With the NFL getting back underway next week, it’s all to play for in U.S. online sports betting and while FanDuel and DraftKings will continue to battle for the number 1 spot, ESPN Bet will be fighting for market share as parent Penn Entertainment and its senior leadership seek to justify digital investments. David Cook has the rundown.
NFL kick-off is just over a week away and another season-long showdown between FanDuel and DraftKings is on the cards as the latter vies to catch up with the former. Further down the pecking order, industry observers will continue watching how BetMGM and Caesars Interactive fare, especially as their respective market shares have regressed over the past two years.
Much press and sector coverage will focus on ESPN Bet and whether parent company Penn Entertainment, and, by association, the group’s senior leaders, are able to make headway and justify the $1.5bn they are investing into the project.
Just as interesting will also be what happens with the operators attempting to break into the top 4-5 of U.S. online sports betting. Rush Street Interactive, which has judiciously based much of its corporate growth on the more profitable online casino vertical but has also developed some digital wagering revenues in its ‘home state’ of Illinois, is a potential acquisition target.
Fanatics Betting and Gaming will continue to refine its product and use the national reach it has through its sports merchandising business to attract players, but most interesting might well be Bet365. An experienced and high-quality outfit, it has taken its time in the U.S. (unlike other European brands that have long since shut up shop stateside) and could make further steady progress next season.
Top of the bill
According to the Macquarie team, DraftKings is well positioned going into the kick-off of the new NFL season next week, with the operator being tipped as “best positioned for near-term upside from favorable NFL game outcomes”.
Macquarie has modelled +31% online GGR growth in Q3 (+36% for online sports betting) and this is forecast to accelerate to +40% YoY in Q4.
“As US regulatory headwinds stabilize,” the analysts said, “we see DraftKings best positioned for near-term upside from favorable NFL game outcomes, higher structural hold, general OSB/iGaming growth momentum” and “given current hold/growth trends”, easier YoY comps in Q4 and “recently recalibrated 2024 guidance, we think DraftKings is well positioned to exceed expectations” in the second half of the year.
With Q1 being one of the two most important quarters of the year, JMP said DraftKings’ handle market share in July was down 41 basis points MoM to just under 41% and down from 41.5% for Q2, but was still in line with DraftKings’ “all-time high”. Meanwhile FanDuel’s handle market share was 35%, down 5 bps MoM and down from 36.1% in Q2. July is seasonally the slowest month of the year, with MLB being the only one of the four major leagues running.
Going into the NFL season, DraftKings still has to close the gap in gross gaming revenue market share. While its GGR share was up 362 bps to 27.8% in July, FanDuel still holds the lead with 40.1%.
JMP noted that DraftKings “enters football season in late August with handle market share in line with its all-time high, suggesting further upside to market share and estimates if gaming margins continue to see upward momentum, in our view”.
FanDuel still the one to beat
Flutter Entertainment remains as market leader with FanDuel, after increasing its number of new customers 31% YoY in Q2; a quarter where the brand gained a 59% market share in newly-launched state North Carolina. Jefferies raised its U.S. revenue forecast for Flutter by 3% following its Q2 results and noted that its online sports betting margin of 12.9% is a “structural hold rate” in a seasonally quiet quarter.
Jefferies added that with the UK revenues at +18%, Italy +12% and Brazil at +11%, Flutter’s international activities were further proof of the benefits of diversification and served to consolidate its “structural advantage” over the rest of the field.
FanDuel may have edged the first PR battle of the season too, as Flutter arguably forced DraftKings to u-turn on its plans to add a gaming tax surcharge. After previously announcing that it would be charging winning bettors in high-tax states (those above 20%) with a surcharge to offset costs, DraftKings then cancelled the plans after Flutter announced in its earnings call that it would not be following suit.
A pivotal season for ESPN Bet
This season can be seen as make-or-break time for ESPN Bet, with Jefferies commenting that the Penn Entertainment-operated brand remains “the most discussed issue among investors”. Having licensed ESPN Bet as part of a 10-year deal and launched it in November 2023, this will be its first full NFL season.
Early results have not been particularly fruitful, with ESPN Bet not even close to challenging BetMGM for third place in online sports betting. As of the end of July, ESPN Bet’s handle market share and GGR market share were both 1.7%, some way behind BetMGM’s 7% handle market share and 6.7% GGR market share.
Jefferies noted that “Penn and the beginning of football season for ESPN Bet remain the most discussed issue among investors. For the bull case, there is little value priced into the shares at 7.1X 2025 EBITDA and any prospective progress in performance or earnings suggests upside”.
But for the bear case, “the late entry into a competitive, duopoly-led market inherently limits the parameters of success on a significant investment. Heading into the season, the size of the ESPN funnel, the daily fantasy legacy momentum and the expected positive data points from the start of the season could create potential upside; however, we remain measured”, added Jefferies.
Penn has made a number of upgrades to the ESPN Bet app in order to increase volumes. It will also aim to garner wagering traffic with links to and from ESPN’s home and fantasy football pages.
Time however is running out for Penn to prove its investment in online sports betting is paying off. The group took a huge loss on the sale of Barstool Sports, which it sold back to Dave Portnoy for just $1 in August 2023 after spending around $550m on the brand. Penn also paid $2bn for TheScore Media and Gaming in 2021, which owned theScore; a Canadian operator that was generating annual revenue of less than $25m.
BetMGM utilising Angstrom
BetMGM also announced a series of enhancements to its mobile sports betting app. The app is offering an increased number of markets offered by Angstrom, which was acquired in October 2023 by MGM Resorts’ joint venture partner Entain, to provide exclusive betting odds for certain wagers. BetMGM is also planning to streamline its product for same-game parlays and offer more pre-packaged parlays for players. Multi-leg wagers can be placed from anywhere in the app.
This will be an important season for BetMGM, with uncertainty still surrounding the JV between MGM Resorts and Entain. While MGM Resorts CEO Bill Hornbuckle effectively ruled out the possibility of acquiring Entain in February, it remains to be seen whether MGM could buy Entain out of the JV.
Marketing race as hot as ever
Sports betting promo and marketing campaigns are commonplace in the U.S. at this time of year. The Public Gaming Research Institute estimated that sportsbooks spent $237.8m on television advertising from September to December 2023 and the figure will once again be closely monitored this year. Fanatics is certainly making a splash this year, cross-marketing its licensed sports merchandise arm by dropping jerseys into selected customer accounts.
In other promotions, DraftKings is offering $200 in bonus bets and one free month of the streaming service NFL+ for new customers. ESPN Bet and Caesars Sportsbook are offering up to $1,000 as a first-bet “rebet” to new customers, and BetMGM is offering new customers up to $1,500 in bonus bets on a losing first bet.
Additional reporting by Jake Pollard.
