The sports betting business is not for the faint of heart, especially during the NFL season.
While some publicly traded companies worry about things like the unemployment rate, GDP growth, and trade relations with China, online gambling firms have additional and specific concerns, such as garbage-time touchdowns and seemingly meaningless field goals.
That’s because a massive amount of money will be legally wagered on the upcoming NFL season, or approximately $35 billion, according to the American Gaming Association. And that kind of cash poured into NFL sides, totals, and parlays can help swing a sportsbook operator’s results in a positive or negative direction on any given Sunday.
Here's the official release: @AmericanGaming projects this will be "the most legally wagered-on" NFL season ever, with ~$35 billion staked with authorized operators. That's up from an estimated $26.7 billion legally wagered last NFL season.https://t.co/CFbhLPuFQK pic.twitter.com/hAuFvGcUuw
— Geoff Zochodne (@GeoffZochodne) September 3, 2024
DraftKings Inc. reported last fall that a tough run of football games — or "customer-friendly sport outcomes" — cost the Boston-based bookmaker tens of millions of dollars in revenue and adjusted earnings.
“Sport outcomes in the third quarter – including college and professional football game results – were favorable for our customers,” DraftKings CEO Jason Robins and then-CFO Jason Park said in a letter to shareholders at the time. “Outcomes resulted in headwinds to our revenue and Adjusted EBITDA of $40 million and $30 million, respectively.”
Those kinds of outcomes are looming over operators again this fall with college football already well underway and another NFL regular season kicking off this Thursday. A lot of wins by favorites and Overs by high-scoring teams could translate into tougher financial sledding for sportsbook operators.
A parlay parachute
But a series of unfavorable outcomes for operators won't crush them entirely. Even DraftKings, which warned of a rough patch last year, still generated almost $790 million in revenue for the three months ended Sept. 30, up from $502 million the previous year.
Instead, a good run for bettors will knock some of the luster off financial results, tamping down earnings and making it harder to impress investors. As at least one investment banking firm has noted, the increasing popularity of parlays and the ever-growing selection of props has created a higher floor for operators, helping to take some of the sting out of those “customer-friendly” outcomes.
The growing menu of sportsbook offerings and smoother wagering operations of companies “are now protecting gaming margins to the downside more than ever,” Citizens JMP Securities analyst Jordan Bender wrote in a note to clients on Wednesday.
“Conversely, positive sporting events are supporting the 'higher highs', suggesting to us the culmination of all factors will increase gaming margins to all-time highs with positive sporting outcomes in the coming months,” the analyst wrote.
“In this scenario, increasing contribution profit should lead to higher reinvestment rates, faster payback periods compared to prior years, and positive stock reactions for sports betting-focused companies such as [FanDuel-parent Flutter Entertainment], [DraftKings], [MGM Resorts International], [Caesars], and [ESPN BET-operator] PENN.”
In short: bad outcomes for customers could make an already good time of year for sportsbook operators even better. On the other hand, good customer outcomes (in other words: bettors winning a lot) could spoil the party for those same online betting sites.
For instance, Flutter reported that gross revenue from its U.S. business (a.k.a. FanDuel) was hit by $343 million worth of "customer friendly sports results" during the three months ending Dec. 31, 2023.
Although this was offset somewhat by better-than-expected margins, Flutter said its U.S. net revenue was approximately $1.4 billion for the quarter. That was up around 20% from a year earlier but about $225 million below its previous guidance for the period.
"While sports results were very customer friendly, particularly on the NFL in November, the underlying momentum in the business remains very strong heading into 2024," Flutter CEO Peter Jackson said in a statement.
Going up
The momentum in NFL wagering suggests there will only be more this coming season.
In addition to the AGA’s estimates, Bender said JMP could see $33 billion wagered during the NFL season, and that "football-only parlays" may account for $10 billion of the handle.
“Therefore, as football wagers reach an all-time high level, positive sport outcomes for betting companies will result in 'higher highs' for gaming margins and upward estimate revisions in the coming months, in our view,” Bender said.
