As Wall Street Shows, Even When US Sportsbooks Lose Money, They Still Can Win

Posted on: March 22, 2021, 04:55h. 

Last updated on: March 22, 2021, 10:35h.

Steve Bittenbender Read More
Expertise: Legislation, Sports Betting, Horse Racing.

Over the last month, several gaming companies have issued quarterly financial reports. For those with US sportsbooks, losses weren’t uncommon.

Sports Betting losses
Despite earnings losses, DraftKings has seen its stock price move from less than $20 a share when it joined the market to nearly $72 a share now. It’s not the only US sportsbook operator to see that trend. (Image: Nasdaq.com)

DraftKings announced adjusted earnings before interest, taxes, depreciation, and amortization (EBIDTA) at a loss of $395.9 million for 2020. That happened as the sports technology company reported sales and marketing expenses last year of nearly $500 million. Flutter Entertainment, FanDuel’s parent company, reported an EBIDTA loss of about $235.5 million last year for its American operations. That was thanks mainly to marketing expenses totaling $482.1 million.

FanDuel, which Flutter is considering spinning off, and DraftKings are considered the top two US sportsbooks in the post-PASPA climate, as nearly half the country now has legalized sports betting. But even smaller players in US states posted red numbers last year.

Australian-based PointsBet reported an EBITDA loss of about $53.4 million for its US operations in the first half of its 2021 fiscal year.

Meanwhile, Rush Street Interactive posted an adjusted EBITDA of almost $4.4 million. But as CFO Kyle Sauers noted on a call with investment analysts, that included the removal of $144.7 million in share-based compensation. The company that operates BetRivers reported a net loss of $138.8 million for 2020.

Yet, despite those not-so-small losses, investors haven’t seemed to care. On March 2, Flutter stocks (OTCMKTS: PDYPY) was trading at $98.85. They ended at $117.50 on Friday. On Feb. 25, DraftKings (NASDAQ: DKNG) traded at $57.81. On Friday, those shares closed at $71.98.

Rush Street (NYSE: RSI) shares traded at $16.55 on March 10. On Friday, those same shares were going for $18.64.

Of the four, only PointsBet (OTCMKTS: PBTHF) has seen its shares decline since its financial release. Shares went from $12.75 on Feb. 25 to $11.20 at the end of last week.

Sports Betting a ‘Long-Term’ Play

These four companies aren’t alone when it comes to losing money in sports betting.

On a quarterly call with analysts last month, Churchill Downs Inc. (NASDAQ: CHDN) CEO Bill Carstanjen noted that the company’s sports betting operations operate in the red. Still, the company, which is transitioning those operations over to its TwinSpires brand, sees it as a long play.

We will continue to invest in this space,” Carstanjen said. “The real size of the EBITDA opportunity will play out over years and not quarters, and thus we are focused on very carefully developing our business model for the long-term.”

On Thursday, TwinSpires launched in Tennessee just in time for the NCAA Tournament.

The companies themselves aren’t the only ones who see the big picture down the road. David Sacco, a professor of finance and economics at the University of New Haven, said he likes their prospects.

“I do believe, even though we’re in a highly speculative environment right now, there is an incredibly sound fundamental story to tell about these gaming sites and companies,” Sacco told Casino.org earlier this month. “I do think they’re in for a pretty good growth spurt here in the next few years.”

Sacco, a practitioner-in-residence at the Connecticut institute, is a former member of the UBS Investment Bank Board and has consulted with and invested in startups. He noted that he still invests, but he does not own individual stocks. A third party manages his exchange-traded funds and other funds.

Profits Not Essential for Sportsbooks Now

When it comes to stocks, Sacco said investors aren’t necessarily interested in profitability initially for companies in an emerging industry. He noted that Tesla, a company that’s been around for 18 years, has the largest market capitalization by far in the auto industry, even though the company has yet to show it can manufacture and sell its vehicles for a profit.

While sportsbooks will need to demonstrate that at some point, he noted that may not take place until years from now.

DraftKings CEO Jason Robins told analysts last month that some of its sports betting operations are already in the black. New Jersey turned a profit last year. That state led the charge in legalizing sports betting across the country. It became one of the first to open sportsbooks nearly three years ago after the US Supreme Court ruled in its favor in the PASPA case.

“I think it would have been even better if we had a full sports calendar for the year,” he said.

Partnerships Will Drive Growth

Sacco said that the growing number of sports betting partnerships operators have forged with leagues and media outlets may very well help drive profits. Those partnerships are already helping increase demand.

He added that companies working on such issues as resolving latency problems in live streams show where the future is for these businesses and partnerships.

“I believe the model for the sports leagues and the gambling companies is not to only gather up the casual sports bettor like me, the rabid sports bettor, but also just the casual fan who is going to be sitting there watching a game,” Sacco told Casino.org.

Years ago, Sacco would go to a baseball game with friends, and during the game, they’d make friendly wagers. Now, fans may likely make those bets through an app.

“I do think it’s going to lead to exponential revenue growth for sports betting as it gets into more people’s hands,” he said. “It’s just more accessible because I’ll be sitting there with my phone while I’m watching the game, and I’ll be making bets.”