For investors in sports betting stocks, however, March Madness has been a bit of, well, an air ball.
Those stocks haven’t rallied following the opening weekend of March Madness, either.
DraftKings is down nearly 1% in the past week. Flutter has fallen about 4% in the past five trading days while Penn is off more than 5%.
The big problem for sports betting companies is that the industry is still in its early stages. The US Supreme Court only legalized the sports wagering in states other than Nevada in 2018. Since then, many states have set up physical sportsbooks and allowed for mobile betting.
Given that backdrop, most of the major casinos and sports betting firms such as DraftKings and FanDuel are doing everything they can to grab as many customers as possible. It’s a gambler land grab, and a lot of money is being spent on promotions like limited-time free bets and big advertising campaigns.
DraftKings, for example, disclosed that it spent $278 million on sales and marketing in the fourth quarter. Not all of that is on TV commercials, but the rising costs of advertising are clearly worrying investors. Caesars even announced earlier this year that it plans to cut back on its ad spending for the rest of 2022.
“The companies are just trying to attract market share,” he said. “It’s why you’re seeing all these promotions.”
Over time, though, Mancuso expects the industry to mature so that companies will no longer need to offer so many incentives to lure prospective gamblers.
But don’t be surprised to see a bunch of mergers and for the weaker players to go out of business, which will allow the gambling giants to generate bigger profits.
“Sports betting is a complex business. The reality is that it’s not as easy as just opening your doors and making money,” said Rick Arpin, a managing partner with KPMG in Las Vegas. “Consolidation will probably happen. There needs to be continued M&A in sports and gaming.”