The war for sports betting money officially has two sides: the companies that were first to market versus the companies that have a brand and a heritage behind their names.
There are examples both for and against the maxim that early movers have a market advantagebut the real competition for dollars only begins when the industry has matured enough for the second players to gain a foothold.
And while these second movers have dominated previous releases in this market, the first mover advantage is particularly at risk.
DraftKings (DKNG) – Get DraftKings Inc Class A Report finds itself in this position even in 2022.
When the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act that banned sports betting in all but a handful of states in 2018, DraftKings and FanDuel were two of the companies poised to take immediate advantage. .
The pair flooded the airwaves with advertisements for the next couple of years, sucking in as much of the new market as possible while the major Las Vegas casinos were still building their sports gaming rigs.
That advantage, along with the merger between DraftKings and FanDuel, helped lift the stock above $73 per share and to a valuation over $20 billion.
But now with Caesars (CZR) – Get the report from Caesars Entertainment Inc.MGM (MGM) – Get the MGM Resorts International Reportwynn (WYNN) – Get Wynn Resorts, Limited Report and Penn National (PENN) – Get the report from Penn National Gaming, Inc. all focused on their own platforms, DraftKings’ valuation is less than half of what it was, as its stock price has fallen below $20 per share.
DraftKings downgraded for competitive reasons
Analysts at Argus Research downgraded DraftKings not to buy, sending the stock down more than 8% when last checked on Monday.
“DKNG faces fierce competition from MGM and Wynn, who are expanding their online sports betting operations, and in our view needs to strengthen its marketing efforts. We also expect revenue growth to slow in 2022 as fewer states approve online sports betting. said analyst John Staszak.
Las Vegas options have more than just heritage on their side. They also have loyalty programs that offer free rooms, food, and tickets to attract online gamblers the same way they attract players entering their casinos.
The company points out that DraftKings’ net loss is growing despite increased sports betting spending. But that’s not how DraftKings hasn’t also benefited from the growing interest in the game, as the company reported a 47% increase in revenue to $473 million, the number of monthly unique players. having increased by 32%.
However, the company faces not only increased competition from its Las Vegas rivals, but also risks from changing consumer spending trends and potential regulatory shifts, according to Argus, which has a rating. of “average” financial solidity for the company.
The US sports betting market is growing
Americans were betting up to $150 billion on sports each year despite it being illegal outside of Nevada, the American Gaming Association has reported.
States reported more than $700 million in tax revenue between June 2018 and November 2021, according to LegalSportsReport.com.
This led DraftKings to increase its 2022 revenue forecast to between $1.85 billion and $2 billion, from $1.7 billion to $1.9 billion, implying growth of between 43% and 54%.
But if DraftKings follows Argus’s advice and increases its ad spend to combat the constant deluge of ads consumers see from Caesars and MGM, the cost of acquiring that revenue could result in even greater losses.
Whether investors are left with gaping losses while there are safer bets will determine whether DraftKings can return to dominance in the United States in the long run.