Will betting stocks revive after a bumper Super Bowl?

Analysts anticipate that punters bet record amounts on Sunday’s Super Bowl between the Kansas City Chiefs and the Philadelphia Eagles. Online gambling companies DraftKings, Entain and Flutter will be hoping this helps their stocks recover, after steep falls last year.

Record $1.1bn estimated for sports betting in Sunday’s Superbowl.

 - Shares for Flutter and DraftKings are up this year, but Entain’s are flat.

 - The Roundhill Sports Betting & iGaming ETF offers exposure to all three stocks.

Analysts at PlayUSA estimated that legal sportsbooks will have taken a record $1.1bn in bets during Sunday’s Super Bowl 57 – with stocks including DraftKings [DKNG], Flutter [FLTR.L], and Entain [ENT.L] cashing in as the Kansas City Chiefs claimed victory for the second time in four years.

A total of $1.1bn would reflect a 15.8% jump from 2022’s nearly $950m in legal betting.

Meanwhile, the American Gaming Association (AGA) estimated that more than 50 million people would place odds, making it the most bet-upon match in the history of American football. It was also the first time that the game has taken place in a state where sports betting is legal, namely Arizona.

The share price for DraftKings was up 40.4% to the close on 10 February, the Friday before the game. Meanwhile, Flutter was up 9.8% but Entain was down 0.7%, after gaining 13.4% through January.

Paradigm shifts drive expansion

Apps from DraftKings, FanDuel and other big players are making it simple for punters to bet from their phones, while also expanding their options. Via the apps, gamblers can lay stakes on smaller factors – for example, who will catch the first complete pass, or which song Rihanna will perform at half-time.

Also driving growth is the fact that sports betting is now legal in 33 US states, with recent additions including Louisiana, Maryland, Massachusetts and Ohio, as well as Washington, DC, the country’s capital.

DraftKings is due to announce fourth quarter (Q4) 2022 earnings on 16 February, with expectations being that it will report a 68.4% rise in revenue, though still at a loss of $0.63 per share. The company hopes to be profitable by 2024.

London-based Flutter, owner of Paddy Power and FanDuel, is due to report in the first week of March. FanDuel is on track to fulfill its full-year 2022 revenue guidance, which it revised upward in November to between $2.95bn and $3.2bn.

Entain, meanwhile, gave a Q4 trading update on 1 February. It announced record net gaming revenues, which for full-year 2022 were up 71% for its sports betting segment, BetMGM.

Sport-betting theme recovering after muted year

Online sports betting might be riding a post-Superbowl high, but the theme has dipped since 2021’s mid-pandemic peaks.

DraftKings recently announced it is to cut 140 jobs, but said this was associated with streamlining operations, as well as a re-focus of investments to mobile away from business-to-business.

Elsewhere, smaller sports betting companies including Fubo Gaming and MaximBet have shut down in the past 12 months, with investor confidence generally cooling, according to Bloomberg.

The question is whether large events like the Super Bowl will help revive the sector. Both Flutter and DraftKings ran ads during this year’s match.

The fact sports betting is legal in ever more US states will help, although states holding back include California and Texas.

According to Grand View Research, the sports betting market was worth $83.65bn in 2022 and will grow at a CAGR of 10.3% until 2030.

Funds in focus: Roundhill Sports Betting & iGaming ETF         

Investors interested in exposure to sports betting can look at the Roundhill Sports Betting & iGaming ETF [BETZ], which holds the stock of all three companies among the 41 represented in its portfolio. The fund reflects Roundhill’s belief that the regulatory environment is improving, and larger gains can be expected for betting and gaming.

As of 12 February, DraftKings is the top holding, with a 6.76% weighting, while Flutter is the second-biggest, with 5.87%, and Entain the fifth-biggest, with 5.34%. BETZ is up by 11.7% year-to-date.

The iBET Sports Betting & Gaming ETF [IBET] also holds exposure to Flutter stock, which as of 10 February is its number-one holding, at 6.05%. DraftKings is at number five, with 4.88%, while Entain has a weighting of 3.33%. The fund is up 12.8% year-to-date.