Seasonal Lethargy Setting in for Sportsbook Operators

Seasonal Lethargy Setting in for Sportsbook Operators

Due to a slow sports calendar in July, sportsbook operators are in the middle of the annual seasonal slowdown.

The second half comparisons against last year’s numbers for the same period will be difficult to meet or exceed, but there is a silver lining: The likelihood that operators significantly reduce promotional spending in the back half of 2022.

Operators in the regulated sports betting room need to spend to acquire and retain customers, but that often comes at the expense of attaining profitability. The year-to-date share price performances show investors are losing appetite for unprofitable companies.

If Fanatics enters the sports betting space before the end of the year, promotional spending could be restored.

If a well-capitalized Fanatics enters the market after recent signals point to launching online sports betting, the promo easing could be in trouble.

As a suitor, the privately held sports apparel giant has recently filed for sports betting-related trademarks. Rumors about a takeover of Rush Street Interactive have been floating around for a while.

In order to become a leading operator, it must gain access into license constrained markets such as CT, MI, AZ, IL and NY.

The online casino industry is still in its infancy, meaning it hasn’t previously been tested by high inflation and the specter of a sluggish economy, but the land-based casino group has a history of surprising economic resilience so it’s possible that transfers to the internet space.

Some investors are questioning iGaming’s sensitivity to economic headwinds related to inflation/gas prices, but this is difficult to quantify. Secular tailwinds helped the global iGaming/OSB GGR grow 10%+ over 2008-2010.

According to the analyst, internet casino equity valuations are bottoming out around 2x sales, but a possible entry into the fray implies investors should proceed with caution.

Summary:

Roth Capital analyst Edward Engel says second half comparisons against last year’s numbers for the same period will be difficult to meet or exceed. Promotional spending is, arguably, the elephant in the regulated sports betting room. Engel revisits previous rumors about a takeover of Rush Street Interactive (NYSE:RSI)