DraftKings (NASDAQ: DKNG) is likely to have caught the same cold as rival Flutter Entertainment (NYSE: FLUT), which cautioned investors on Tuesday that its fourth-quarter and 2024 earnings and revenue will be lower than originally estimated owing to customer-friendly NFL results.
When Flutter released its financial warning after the end of US markets on Monday, the stock fell in after-hours trading, but the shares recovered on Wednesday, with DraftKings following suit.
Nonetheless, Bank of America analyst Shaun Kelley cautioned that gamblers’ proclivity for picking NFL winners in the fourth quarter, which prompted Flutter’s warning, most certainly impacted DraftKings as well.
This year, NFL favorites have won more than seven out of ten games and covered spreads at a rate of about 54%, which is one of the highest percentages in the Super Bowl history.
This is wonderful news for bettors, but bad news for operators. Kelley projected that DraftKings‘ fourth-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) could be reduced by $60 million to $80 million as a result of frequent NFL chalk coverage.
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Kelley said that DraftKings’ EBITDA headwind is likely to be less than what market participants expected, and proportionally lower than that of Flutter.
DraftKings had better Q4 luck than FanDuel
DraftKings and Flutter-owned FanDuel are typically linked at the hip because they are two of the most famous names in sports betting and have an almost impenetrable duopoly in the market, but the former may have been a little luckier than the latter from October to December.
Several mitigating factors for DKNG include 1) DKNG’s sponsorship of the Tyson-Paul fight with strong volumes/hold in November, 2) a +4891 pre-made parlay hitting on FanDuel in December with over 17k bets placed, and 3) unfavorable outcomes during FanDuel’s sponsorship of NFL Christmas Day games on Netflix,” Kelley stated.
The NFL is the most wagered-on league in the United States. Standalone NFL matchups, such as “Monday Night Football” or battles broadcast on holidays, generally attract larger bets, signaling a level of vulnerability for sportsbook operators if favorites win and cover.
Regarding Flutter…
For DraftKings, Flutter, and its smaller competitors, the good news is twofold. First, the rates at which NFL favorites won outright and covered this season are extremely high, implying that sequels are unlikely the next season.
Second, facts show that most US recreational gamblers are simply not very adept at sports betting. It’s probable that they’ll pay back gains from the NFL regular season during the playoffs, as well as as the NBA and college basketball seasons get underway.
To put it another way, the NFL phenomena is most likely short-lived, and some analysts see any subsequent downturn in Flutter shares as a buy opportunity.
“Outside the United States, Flutter experienced sports betting results that benefited its finances. Morningstar’s Dan Wasiolek believes that transitory tailwinds boosted revenue and adjusted EBITDA by more than $100 million and $30 million, respectively, during the period. “We do not expect significant change in our $275 fair value estimate, which leaves shares somewhat undervalued. We see share weakness as an opportunity for investors to accumulate an industry’s top brand, the source of its narrow moat rating, bolstered by Flutter’s strong product development and risk management.”
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