DraftKings Likely Hit By Same Q4 NFL Issues as FanDuel, Says Analyst

Posted on: January 8, 2025, 02:39h. 

Last updated on: January 8, 2025, 03:06h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

DraftKings (NASDAQ: DKNG) is likely to have caught the same cold as rival Flutter Entertainment (NYSE: FLUT), which warned investors on Tuesday that its fourth-quarter and 2024 earnings and revenue will come in below previously issued estimates due to customer-friendly outcomes on the NFL.

DraftKings
DraftKings stock highlighted at the Nasdaq market site in New York City. An analyst said the company’s fourth-quarter EBITDA was likely dinged by customer-friendly outcomes on NFL games. (Image: Nasdaq)

When Flutter issued its financial warning following the close of US markets on Monday, the stock slid in after-hours trading, but the shares rebounded on Wednesday, with DraftKings going along for the ride. Still, Bank of America analyst Shaun Kelley warned that bettors’ knack for selecting NFL winners in the fourth quarter – the culprit behind Flutter’s warning – likely affected DraftKings, too.

This year, NFL favorites are winning outright in more than seven in 10 games and covering spreads at a rate of nearly 54% — good for one of the top percentages in the Super Bowl era. That’s good news for bettors and bad news for operators. Kelley estimated that DraftKings’ fourth-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) could be pinched by $60 million to $80 million due to NFL chalk covering so frequently.

Kelley added that the EBITDA headwind faced by DraftKings is likely less than what market participants were expecting, and below that of Flutter on a proportionate basis.

DraftKings Had Better Q4 Luck Than FanDuel

DraftKings and Flutter-owned FanDuel are often joined at the hip because they’re two of the most recognizable brands in sports betting and hold a nearly impenetrable duopoly in the industry, but the former may have been a bit luckier than the latter during the October through December period.

Several mitigating factors for DKNG include 1) DKNG’s sponsorship of the Tyson-Paul fight with strong volumes/hold in Nov., 2) a +4891 pre-made parlay hitting on FanDuel in Dec. with over 17k bets placed, and 3) unfavorable outcomes during FanDuel’s sponsorship of NFL Christmas Day games on Netflix,” observed Kelley.

The NFL is the most wagered-on league in the US. Standalone NFL games, such as “Monday Night Football” or those contests airing on holidays, typically draw more bets, implying a level of vulnerability for sportsbook operators if favorites win and cover.

As for Flutter …

For DraftKings, Flutter, and their smaller rivals, the good news is twofold. First, the rates at which NFL favorites won outright and covered this season are unusually high, indicating sequels are unlikely next season. Second, data confirm most US recreational bettors simply aren’t very good at sports wagering. It’s possible that they give back gains from the NFL regular season during the playoffs, and as the NBA and college basketball ramp up.

Said another way, the NFL phenomenon is likely transitory and some analysts view any subsequent weakness in shares of Flutter as a buying opportunity.

“Outside the US, Flutter saw sports betting outcomes that benefitted its financials. We think transitory tailwinds aided revenue and adjusted EBITDA by over $100 million and about $30 million in the period,” notes Morningstar’s Dan Wasiolek. “We don’t expect much change to our $275 fair value estimate, leaving shares slightly undervalued. We would view share weakness as an opportunity for investors to accumulate an industry’s leading brand, source of its narrow moat rating, buoyed by Flutter’s stout product development and risk management.”