It’s taken a little while, but we seem to be nearing the point where online sports betting companies and their affiliates are being valued at levels that allow investors to perform reasonable analyses of their current values and their prospective values.
Gone are the silly days of money-bleeding stocks selling at 30 and 40 times revenues projected several years out.
Likewise, gone are the days when every start-up and immigrant company from overseas grabbed the attention of American investors. Indeed, some invaders have high-tailed back across the oceans to their more familiar and safer home countries.
This doesn’t mean that stocks are cheap. DraftKings and Flutter, for example, sell at 10 and 11 times projected 2026 EBITDA, respectively, but those are reasonable valuations for profitable growth companies. And DraftKings has turned profitable and guidance of significant positive EBITDA is now credible.
Today’s more sensible environment also has come with the shattering of what, at least briefly, were considered near truisms: that land-based casino companies with their huge player databases would rule the day, that affiliates would be the profitable sellers of picks and shovels to the operators, that the transition to higher-margin online casino models would be inevitable for the favored ones.
Through all of this dynamism some trends hold true and, perhaps, should be expected remain true:
- The one-time big American fantasy sports operators (DraftKings and FanDuel) are maintaining huge market shares.
- The big brick-and-mortar casino companies are still committed to trying to be big winners in the space, though among them Caesars seems to be the one to insist on achieving profitability, while PENN Entertainment and MGM Resorts continue to pursue the dream.
- The smartest of the brick-and-mortar operators may be those that have gone in selectively – Churchill Downs with its Twin Spires online racing operator and Boyd Gaming with its 5 percent stake in FanDuel for sports betting and its own operation for online casino.
- The idea of serving the operators still has credibility, but in select names with select business models, such as Sportradar providing data to the whole sports industry, not just betting operators, and Better Collective, which sees itself as a global online sports information publisher that happens to be in the affiliate business, too.
While maturing, the digital sports betting-iCasino industry is still young with new and growing players, mergers and acquisitions, changes in business models.
TWO TO WATCH
In this environment, two companies strike me as especially interesting – Flutter and Entain.
Flutter has come out of the British Isles as primarily a sportsbook to become the industry leader in large part built upon its purchase of 95 percent of DraftKings’ fantasy sports archrival FanDuel several years ago and to its long, successful experience in U.K. sports betting and iGaming.
There is no reason to think that Flutter won’t continue to grow, and to do so in the one important way that so many competitors have not been able to do – profitably. The reality is that, while the U.S. is now years into this, competitors promise profitability, Flutter produces.
Entain is a London-listed online and retail sports betting and iGaming conglomerate in lots of markets and with lots of irons in the fire.
The company’s best-known property in the U.S. is its online joint venture with MGM, BetMGM. The parent company has underperformed and there have been persistent rumors that it would merge into MGM. That hasn’t happened and it appears investors had given up on that happening.
But Entain is making a change that has gotten their attention – highly popular veteran gaming executive Gavin Isaacs will become CEO next month.
Gavin is no stranger to shaking up an underperformer, as he proved when he first came to America to take over what was then Aristocrat Americas, the troubled division of Aristocrat Leisure. He not only turned the company around but, along with Jamie Odell who followed along later, helped build Aristocrat into what is today, the world’s most successful gaming supplier.
Isaacs also is no stranger to mergers and acquisitions having successfully led Shuffle Master, Bally Technology and Scientific Games through transactions.
So, what can he accomplish at Entain? Australian born and bred Isaacs is a naturalized American citizen and has made a very comfortable home in Las Vegas. Spending years as head of a U.K.-centric, London-headquartered company might not fit with that life and may suggest he pulls off another corporate sale or restructuring.
With a stock price less than half of its 52-week high and just a third of its all-time high reached three years ago, Gavin (he is universally known by just his first name) has the chance to make a fairly quick impression.
