However, for investors in sports betting stocks, March Madness was a bit of, well, an air ball.
These stocks haven’t recovered even after the March Madness opening weekend.
DraftKings is down nearly 1% over the past week. Flutter is down about 4% over the past five trading days, while Penn is down more than 5%.
The big problem for sportsbooks is that the industry is still in its infancy. The US Supreme Court only legalized sports betting in states other than Nevada in 2018. Since then, many states have established physical sports betting and allowed mobile betting.
With this in mind, most major casinos and sportsbooks like DraftKings and FanDuel are doing everything they can to attract as many customers as possible. It’s a land grab for players and lots of money is spent on promotions like limited time free bets and big promotions.
For example, DraftKings announced that it spent $278 million on sales and marketing in the fourth quarter. Not all of it shows up in TV ads, but rising advertising costs are clearly worrying investors. Caesars even announced earlier this year that it plans to cut its ad spend for the remainder of 2022.
“Companies are just trying to gain market share,” he said. “That’s why you see all these promotions.”
However, Mancuso expects the industry to mature over time, so companies won’t need to offer as many incentives to attract potential players.
But don’t be surprised if a series of mergers occurs and the weaker players go out of business, allowing the gaming giants to make bigger profits.
“Sports betting is a complex business. The reality is that it’s not that easy to just open your doors and make money,” said Rick Arpin, managing partner at KPMG in Las Vegas. “There will likely be consolidation. There needs to be more mergers and acquisitions in sports and gaming.”