Sports betting stocks take a hit
While sports betting activity has exploded over the past year, sports betting stocks have largely stumbled as the public markets move away from the "grow at any cost" mindset and focus more on profitability.
State of play: Betting operators have been spending vast amounts of money to acquire customers, engaging in an arms race that isn't sustainable in the long run.
Social media and TV broadcasts are littered with sports betting ads, as companies try to gain market share in an increasingly competitive industry.
- Investors were bullish at first, sending sports betting stocks soaring even when play stopped during the pandemic. But the narrative has shifted in tandem with the rest of the market.
By the numbers: Online sports betting brands spent more than $320 million on advertising in 2021, up 38% from 2020, per MediaRadar (subscription).
Driving the news: Some operators are now scaling back their marketing efforts as they seek better LTV/CAC ratios (customer lifetime value vs. customer acquisition cost).
- Caesars Sportsbook commercials, for example, will "largely disappear from screens," CEO Tom Reeg said last month. No more J.B. Smoove and the Manning brothers for a while.
- Caesars jumped nearly 6% in after hours trading following Reeg's remarks, as investors responded favorably to the decision to curtail media spending.
What to watch: Sports betting has already infiltrated sports media (see: Penn National acquiring Barstool Sports, FanDuel paying Pat McAfee $120 million), and content will play an even bigger role moving forward.
- Media tie-ups allow operators to acquire customers more efficiently than ad blitzes. They also help establish a deeper connection with potential bettors, which leads to brand loyalty.
- Yes, but: There are risks in partnering with media brands. Regulators are investigating Penn National over concerns about Barstool Sports founder Dave Portnoy, which could result in lost gambling licenses.
The bottom line: Sports betting companies are chasing a market that has massive growth potential. But at some point, they have to show profit.