Ever since the green light was given for state-by-state legalization of online sports betting in 2018, the landscape has evolved with a steady addition of states each year. This expansion has been pivotal for companies like DraftKings, where new markets have considerably amplified revenues.
Interestingly, this expansion trajectory appears to be decelerating. Take, for instance, California’s recent failed bid to legalize sports betting in November. On the surface, this could be seen as a setback. However, a more measured pace of legalization might actually offer sportsbooks an opportunity to consolidate their financials. According to Beynon, as marketing expenditure becomes a growing concern, the emergence of new states can be perceived as a potential “overhang”.
Jed Kelly, Managing Director of Equity Research at Oppenheimer, views this in a positive light. In a conversation with Yahoo Finance post the California vote, he shared, “I think it’s good. We now have a clear view of the next two years. This could be an opportunity for DraftKings to demonstrate profitability… if they manage to break even on EBITDA in 2024, and enter 2025 with more states generating positive cash flow, they will be in a good position to enter the Californian market once it legalizes. It’s important to remember that legalization doesn’t mean instant market entry.”
Furthermore, as Kelly highlighted in his recent note, where he upgraded DraftKings’ price target from $30 to $36, DraftKings is steadily expanding its market share in states where sports betting has been legalized.
Case in point: DraftKings has recently surpassed FanDuel in terms of weekly betting handle (the cumulative amount wagered by customers) in New York. This marks the first time such an event has happened. Plus, it currently possesses 50% of the gross gaming revenue in Massachusetts, its home state, where sports betting was only legalized in March.
Kelly observed, “We see DraftKings overtaking FanDuel in New York handle share as a leading indicator that superior product quality is gaining ground.”
In this rapidly evolving landscape of online sports betting, DraftKings appears to be carving a niche for itself and proving that strategic growth can sometimes benefit from a steadier pace.