MarketsFeb 16, 2022
Sports betting stocks are playing a dangerous game
Gambling Regulation
Victor Lei
Discover
Sports betting companies have a bigger addiction than its customers — one that could get investors in trouble.
Online sports betting stocks have recently fallen hard — despite launching in new states and total wagering reaching new highs:
But investors are better off paying attention to one growing number — marketing costs — as spending on sports betting TV ad skyrockets, tripling in 2021.
Sales growth is slowing after jumping from state legalizations and pandemic-fueled usage — putting betting platforms under pressure to justify their big ad spend…
It could take 2-3 years to profitability after a state launch but as long as the lifetime sales cover customer acquisition costs, betting platforms can foot the bill.
In the past 12 months, DKNG spent $1.6B on sales & marketing (S&M) — a part of the sales growth from 112% to 247% — meaning $2.47 was spent for every $1 in sales.
DKNG is one of the ad biggest spenders but rising costs is driving up expenses for all players. Besides branding, the similarities in platforms make it easier for customers to switch.
On watch: DKNG is reporting earnings tomorrow before the market opens.
The increasing exposure of sports betting ads is making the industry a perfect target for regulators:
The impact: Regulations could affect sports betting companies’ ability to acquire customers — adding to costs and slowing growth.
Investors heavily emphasized sales growth in recent years — but if sports betting platforms don’t start showing earnings potential, their stock prices could fall even further.
