Previewing Q2 Sports Betting Earnings Reports | Sports Betting News
With publicly traded operators in sports betting set to report earnings for Q2 2024, Matthew Waters joins the show to preview what to expect for PENN, DKNG, CZR, MGM, and others. Plus, what in the world is going on in Washington, D.C., where a budget snafu has the market on hold.
Full transcript
Adam Candee (00:15):
Hello, and welcome in to episode number 241 of the LSR Podcast. Sitting in the big boy chair this week for Matt Brown, I am Adam Candee, as Matt enjoys a well-earned summer vacation. We decided that if we have to be Matt-less as we would normally be, well, we should at least try to get some Matt-ness on this podcast.
(00:40):
And so Matthew Waters, assistant managing editor over at Legal Sports Report, joins us this week. We’re going to talk a little bit about what’s going on in Washington, DC. It’s always an interesting time when it comes to the DC Council and what’s happening with sports betting there. But we’re also coming up on Q2 earnings reports for a number of companies in the gaming and sports betting space, and Matthew is the one who helms that coverage for us. We’re going to get into talking a little bit about what to expect in the upcoming earnings in here of the little slower seasons in news that we see during the year as everybody hits up those summer vacations.
(01:21):
Matt, what’s going on, man? How are you?
Matthew Waters (01:23):
I’m great, I’m great. I’m happy to be on the pod. Always happy to be talking earnings. And you’re right, it is a slower time of the year for sports betting, but can’t say that we’ve been short on news angles.
Adam Candee (01:34):
No, that certainly has been the case. Go over to legalsportsreport.com where you can check out all the work that the team has been putting in, including Matt and company doing a great job while I was taking a few days off myself.
Operators in sports betting set to report earnings for Q2 2024
(01:49):
Let’s get into it now and talk a little bit more about what’s to come here over the next couple of weeks. Matt, as much as we get into kind of a rhythm with quarterly earnings, there’s no real surprise to the news, right? We know when they’re coming. We generally know from what companies have guided what to expect in what’s coming up, but as we sit here with second quarter 2024 earnings coming around, as we begin to get into these calls, what are some of the overall themes that you’ll be watching for as we get into this coverage?
Matthew Waters (02:25):
Adam, it’s funny that you say that we kind of know the numbers and what’s coming, and I can say that that definitely used to be more true than it is now. And just look at what DraftKings did in the first quarter. They did not have a good Super Bowl; nobody had a good Super Bowl, right? It was a very favorable outcome for the public, and yet DraftKings still hit their marks. They held where they wanted to hold because they are so confident in their parlay product and how they’re building out these live betting products and parlay products that is giving them more profit at the end of the day, it’s helping bump up their margins. And so how exactly that’s going for every company is going to be very important to hear in these second quarter earnings. Obviously, we know that DraftKings and FanDuel, they do a really good job at it, and we know that other people are still trying to catch up.
(03:20):
MGM and Caesars are a little bit closer than some of the other guys. They’ve made acquisitions to help with their pricing to have better prices for in-game betting. And then we look at an ESPN Bet, where they have said that they need to improve on this parlay front by the time football season comes around if they want a chance to really compete. So definitely, we want to see what the operators are saying about their products that are helping bolster their margins and their hold percentage. So if there is a couple of killer football weeks in the beginning of the football season in September, they’ll have a chance to offset some of that. So definitely that’s one of the big things that we’re looking at, the product issue there.
(04:11):
Something else we want to see, Adam, is we want to hear from the operators about what the promotional environment is starting to feel like. We know that obviously football season is huge for picking up new customers, and you don’t necessarily wait until September 1st to start that, right? You’re looking in maybe July, maybe August, to start ramping up what you’re doing for marketing there. And remember, we have two entrants. We have Fanatics and we have ESPN Bet, who let’s say it really is their first football season. Fanatics had it last year, but they were still acquiring PointsBet and trying to get everything under their feet there. ESPN Bet launched in November, they didn’t have the beginning of the season to see what they can really do with a customer acquisition drive. So, that is another big thing that I want to hear about is just how the promotional environment is feeling. Did it start to ramp up earlier than usual because people are worried about the potential of ESPN Bet really coming in and blanketing the market and picking up a bunch of users, or is it looking weaker than we expected?
(05:27):
So those are two significant storylines I would say, that should shine through on just about every call and tell us something about each operator.
Adam Candee (05:38):
To dig in a little bit on that one, Matt, let’s talk about that promotional environment and how it could change in certain places this year, because we saw both Ohio and Illinois significantly hike their tax rates in the past 12 months, and we already know how the operators feel about New York as an overall environment, and these are three of the largest markets in the country, when we talk about New York, Illinois, and Ohio. We already saw the pullback in promotional environment in New York from a number of the operators, but there’s a lot of talk that this could happen in Ohio and Illinois as well. Do you think we’ll get any discussion from the operators maybe on some questions from analysts about what that might do to affect their plans?
Matthew Waters (06:23):
Yeah, for sure. Illinois, the new tax rate going into effect will definitely be a hot topic, especially for DraftKings and FanDuel. Those are the two operators that will be affected the most, that will probably be hitting that upper echelon, 40% in Illinois, and yeah, Ohio too. Look, whenever you get these factors coming in that is changing the economics of what these operators can expect, it is something that the analysts definitely want to get into and understand and wrap their heads around as they’re recommending to people whether they should be buying or selling these companies. So we definitely will hear more about what operators have in plans for these types of changes.
(07:08):
And if you’re a regular reader of Legal Sports Report, you will see that there is some talk about DraftKings and FanDuel potentially being able to maybe make their prices a little worse in some of those markets and still be able to compete competitively with everybody else out there. So yeah, it’s definitely, that will be a hot issue for sure, Adam.
What comes next in Q2 earnings reports
Adam Candee (07:33):
Yeah, you can check out Matt’s article from earlier this week in which he summarizes a note from Barry Jonas at Truist, who follows the space as closely as any analyst in the US, in which he’s talking about a report from HoldCrunch that gets into the idea of, where will we see sports betting operators make up for the margins that could be affected by these tax rates? And one place that we talk about is in pricing. And I don’t always think it’s as obvious as saying, well, Intralot off in DC is doing -140 on sides versus doing -110, the standard sides. It’s the sort of thing that gets baked into futures. It’s the sort of thing that does get baked into same game parlays as we talked about, because we know that that same game parlay player, that parlay customer overall, is not as price sensitive as your traditional sports bettors who’s grinding outsides from week to week. So, that’ll be really interesting to see.
(08:33):
And to play off what you were talking about at the very beginning, let’s talk a little bit about Penn Entertainment and ESPN Bet, because I think that’s going to be as closely watched as any other earnings report coming in. And the questions to CEO Jay Snowden I’m sure will be as pointed as any other report, considering what we had happen in Q2 where we saw a little bit of activism from some investors asking questions about what’s been going on there.
Matthew Waters (09:01):
Yeah, I would have to say that for me, Penn Entertainment by far is the call that I cannot miss coming up for this second quarter earnings period. There’s just so many moving parts, right? First of all, we need to hear how everything’s going behind the scenes at Penn and ESPN. Remember, on the Penn side, they’re working on the parlay product and getting a larger wallet share from customers. And on the ESPN side, they’re working on that integration of ESPN Bet into the ESPN Media app, which is where ESPN and Penn, where they are confident that a lot of their user base, especially the casual bettor user base, is going to come from. They’re going to come right from that ESPN app when they’re reading about a game coming up tonight or something. They see the link right there to get their money down on the moneyline, they click it, boom, right over to the betting app, and there it is. ESPN and Penn have to nail, I think both of those, Adam, and we may not get a chance to see that play out if something happens with this activism.
(10:14):
As you mentioned, and investors said, look, Penn has lost a lot of money chasing these digital pipe dreams. Maybe they need to sell so we can get the correct valuation of what the retail land-based casino business is worth. And we’ve heard that Boyd could be interested in coming in to buy that up. And then we had another report saying, well, if Boyd buys the retail, the land-based properties, maybe Flutter comes in to buy that digital arm. And you start to wonder about what the parent company of FanDuel would really want to do with that. So there are a lot of moving parts right now for Penn specifically. So you’ll hear questions about all of this on the Boyd, the Penn, and the Flutter calls for sure.
(11:01):
You’ll probably hear questions about it on the other calls, as analysts are trying to gauge interest in what other regional operators or REITs may have in mind for a Penn sale because there are going to be properties available. And again, there could be ESPN Bet available. So there’s a lot of stuff going on with Penn right now. If it remains status quo, then yeah, we’re looking at them really being confident in their parlay product and being confident in the integration of the media app. And otherwise, it could just go tails up and who knows what we’re going to be talking about with Penn?
Adam Candee (11:43):
I mean, there are so many little bridges in this house of cards that feel tenuous right now. If we go all the way back with Penn, if we start talking Barstool, then the money spent on theScore acquisition, then the money spent to develop a product in-house that was supposed to improve Barstool but ultimately really didn’t. And now the money that’s been committed to ESPN over the course of a 10-year deal with of course, there are some outs in that deal for ESPN as well, in which if they don’t hit significant market share and right now they’re not on a good trend for that, if they don’t hit significant market share, that ESPN can get out of that deal, as well. So there’s a lot to watch from all of those perspectives.
(12:26):
But Matt, I want to dig in on what you mentioned and what you wrote a little bit about this week. The idea with Penn and this discussion of Boyd and Flutter. We saw that when FOX Bet was under the Flutter umbrella, this could be legally disputed, I’m sure in some ways, but I think from a journalistic perspective, all of the indications we have are that Flutter pretty much smothered FOX Bet with a pillow over its face, right? It really didn’t have an opportunity to succeed there, and again, that’ll be hashed out in court for certain elements of that deal. But when you look at what they might be interested in ESPN Bet for, would it be so simple as to say they would want to get it just to shut out that piece of competition?
Matthew Waters (13:14):
They could, they absolutely could, Adam. It’s not crazy to think about FanDuel and DraftKings thinking about their next steps to shore up the one and two positions in the sports betting market, and make sure that three and four stay as far off as they are now. And ESPN Bet is certainly, when you just talk about brand power, throw everything else out for a second. You talk about brand power, when PASPA fell back in 2018, I would’ve said it doesn’t matter when ESPN enters the market. ESPN is such a household name when it comes to sports in the US that an ESPN sportsbook will flourish no matter what. And I think we’ve seen that that is not entirely true at this point, but they still could, right? They still could get it right, they still could nail it. And maybe that is what is in the back of Flutter’s mind saying, well, let’s buy it and then let’s treat it like the stepbrother again. Three for me and half for you is basically what they did to FOX Bet when they had both brands up.
(14:21):
It’s hard to sit here and argue that they would want to continue with both brands when they already have killed one brand. So, it was interesting to hear that Flutter is being roped into this. And they have a deal with Boyd, their market access agreement goes back to 2018. Boyd owns 5% of FanDuel because of that market access agreement. So there are relationships there, but there has to be more than just that for Flutter to want to get in. So maybe it’s that they want to make ESPN great, maybe it’s that they want to make ESPN Bet go away.
Adam Candee (15:02):
That will be fascinating to watch, and to go back to what you mentioned a moment ago with Boyd, I would love, and we will never find this out, but I would love to see the customer acquisition numbers for FanDuel via the market access it gained by these Boyd deals, and whether that pencils out to something commensurate with 5% of the value of FanDuel right now, because my guess would be, it probably doesn’t. That’s something where you look at Boyd’s stake and say, that was a good piece of business for Boyd as FanDuel has continued to grow in its share in the US.
Matthew Waters (15:38):
Absolutely.
Adam Candee (15:39):
Speaking of growing in the US, Matt, we of course this year saw the primary listing for Flutter/FanDuel in the United States, and I’m sure we’ll get an update on that when it comes to Flutter’s Q2 earnings report.
Matthew Waters (15:53):
Yeah, we should, and I have monitored the volume off and on, and they definitely are seeing an uptick in volume. It was steady six figures and low six figures when Flutter was only traded in London, and we’ve gotten a couple million plus average days in Flutter now that they are the primary listing in the US. So yeah, we should definitely hear more about that. Remember, they’re hoping for a bunch of things from this listing, not just the exposure and get more people, get more volume for the stock, but hopefully find new investors, maybe find new companies that really want to take a good piece, maybe get somebody on the board. They have big hopes for this, and they really hope that being listed in the US is going to open them up to a lot of opportunities that they didn’t have before. Maybe they’ll get on a top US indices, index, now that they’re listed primarily in the US. So yeah, we should be hearing a lot about that.
(16:56):
And one other thing that I think we want to listen to on Flutter’s call is, remember, FanDuel is cocky about its NBA product. They say that we have the best NBA product by far. So when we’re looking at a slow period like Q2, you’re really looking at baseball and basketball, right? So we’ll see if the basketball product can really shine for FanDuel in these Q2 results.
Adam Candee (17:21):
Well, that’s really interesting to mention because last year, this was about the time of year when we started to say, hey, it kind of looks like DraftKings might be gaining on FanDuel, right? And that is a time when FanDuel’s products are thought to be at top of market. So DraftKings, of course, has settled into a better spot than they were in a couple of years ago. Of course, the losses have narrowed, they’ve reported some level of profit. What are we expecting to hear out of their report?
Matthew Waters (17:51):
DraftKings is really interesting, Adam, because if you remember back, one of the points that they hit last year hard, was on their legacy states, their vintage states as I believe they call them, the states that have been open for a couple of years now. And it seems like DraftKings got more out of those states growing two, three, four years on, than they ever expected. So it’s really interesting now, because we really only had North Carolina open up this year. Sure, there will be a bump from that in the numbers, but it’ll be a really good opportunity to see just how these vintage states are performing for DraftKings. That’s been another anchor of their growing and improving margins, is having these states that they don’t really have to promo in as heavily now, right? These bettors that are in these states are just, for better or worse, they’re DraftKings bettors at this point. Maybe they bounce over to another app if they’re price shopping or maybe they like a casino game from somebody else better, whatever it may be.
(19:01):
But a couple years in now, these people know that they like to bet with DraftKings. And so you really, sure, you’re still throwing them things to retain them, to keep them, but it is cheaper to keep a customer than it is to go out and get a new customer. So I think that is going to be a huge point for DraftKings to show. And again, you go back to the parlay products and just how that is helping the margin as well, that can really shine in a slow period, too.
Adam Candee (19:32):
So let’s talk more about now the last two that I wanted to bring up, the other legacy casino operators alongside Penn, with MGM and Caesars. I know with MGM, it’s always interesting with their call because some of it gets reported kind of earlier with Entain in the BetMGM situation, but what are we expecting to hear from those two?
Matthew Waters (19:53):
BetMGM is interesting because if you remember, they have another year of investment this year and they haven’t exactly broken out just how much each side is investing. Entain came out earlier this year and they said, look, we messed up. We didn’t get these US-tailored products to BetMGM quick enough for them to properly compete with FanDuel and DraftKings, as all of these state launches were happening. And so they recognize that now, and there’s a much greater focus on making sure that BetMGM is tailored to the market and has the products that it needs. And so I think we want to hear more about how that’s going.
(20:35):
I think we want to hear more about obviously how much money is being put into this, because we have to get the profitability at some point, and Entain and MGM, they have other businesses elsewhere. It’s not like they’re hurting for money, but they’re both publicly traded companies, and you can’t be throwing money away forever. So hopefully, we’re halfway through the year now, hopefully we have an idea of how much money is going to be spent on BetMGM this year and hopefully we have an idea of, is this it? Can we get to profitability now or is there going to be more to do in 2025?
Adam Candee (21:17):
And on the Caesars side, we know that they just have the acquisition of ZeroFlucs, and you mentioned a moment ago, I should say a few moments ago, MGM and Caesars making improvements. We know MGM made the Angstrom purchase, and now you have Caesars working on its SGP product as well. Caesars of course, kind of charted its own path here much earlier than the other companies in scaling back its marketing and going a bit of a different direction.
Matthew Waters (21:43):
Yeah, I mean just remember those introductory offers in New York and man, if you got down with Caesars in New York in January, that first month, good for you, because the money was flowing and then they had to report those earnings and it was a bloodbath and they said, no more, we’re not going to do that again. And you see that in their numbers moving forward. And what’s interesting to me is they too now are getting better with their product and they’re getting to a spot where even if handle is going down in some of these states because they’re not out marketing, they’re not trying to get as much business as it possibly can, it’s focusing on the business that it can be profitable with. And you see that their revenue is going up even in states where handle might be falling off a little bit. And it’s an interesting point because remember, they have a lofty goal of $500 million in digital EBITDA that’s supposed to start next year. So obviously, if they are pricing things a little more aggressively and not advertising as much, it makes sense that they’re getting ready for that ramp up to a really big expectation.
(22:58):
And the ZeroFlucs acquisition, hopefully we will hear a lot about that. That should play into, again, making those margins better and solidifying the margins, right? Because with sports betting companies for so long, everybody said it’s 5% margins, and if something went wrong that could tank to 2% or lower, and that’s just not the case anymore. And so especially with iGaming too, with Caesars, and remember they just bought Wynn’s iGaming skin in Michigan, they expect to announce a new skin for that, a new brand for that later this year. So Caesars really has a lot going on.
(23:40):
And I think it’s interesting, you see some analysts starting to talk about Caesars and MGM and with Caesars, can they rely on their loyalty product? Everybody knows that Caesars Rewards is very, very, very popular. But two, as MGM and Caesars, as they start to improve these products, can they really show the power of their database to give DraftKings and FanDuel a run for that money? Can they make that gap between second and third place a little bit smaller? And I think they will be talking about that this earning season if they can talk about that.
Adam Candee (24:17):
That will be fascinating to watch in the context of the iGaming discussion moving forward, because you really feel like as much as DraftKings and FanDuel have put into their iCasino and their iGaming products, you still have a big sleeping giant waiting to be launched with MGM and Caesars, if they’re able to expand the footprint for iGaming moving forward. But of course, as we saw legislatively this year, getting beyond the seven states where we have some level of product is a big, big lift that will take a lot longer than the expansion of sports betting did.
Where a budget snafu has the market on hold
(24:51):
And when we talk about the expansion of sports betting, Matt, one of the first places we saw sports betting was in DC. So as we wrap up the news for this week, as we record this on a Tuesday, FanDuel, the only operator in DC, is currently dark. There is no mobile sports betting at the moment in the district. Many would argue there wasn’t any mobile sports betting in the district for years, but hey, that’s a whole other discussion. What exactly is happening in DC right now?
Matthew Waters (25:21):
Adam, I wrote this in the story and I Tweeted about it, but it’s another development in the DC sports betting story, that if it were being written as a story or you were watching it as a movie, you would say, oh, come on, it can’t go that way, but it is. We had through the budget, council member Kenny McDuffie successfully got language that would open up DC’s mobile betting market to allow more than just one operator district-wide access. That could have happened as soon as July 15th. The issue is, Mayor Bowser hasn’t signed the budget yet. So you have FanDuel who was ready to continue rolling yesterday district-wide, and you have BetMGM and Caesars who have class A licenses to operate limited mobile under the old rules, they can go full mobile now under the new rules, they’re ready to get going, and they can’t because once again, there is an issue somewhere in the process of Washington, DC, sports betting. It’s a headache, Adam. I can’t believe there’s another issue.
(26:37):
We talked about the operators that are there. DraftKings and Fanatics want in on DC, too, and we’ve been saying for a while now, well, yeah, we know that the Gambet, the Intralot product is just expensive and it’s not great, but maybe DC is just not a great market, too. Well, FanDuel took over for Gambet and its first month it did something like five to one the business that Gambet did last year. I mean, it’s wild to see what a good sports betting brand can do in DC. And now we’ll have the chance to see five or maybe even more operators live in DC district-wide, and really get an idea of what that market can do and how it compares to Virginia and Maryland and gosh, maybe it can bring some of the dollars back that it’s losing from Virginia and Maryland because they have much better markets than the DC market is certainly right now, currently since there’s zero. So, we hope that Mayor Bowser is going to get this signed sometime soon. I believe she has until the 25th, but there was no update when we contacted the mayor’s office. So right now, DC is just dark.
Adam Candee (27:54):
Another reminder that sports betting is but a bit part in larger political negotiations and situations where we’re all sitting here saying, this is nuts, how do we not have this? And everyone else is kind of looking at it like, yeah, we got pretty used to having no revenue from sports betting for a while so we’re not really in any big hurry with this. But as you mentioned, a lot of per capita income in DC, a rapid, rabid base of sports fans in all four major sports. So I think we have to say very confidently, if there’s one swamp in DC that needs to be drained, it’s the DC Lottery. We got to get that swamp drained and we got to get the product going the right way or the products, now that we can actually have products that are not geofenced to a couple of blocks around the stadium.
Matthew Waters (28:46):
Two block radius.
Adam Candee (28:47):
The things that I talk about with this market that you don’t talk about anywhere else, are absolutely wild. Everything else we’re doing at legalsportsreport.com, please go check it out. Our team will be out at the NCLGS conference this week in Pittsburgh, so if you’re listening to this before we get there, stop us and say hello. We’re looking forward to catching up with everybody in person over at Rivers in Pittsburgh.
(29:10):
Matt will be back soon, but Matt is here right now. It’s all confusing if I don’t say things a little bit more clearly. Our thanks to Matthew Waters for joining us this week to talk a little bit more about earnings, and we will talk more about the legislative sessions in 2024 with our friend Pat Evans on a podcast upcoming soon. For Matt and Matt, I’m Adam. Talk to you next week.