Super Bowl Sunday is a uniquely American annual experience, filled with over-the-top pageantry, prime time entertainment, mega-celebrities, and lots and lots of gambling.
Experts estimate that $1.4 billion will be wagered on the National Football League’s championship game between the Kansas City Chiefs and Philadelphia Eagles. And that’s just through legal sports books, countless more will be on the line in private transactions. Combine this with the spectacle’s global reach, and it’s safe to say that millions of viewers around the world will be glued to their phones Sunday night, monitoring their bets on various gambling apps.
But looking beyond the Super Bowl, the gaming world is struggling, with shares of gambling companies plunging from their post-pandemic heights. An index that tracks the industry is down 39 per cent from its all-time high in March 2021, while the S&P 500 has soared 52 per cent over the same period.
DraftKings Inc.’s stock has tumbled 41 per cent since setting a record in March 2021. MGM Resorts International — whose BetMGM sportsbook is a joint venture with London’s Entain PLC — has sunk 32 percent from a July 2023 high. And shares of Caesars Entertainment Inc. have plunged 70 per cent from their peak in October 2021. Bucking the trend is FanDuel’s parent Flutter Entertainment PLC, which notched a fresh record in early December.
“It was a difficult year for sure for gaming in 2024,” said Truist Securities analyst Barry Jonas. “On the sports betting side, the underperformance is more attributable to some of the legislative uncertainty that we’ve seen and the ramifications it has for margins.”
Raking It In
To be sure, gambling companies are still raking in cash. The U.S. commercial gaming industry generated roughly $67 billion in total revenue from land-based casino games, sports betting and iGaming in 2023, marking three straight years of records, according to American Gaming Association figures. Last year was likely another all-time high, with the AGA estimating $70 billion of revenue.
“You usually get a hundred million viewers on the Super Bowl,” said Chad Beynon, a gaming analyst at Macquarie. “It’s really a time for some of these new sports betting apps to show people where they’ve improved the product.”
What the stock prices reflect, however is slowing growth and rising restrictions. Gambling revenue on the Las Vegas Strip slipped 2.7 per cent in December, its sixth consecutive month of year-over-year declines. In Macau, properties face pressures from weak consumer sentiment in China. Even the NFL isn’t providing the lift it once did, as this football season was the worst on record for sports betting companies.
Online gambling firms like DraftKings and Flutter have expanded rapidly since 2018, when the Supreme Court freed states to legalize single-game wagering. Currently, 38 states and the District of Columbia are open for business. But they’re now facing rising state taxes and increased competition. Betting app debuts in new states have slowed to a trickle, with just two market launches in the past year.
Regulations And Taxes
The federal SAFE Bet Act, which was introduced in Congress late last year, seeks to, among other things, limit how sports betting companies use artificial intelligence to lure problem gamblers. Meanwhile, Connecticut has proposed limiting the percentage operators retain from wagers, known as the betting hold. And Massachusetts is looking to implement affordability checks for bettors.
At the same time, local governments continue to tax the gambling industry to help address budgetary shortfalls. Just this week, Ohio Governor Mike DeWine introduced a new budget that would hike the state’s tax rate on sports betting operators to 40 per cent from 20 per cent. This follows a recent proposal from Maryland Governor Wes Moore to boost gaming taxes to 30 per cent from 15 per cent.
The industry’s challenges are starting to show up in the companies’ earnings. Flutter said its 2024 U.S. revenue will be $370 million lower than its guidance midpoint of almost $5.8 billion due to the impact of the slowdown in U.S. sports betting in the fourth quarter. DraftKings also cut the forecast for its 2024 revenue and profit when it reported third quarter results in November.
Las Vegas Sands Corp., which generates most of its revenue from Macau and Singapore, posted net revenue that beat consensus estimates on Jan. 29, but the stock is still down 16 per cent this year. MGM, Caesars and Wynn Resorts Ltd are expected to report in the coming weeks, and analysts are bracing for underwhelming results due to tough comparisons from a year ago, when the inaugural run of the Formula One Grand Prix was held in Vegas. MGM and Caesars both saw their stock prices fall more than 20 per cent in 2024 as the land-based operators rely heavily on foot traffic from the Strip.
“While a clear mix-shift higher in state online sports betting taxes is likely inevitable, we expect it will accelerate legalization and further incentivize illicit market shutdowns,” writes BMO Capital Markets analyst Brian Pitz.
Looking For Catalysts
To keep the good times rolling, the U.S. gaming industry is on the hunt for fresh catalysts to entice betters. For example, parlay products, or single bets that combine multiple outcomes, deliver a bigger cut to sportsbooks than single bets and are a growing portion of overall betting. FanDuel has developed technology that offers more parlay choices. And DraftKings is testing a monthly subscription service that would provide customers with access to better odds.
For land-based casinos, the path forward appears to be away from Las Vegas. Caesars generates more than half of its business outside of the city, and MGM gets a little over half of its revenue there. The two companies operate about two dozen properties combined along the Vegas Strip.
Another area of growth is iGaming, an umbrella term for online casino games including virtual blackjack and poker. It’s only available in seven U.S. states, but the gaming industry is optimistic that increased regulations will make lawmakers more likely to pass legislation to support adoption.
Entry into newly legalized markets and further penetration into existing ones are the biggest drivers of growth for the industry, according to Chip Skinner, a portfolio manager at Royce Investment Partners whose fund held a position in DraftKings as of the third quarter.
“Management hasn’t been sitting still,” he said of DraftKings. “They have expanded their platform to include online casino gaming and state-regional lottery offerings, with the view that there are many crossover customer opportunities. Even I can see the long runway of growth.”
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