Online Sports Betting Is a Buzzy Industry, but Where’s the Money?

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Gamblers may have won big with the men’s March Madness championship game on Monday, but investing in online gambling platforms has been a losing hand as of late.

Shares of

DraftKings

(ticker: DKNG) have slipped about 72% in the past 12 months, while shares of rival

Penn National Gaming

(PENN) are off about 65%. But as any new company in a burgeoning industry knows, it costs money to (eventually) make money—and online sports betting platforms have been spending big bucks to lure users to their sites. 

In the latest episode of Unboxed, I examine why one of this year’s most talked-about industries has seen such a drag on returns. Aside from hefty marketing costs, online gambling platforms can face steep taxes on revenues in states that are eager to use the nascent business to boost their own revenues. Data from the American Gaming Association shows that since 2021, 45 million Americans have been given permission by their states to place bets in-person and online.

There’s also rampant competition. Consider New York state, where online gambling went live in early January: Eight sportsbooks, including DraftKings, Caesars, and FanDuel, operate there and offer gamblers bonuses as high as $1,000 for signing up and placing a bet.

But despite the downturn in stocks, opportunities in the online gambling sector exist. In this episode, my colleague Andrew Bary explains why names like

Bally’s

(BALY) and

Boyd Gaming

(BYD) could be worth a look.

“The regional companies are doing better because they have existing land-based casinos… which are doing quite well ,” Bary says. “That gives them additional cash flow and earnings that can offset some of the losses that they’re taking now as they build out their online sports gambling businesses.”

That’s not to say there aren’t any DraftKings bulls. Just last month, the company’s CEO, Jason Robins, tweeted that he’d make anyone selling DraftKings shares “regret that decision more than any other decision you’ve ever made in your life.” (To be sure, Robins has previously sold DraftKings shares when the stock was trading higher.)

And while I’m not buying gaming stocks in this video series, I am trying my luck another way. Watch the video above to see how I fared with my latest batch of March Madness bets. And to learn more about online gaming and the business of sports, you can subscribe to my YouTube channel.

Write to Carleton English at [email protected]