Sports betting stocks are playing a dangerous game – The Average Joe

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    Sports betting stocks are playing a dangerous game

    victorlei

    February 17, 2022

    sports betting

    Sports betting companies have a bigger addiction than its customers — one that could get investors in trouble.

    Behind the deceptive record Super Bowl numbers…

    Online sports betting stocks have recently fallen hard — despite launching in new states and total wagering reaching new highs:

    • GeoComply saw 80M sports betting transactions over the Super Bowl weekend — double last year’s.
    • Mobile sports betting began in NY state last month — with platforms offering thousands in incentives to attract users.

    But investors are better off paying attention to one growing number — marketing costs — as spending on sports betting TV ad skyrockets, tripling in 2021.

    Sales growth is slowing after jumping from state legalizations and pandemic-fueled usage — putting betting platforms under pressure to justify their big ad spend…

    How sports betting companies sleep at night

    It could take 2-3 years to profitability after a state launch but as long as the lifetime sales cover customer acquisition costs, betting platforms can foot the bill.

    • In 2020, DraftKings (NASDAQ:DKNG) reported a customer’s worth as $2,500 over its lifetime with a $330 customer acquisition cost.
    • But acquisition costs tend to increase — and the $2,500 estimate is uncertain with competition growing.

    In the past 12 months, DKNG spent $1.6B on sales & marketing (S&M) — a part of the sales growth from 112% to 247% — meaning $2.47 was spent for every $1 in sales.

    DKNG is one of the ad biggest spenders but rising costs is driving up expenses for all players. Besides branding, the similarities in platforms make it easier for customers to switch.

    On watch: DKNG is reporting earnings tomorrow before the market opens.

    Investors: Can they grow their bottom line?

    The increasing exposure of sports betting ads is making the industry a perfect target for regulators:

    • Health experts are seeing long-time gamble-free consumers relapse after exposure to free betting-promoting ads.
    • A top New Jersey regulator warned of government intervention against the industry if things get out of control.

    The impact: Regulations could affect sports betting companies’ ability to acquire customers — adding to costs and slowing growth.

    Investors heavily emphasized sales growth in recent years — but if sports betting platforms don’t start showing earnings potential, their stock prices could fall even further.

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