Spreads and payouts
It’s that time of the year again. Wings, dips and hot dogs are on the menu this weekend as the Kansas City Chiefs take on the Philadelphia Eagles in Super Bowl LIX. Households across the U.S. will huddle around screens, and many have already been betting on the big game, with legal wagers expected to come in at a record $1.39B, according to the American Gaming Association. Since a Supreme Court decision in May 2018, 38 states, along with the District of Columbia, have authorized some form of in-person or online sports betting.
Snapshot: The $1.39B number does not account for office pools, Super Bowl Squares, offshore operators, illegal bookies, etc., which are likely to make up the majority of all bets on the big game. It also excludes prediction market sites like Kalshi and Crypto.com, as well as Robinhood (HOOD), though the latter platform pulled its Super Bowl betting contracts this week following a CFTC request. It all means that sportsbooks are facing a crowded field of competition, along with sweepstakes betting and fantasy sports.
For investors in the sector, how the game shakes out could have significant implications for Q1 earnings reports because sportsbooks, like DraftKings (DKNG) and FanDuel (FLUT), have embedded liability on certain results. A low scoring game and a Chiefs victory could lead to a hold rate of about 22% due to a huge amount of betting on the points scored going over the 48.5-point line and with most sportsbooks having more exposure on the moneyline to a win by the Eagles. Parlays and prop bets could also impact the Super Bowl hold rate if some of the long-odds bets hit.
Stock watch: Most sports gambling shares that have performed well over the past year haven’t been the established players. Outsized returns have been recorded at online operators Rush Street Interactive (RSI) and Gambling.com (GAMB), as well as data companies Sportradar (SRAD) and Genius Sports (GENI). “Most companies in this industry are growing revenue by two digits on a year-to-year basis,” writes SA Analyst Given Mahlangu, while Investing Group Leader Daniel Jones highlights the lucrative relationships with major sports leagues and sportsbooks.
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