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NFL season brings ‘the no. 1 acquisition moment’ for sportsbooks

NFL season kicks off on Thursday night, marking not only the return of America’s favorite sport but also the beginning of the most important yearly stretch for gambling companies looking for sports bettors.

“Football is always the most competitive season,” FanDuel (FLTR.L) CEO Amy Howe told Yahoo Finance in August. “It is the no. 1 acquisition moment for, candidly, all sports betting operators.”

According to Macquarie Research, about $1 billion is bet each week during the NFL season, with the fourth quarter of the year accounting for about 35% of yearly revenue for gambling companies. Wall Street analysts will be closely watching this fall to see which sportsbook prevails in handling the lion's share of bets within the newfound gambling sector.

FanDuel currently leads the space with 51% market share in states where it's operational. However, the looming question entering the new football season centers around how FanDuel will retain its customers while competitors such as DraftKings (DKNG), Caesars Entertainment (CZR), BetMGM (MGM), and Penn Entertainment (PENN) try to lure in new users.

There will also be an emphasis on original content with FanDuel launching its own 24/7 sports network and Penn finalizing its purchase of Barstool Sports. While analysts will be watching closely to see who brings in the most customers, there will also be interest in how much is spent to acquire those customers as nearly all of the sportsbooks haven’t posted a positive quarterly profit since launching.

“We expect for healthy year-over-year growth for each company and the highest quarterly concentration in that [fourth] quarter,” Macquarie Analyst Chad Beynon told Yahoo Finance. “Given lower losses in 2Q, we estimate that with the additional revenues in 4Q and lower operating costs, most companies will generate their best quarter of the year during 4Q.”

People make their bets at the FANDUEL sportsbook during the Super Bowl LIII in East Rutherford, New Jersey, U.S., February 3, 2019. REUTERS/Eduardo Munoz
People make their bets at the FANDUEL sportsbook during the Super Bowl LIII in East Rutherford, New Jersey, U.S., February 3, 2019. REUTERS/Eduardo Munoz

In other words, Street analysts expect gambling companies to spend less on customer acquisition during this year’s NFL season but increase revenues given the maturation of several gambling markets.

The American Gaming Association (AGA) agreed, forecasting that 46.6 million Americans will bet on the NFL this year, up about 3% from last year. About half of those bets are expected to be placed in the legal market, which is 18% larger than in 2021, AGA told Yahoo Finance.

Sports betting is currently legal and operational in 31 states and Washington D.C. The mobile market, which is the largest driver of revenue for companies like FanDuel and DraftKings, is operational in 21 states and Washington D.C.

“We still expect for recent states to see massive acceleration come the start of NFL season,” Beynon recently wrote in a note to clients.

Free money will fade’

Several gambling executives flaunted their company's lower losses in the most recent quarter due to lower marketing spend.

MGM CEO Bill Hornbuckle said on his company's earnings call that MGM is “getting smarter and smarter” and will continue to “pull down” marketing spend.

DraftKings CEO Jason Robins told Yahoo Finance that New York’s 51% tax is a reason the company has “pulled back quite a bit.”

Jordan Bender, a senior equity research analyst at JMP Securities covering the gambling sector, has factored fading marketing spend into his estimates for the coming quarters. In a recent note to clients, Bender wrote the “free money will fade,” in reference to the extravagant promotions many sportsbooks flaunt to new users ahead of Week 1.

“Given the new states, we would expect promotions [as a % of gross gaming revenue] elevated in September, but will move through the season at levels under the prior year, given the trend of faster adoption rates from newly launched states and operators not chasing unprofitable customers,” Bender stated in the note.

Josh is a reporter and producer for Yahoo Finance.

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