Investor Essentials Daily

This company’s earnings will grow with online sports betting

July 4, 2024

The rapid growth of online sports betting in the U.S. over the past decade has been driven by digitization, legal changes, and the pandemic.

The 2018 Supreme Court ruling allowed states to legalize sports betting, leading to 38 states launching sports betting platforms.

DraftKings (DKNG) has emerged as a leader due to its early entry, user-friendly design, and strategic acquisitions.

The company’s market share and revenue have grown significantly, although it faces competition from major players like MGM Resorts and new entrants like ESPN.

The U.S. online sports betting market is expected to reach $10 billion in annual revenues by 2024 and $17 billion by 2029, with DraftKings potentially delivering substantial earnings growth.

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Several converging factors have driven the rapid increase in online sports betting in the United States over the past decade.

Digitization has made placing bets remotely much more convenient than visiting physical sportsbooks. This helped capture a wider audience beyond hardcore gamblers.

In 2018, the U.S. Supreme Court ruling in Murphy v. NCAA struck down the Professional and Amateur Sports Protection Act of 1992, paving the way for states to legalize and regulate sports betting at their discretion.

This provided the necessary legal framework for companies like DraftKings (DKNG) to launch regulated online platforms. 38 states legalized and launched sports betting.

The pandemic massively accelerated the shift to online and mobile as people spent more time at home and physical sportsbooks were closed. This forced both new and experienced gamblers to adopt online and mobile apps for their betting needs.

The surge in online activity helped normalize remote gambling and brought in a fresh batch of users who may continue as recreational bettors.

As one of the early entrants post-PASPA, DraftKings established itself as the clear leader in the emerging U.S. online sports betting industry.

It has consistently captured the highest market share of total handles based on its wide range of pre-game and live betting options across all major sports leagues.

DraftKings’ user-friendly design and features have also earned it the top spot in customer experience surveys. This advantage has enabled DraftKings to maintain robust revenue growth, even during broader economic downturns that dampened casino gambling.

The company has also made strategic acquisitions of media companies like VSiN and gambling technology firms like Golden Nugget Online Gaming to enhance its content and platform capabilities.

As more states regulate sports gambling and mobile wagering in the coming years, DraftKings is well-positioned to leverage its brand recognition and scale to quickly roll out in new jurisdictions.

This gives the company a long runway for market share gains and revenue expansion.

However, DraftKings also faces intensifying competition from other established operators like MGM Resorts (MGM) looking to steal share, as well as new entrants with significant capital like ESPN.

While DraftKings’ first mover advantage and experience make it difficult for challengers to dislodge it in the near term, maintaining leadership will require continuous product innovation, strategic deals, and defending its brand against deep-pocketed rivals.

Overall, the U.S. online sports betting market matures towards $10 billion in annual revenues by the end of 2024 and is expected to show an annual growth rate of 12.08%, resulting in a projected market volume of $17 billion by 2029.

If it continues dominating, handling and retaining high customer satisfaction, DraftKings could deliver substantial earnings growth and reward shareholders with further upside in the stock.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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