7.5 billion in revenue in 2022 but lost money due to the U.S. market.
FanDuel is part of a stronger portfolio but executes the strategy of essentially paying for customers. They offered sign up bonuses to acquire players. While in vogue at the time, this did not create loyalty. Add to the media spend on celebrity endorsements and prime time advertisements, you incur high acquisition costs. The hope for both companies was to dominate the market with their brand name and increase scale. It did not equate to the anticipated levels of profit. Although DraftKings and FanDuel dominate, there's too much competition for customers in every market - and smaller online sportsbooks, which also aren't profitable - are siphoning off enough customers to keep the big two in the red.
The market leaders in the casino industry take a different approach. I will highlight the Atlantic City and Philadelphia Markets. The casinos that have relatively new hotels, consistently do property reinvestments, and offer headline entertainment that appeal to their clientele are market leaders. I would cite Borgata Hotel & Casino Spa, Oceans Casino Resort, Hard Rock Hotel & Casino, and Live Casino Philadelphia. With the exception of Borgata, the perennial market leader, the other 3 have only been operating for less than 5 years. Each of those 3 are at the top of market share in their regions.
Looking at the sports betting industry, I would take a different approach going into 2024.
I would be more innovative in product offerings. The in-game wagering will increase spending and generate more handle.
I would also be more in tune with the iGaming side of the business.
I would elaborate but I must save my ideas for my next employer.
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