The new Omicron variant of COVID-19 has spurred a broader sell off in equities, but poses little threat of endangering North American sports schedules at this point. Therefore, online sports betting handles are only projected to grow further.
But more bettors also means more acquisition costs for major bookmakers. A major marketing blitz by companies like Draftkings and FanDuel has characterized the ad breaks for NFL football games this year. Though that spending certainly correlates to larger market shares in key states, it generates more uncertainty in company financials as well.
Related ETF & Stocks: Roundhill Sports Betting & iGaming ETF (BETZ), DraftKings Inc. (DKNG), Flutter Entertainment plc (PDYPY)
Omicron Unlikely to Impact North American Sports Schedules
A confluence of headwinds has recently slammed stocks focused on the quickly growing sports betting industry. Some of those factors are external and out of the control of companies in the space, while others have arisen as a result of fierce competition within the sector.
First and foremost, the heavily-mutated COVID-19 variant known as “Omicron” has brought back memories of 2020 when the NCAA, NBA, NHL and other major sports leagues and associations around the world were forced to pause their seasons under a cloud of pandemic uncertainty.
Indeed, Fox reports international golf, cricket and rugby tournaments in South Africa, the county of origin for the Omicron variant, have been postponed or otherwise affected by virus concerns, but the impact on global sports schedules remains almost non-existent.
Even with another severe wave of COVID, it’s unlikely most North American sports organizations would be forced to halt operations. COVID protocols have now been in place for more than a year across the sports industry, unlike 2020 when everyone was caught off guard by an unprecedented threat. The vast majority of players and staff are fully vaccinated and subject to regular testing, as well as other COVID protocols meant to contain any possible exposure to the virus.
Limiting or suspending fan attendance could be employed mitigate the spread of an outbreak among the general population, but even that would be an extreme step at this point. As of now, Omicron does not appear to pose an outsized risk compared to COVID as a whole. CDC Director Dr. Rochelle Walensky told ABC news this week that they know of “several dozen cases” within the US. COVID’s more significant impact on sports betting stocks has thus far come in the form of a broader sell-off in equities as a whole.
Surging Marketing Spend Slams Stock Prices
The more endemic threat currently facing the sports betting industry is their unrestrained spending on advertising and customer acquisition in new markets.
As MRP noted earlier this autumn, publicly traded sports betting companies have been stepping up their ad spend this autumn in a mad dash to gobble up as many potential bettors as they can. In just a month’s time between September 9 and October 17, iSpot.tv data indicates FanDuel (owned by Flutter Entertainment), DraftKings, and Caesars Entertainment Inc. have each spent more than $15 million on national advertising. Prior to the NFL season, Front Office Sports noted that major sportsbooks were poised to spend up to $1 billion in advertising this year.
These ad blitzes are not surprising, given the rapid adoption of online US sports betting, just three years removed from the Supreme Court decision that legitimized the business. Competition is fierce among sportsbooks, a product that usually carries very little differentiation, therefore, relying heavily on brand recognition.
Commercials and other marketing expenses have appeared to be a drag on company earnings recently. Draftkings (DKNG), for instance, posted a wider-than-expected net loss of $545 million in Q3, or -$1.35 per share, with more than $303 million spent on sales and marketing. However, that ad spend was mostly expected by analysts. The unexpected factor was negative outcomes in their NFL bookmaking, resulting in…
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