Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets, CFDs, OTC options or any of our other products work and whether you can afford to take the high risk of losing your money.

69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Sports betting stocks score with investors

With millions more Americans able to place their bets legally for the first time, February’s Super Bowl was hailed as “the single biggest sports betting event in history” by Amy Howe, CEO of FanDuel. The American Gaming Association estimated that $7.61bn worth of bets would be made on the game, up 78% from the previous year.

Even as inflation has continued to rise, the appetite for sports betting remains strong around the world. US News and World Report noted that US companies brought in $211m in gross gaming revenue in February 2022, up 39% year-over-year, and Grand View Research expects the market to be worth $140.3bn overall by 2028. The relaxation of laws has been welcome news for gambling operators like FanDuel, DraftKings [DKNG], BetMGM, PointsBet [PBH.AX] and Caesars Entertainment [CZR].

The gambling industry has been gaining momentum in the US since the supreme court legalised sports betting under federal law in 2018. Then 2021 was a landmark year for the industry, with the number of states allowing legal sports betting increasing from 19 to 31, more than half of which now also allow online sports betting. That number has increased to 35 as of June 2022.

One of the biggest names on the US sports betting scene is DraftKings, which holds a market share of roughly 20–30% as of mid-2022. Boosted by the Super Bowl surge, quarterly revenue grew to $417.2m in the first three months of 2022, an increase of 33.6% on the year-ago quarter. The company also upped its guidance for full-year 2022 revenue from $1.86–2bn to $1.93–2.03bn, with CEO Jason Robins confidently stating that “we are not seeing any impact from inflationary pressures on customer demand”.

However, analysts did not share this optimism, lowering their price targets after the company’s first-quarter announcement in May, saying the longer-term outlook could still be challenging, particularly given the nascency of the sports betting industry in the US. The stock was down 78.9% from its all-time high at the close on 27 June.

Are all bets off the table?

As the sports betting space matures and legalisation spreads across the country, rising competition will be a key challenge for DraftKings and other players. This is already taking a toll on profits: customer spending is rising alongside advertising spending to attract and retain new players. “Until we see fewer promotional deals and more M&A deals, these online sports gambling stocks... are very difficult to own,” CNBC’s ‘Mad Money’ host Jim Cramer said.

Nielsen estimates that television advertising for online gambling totalled $725m last year, up from $292m in 2020. The question is whether these costs are worth it; according to Bloomberg, the average customer acquisition cost for online casinos is $500, while some estimate player value to be around $300, creating a $200 deficit.

Once customers have been won over, another problem could emerge. They may be at risk of addiction. Critics have warned that easing sports betting legalisation will result in a sharp rise in gambling addiction, raising the issue of whether operators are doing enough to ensure their customers’ safety.

The future for these firms will depend on maintaining the edge over competitors without hurting profits. Caesars Sportsbook is certainly trying to do this. The company had been known for its aggressive marketing strategy, offering $300 registration bonuses and free bets of up to $3,000 to new users in New York in January. However, following a 168.7% rise in revenues in 2021, Caesars announced it was time to “dramatically curtail” its media presence, with marketing spending cut by around $250m.

Caesars reportedly lost market share in New York after reducing its bonus offer, but it still holds roughly a 10–25% share, which is in line with its presence in other states. In its Q1 earnings call, CEO Tom Reeg said that this change was the “only material movement” in its market share since spending was drastically cut back, suggesting that once betting companies have secured their place in the market and gained loyal customers, this level of spending will not be necessary.

“We are already starting to see the shift from a customer acquisition and market access gold rush to a period of customer retention and unit economics optimisation,” Lloyd Danzig, founder and managing partner of Sharp Alpha Partners, told Opto.


Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Latest articles