Are books ready to cut high ad spend?

Each month, our “Stock Watch” series examines recent trends in sports betting stocks on Wall Street and outside the United States on major global exchanges. According to Goldman Sachs, the booming US sports betting market is expected to reach nearly $40 billion in annual revenue by 2033. A prominent investment manager, Cathie Wood of Ark Invest, took a prominent position in DraftKings. She is not alone, as a wide range of institutional investors are bullish on sports betting. Come here at the start of each month for a review of stock moves among the top publicly traded companies in sports betting.

Caesars Entertainment CEO Tom Reeg spoke to Wall Street analysts on February 22 amid outrageous spending in the legal sports betting industry, spending that had spiraled out of control in the months leading up to Super Bowl LVI. .

Stuck far behind a host of competitors in the race to acquire new sports bettors, Caesars upped the ante after completing its acquisition of William Hill US. The resulting renaming of William Hill’s US segment to Caesars Sportsbook included a vow by the company to spend $1 billion on expanding its digital assets including online sports betting and iCasino offerings.

The strategy featured a glitzy ad campaign accented by ubiquitous ads featuring the Manning family and actor JB Smoove. But Reeg slammed on the brakes last month when he announced that Caesars planned to suspend ads for the time being.

Dismissing the Manning brothers for now, Reeg unveiled a larger strategy to tackle the confusing math of capturing market share without spending the moon. The change, Reeg telegraphed, may indicate that the nation’s biggest sportsbooks can no longer sustain rising customer acquisition costs. In January, Caesars took the lead in online sports betting market share in New York, a spot it has since ceded to FanDuel.

Speaking to Wall Street analysts on Tuesday’s fourth quarter 2021 earnings call, #Caesars Entertainment CEO Tom Reeg reported that CZR$ will significantly reduce its advertising expenditure for sports betting.@MattRybaltowski break it all down —https://t.co/IgDadgPoby

– Sports handle (@sports_handle) February 23, 2022

“We decided to become a big player, and it happened a lot faster than we thought,” Reeg said on the call. “I think most of you know me as someone who’s not one to waste money unnecessarily.”

Highlights of Reeg’s Unexpected Pivot Sports grips monthly stock watch for the month of February. Expect leading gaming companies to grapple with tough business decisions on how to contain acquisition costs while attracting new bettors throughout 2022.

A bullet in the arm or persistent gloom?

Caesars’ turn could turn out to be a gift for its main competitors. Caesars, for example, offered a user-friendly sign-up bonus for new bettors in New York with the aim of establishing a fertile customer base from the get-go. Now, as Caesars tightens its spending belt, others can follow suit and advertising budgets can return to more manageable levels.

In response to Reeg’s comments, Caesars jumped 8% after hours on Feb. 22, clearing $80 a share. A few days later, Caesars rose above $85 as analysts adjusted their valuation models on the company’s spending. A handful of sports betting stocks that had fallen to 52-week lows in recent weeks have finally been given the tourniquet needed to stop the bleeding. DraftKings also received a bump on Feb. 23, returning above $20 per share. A day earlier, DraftKings was trading as low as $16.56, its lowest level in a year. In early March, however, both stocks gave up gains.

Industry-wide, sports betting stocks have fallen sharply over the past year as profitability concerns escalate. Flutter and DraftKings, which had valuations above $20 billion last spring, have seen their stock prices more than halve as investors express skepticism about when the industry giants will turn a profit. The rout also beat out others such as Wynn Resorts, PointsBet and Rush Street Interactive, which have fallen over 40% in the past year.

All sports betting stocks are on sale here ahead of the start of March Madness next week.$PBTHF PointsBet $RSI @RSInteractive_ $PENN @PNGamingInc
Are the 3 best imo. I would stay away from $DKNG as they have cash burn issues and may need to raise more money.

— Will Meade (@realwillmeade) March 6, 2022

During last month’s earnings call, Wynn Resorts had no comment on a New York Post report that the casino could sell its online sports betting division at a significant discount from last May’s $3.2 billion valuation. Wynn’s hijacking of sports betting may suggest that major operators’ extravagant spending habits to acquire customers cannot be sustained. The need to cut marketing spend dominated earnings calls from sports betting operators throughout the month.

Flutter, the parent company of FanDuel, also addressed the unit economy on March 1 when the company published the preliminary annual results for 2021. In fiscal 2021, Flutter’s U.S. sportsbook maintained a market share of more than 40% in nine of the 12 states in which the company operated, Flutter said. FanDuel has outpaced the competition with a 36% US market share in 2021, according to boutique research firm Eilers & Krejcik Gaming. For the year, FanDuel maintained a double-digit lead in online sports betting market share over major rivals DraftKings and BetMGM, Eilers & Krejcik found.

Flutter CEO Peter Jackson noted that the company continues to maintain spending discipline as others invest heavily in promotions to increase market share. The pullback from Flutter’s competitors comes as Flutter’s momentum for a ratio known as LTV to CAC continues to improve, he pointed out. The ratio measures a company’s long-term return per bettor relative to the amount it costs to acquire a customer.

Additionally, Flutter was impressed with the results of FanDuel’s Same Game Parlay product, which he said helped generate the highest winning margin in the US market. A focus on improving product quality will improve “user loyalty,” thereby driving customer retention rates, Jackson said.

“You can acquire as many customers as you want, but you need the product to ensure customers have a great experience and stick around,” Jackson said on the earnings call.

Flutter Entertainment (FLTR.L)

Opening price 1 February: £11,235

Closing price on February 28: £10,795

Monthly percentage won or lost: (-3.9%)

Change since the start of the year: (-8.1%)

Market cap: $16.5 billion (as of March 8)

Draft Kings (DKNG)

Opening price on February 1: $22.21

Closing price on February 28: $23.68

Monthly percentage gained or lost: 6.6%

Change since the start of the year: (-14.9%)

Market cap: $7.2 billion (as of March 8)

DraftKings raised its projections for the total addressable market for online sports betting and iGaming in North America during its Investor Day presentation on March 3. previous estimates. DraftKings is also acquiring customers at a faster and more efficient rate, the company noted in the presentation. The company expects to generate profits in 10 states this year, including Pennsylvania, Colorado and Connecticut.

MGM Resorts (MGM)

Opening price on February 1: $43.20

Closing price on February 28: $44.29

Monthly percentage gained or lost: 2.5%

Change since the start of the year: (-4.1%)

Market cap: $16.5 billion

the ETF Roundhill Sports Betting and iGaming (BETZ), an exchange-traded fund that tracks the best sports betting and iGaming stocks in the industry, closed February at $21.64, down about 3% on the month. Last April, BETZ hit an all-time high of $32.65, more than doubling the price of the exchange-traded fund since its June 2020 debut.

The ETF, however, is down around 45% in the past 11 months amid the industry downtrend.