Sports betting heats up ahead of much-anticipated NFL kickoff

Macquire Analyst Chad Beynon joins Yahoo Finance Live to discuss the outlook for sports betting companies ahead of the NFL season.

Video Transcript

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ZACK GUZMAN: Well, there is a big potential boost coming for the sports gambling world. Of course, there already was a big boost years ago when the Supreme Court ruled that states beyond Nevada could start legalizing gaming in those states. And we've seen more than 30 since, add legal gambling to the states. We are still waiting on about 10 of those states to begin bets.

But overall, college football is back, the NFL kickoff is next week. Big boost for some of these stocks, including DraftKings, which at one point was up more than 500% since 2020. And for more on maybe the best opportunities out there, I want to bring on an analyst here who covers the space, Chad Beynon, a Macquarie analyst joins us once again.

And Chad, good to be chatting. I mean, you and I are both football fans. We're excited in general for this to be back right now. But when it comes to investing in some of these stocks, talk to me about what we're seeing given the fact that I think a lot of investors have been eyeing up this potential for quite some time?

CHAD BEYNON: Sure. Absolutely. Thanks for having me. So as you mentioned, about half the United States will have the opportunity to bet on sports this football season. What we're seeing right now or what we expect to see in the next couple of weeks is just a major difference in the product versus what we've seen even around March Madness or last year during football season.

And that's the thing that companies like DraftKings, FanDuel, MGM, Barstool are really talking about right now. They're really excited to kind of show a new product, a new technology that will have more player engagement, more in-play betting, and really just be more personalized. So yeah, those are kind of the key names that we're focused on. But yeah, half the country is open to sports betting. And it's a really exciting time for the stocks.

ZACK GUZMAN: Yeah, I mean, when you dig into I guess some of these, right? The advertising spend is always something that's caught our eye in trying to attract people to the platform. The NFL kind of limiting how many betting platforms can advertise during the game. So I guess limited on-ramping for some of the customers in these states. I mean, how might that impact various companies trying to get in on the action?

CHAD BEYNON: Sure. Yeah, for these digital companies it's all about customer acquisition, which will come through marketing or affiliates. And then the retention is what they're doing with the product. On the acquisition side, what's interesting is DraftKings just acquired a company Golden Nugget Interactive. Penn National acquired a company called TheScore.

So what they're seeing is they have their traditional marketing budgets and they believe that they've gotten really good lifetime values on those customers. Now they're expanding into other areas. They're actually trying to broaden out towards a female-friendly audience or maybe some groups that just didn't really resonate with their brand. So that's kind of the marketing side.

And then on the retention side, as I mentioned, it's going to be all about the product. We think that players will, customers will stick to three or four sites in most states but they will be probably putting somewhere around 60% or 70% of their wagers on one site. And then they'll kind of shop around on a few others.

ZACK GUZMAN: Yeah. I've kind of gone back and forth too in terms of like how big the impact of the sports season has on obviously DraftKings or a FanDuel kind of levered company versus those traditional casinos. And we've seen a lot of those worlds I suppose blending here. You add DraftKings, what, last month it was $1.5 billion in stock to get the Golden Nugget. So now you got Tilman Fertitta, the owner of that Casino there joining the board of DraftKings.

So these worlds are coming together but some of those really haven't crossed over in terms of M&A activity. So I mean, when I may be focusing on a MGM Resorts or a Wynn, I mean, is the upside opportunity there just pure play around sports smaller? So I mean, how would you kind of advise people looking to put money in this gambling space, how would you advise they break it down?

CHAD BEYNON: Yeah, we think the ecosystem is still, it's still growing. There's an intersection of sports betting and media that is kind of colliding and coming together. And again, we'll see more of that from a programming standpoint. We do like the companies that have an omnichannel approach. Ones that will have a land-based presence like MGM, where you know, if you're a loyal digital player, they can kind of send you to Las Vegas, put you up at Bellagio. We like that omnichannel approach.

We also like the companies that have a good media affiliation with an NBC, a CBS, an ESPN, et cetera. And a lot of those deals are still being contextualized. So the names that we like right now, MGM would be our top pick within the space. We also like Rush Street Interactive, ticker RSI. We think that they could be an acquisition target in the next year, very similar to Golden Nugget in terms of focusing on an i-gaming customer, not necessarily a sports betting customer. So we think somebody could look to kind tag them on.

And then thirdly, would be DraftKings. Certainly, it's the biggest market cap name in space. What they've done recently with NFTs expands the TAM. And this was the whole theory. The stock's going to look expensive unless they can expand the TAM. Because I don't think anyone expects for them to gain market share and just with these recent changes, they've been able to sell NFTs on Tom Brady and Wayne Gretzky almost seconds after they opened up this new offering.

ZACK GUZMAN: Yeah, that was going to be my last question, and RSI is one maybe we didn't talk about. So there's a new one out there for our viewers to kind of dig into. But valuation is an interesting question just because there are people probably watching who say, look, NFL season is a week ago or a week away, everybody knows that's coming. So maybe some of that's already been built into the stock prices. But when you compare these gambling companies on a valuation basis to maybe I don't know, other sectors you also cover. I mean, how does it all fit in, in terms of how much weight is just added on them growing profits pretty consistently?

CHAD BEYNON: Sure. The way that we're thinking about it right now is a six times price-to-sales multiple on our 2025 estimates. We don't think anything's going to change in terms of our TAM for 2025. It could increase a little bit if some of the results in the next couple of weeks are better than expected or some of the promotions, which are essentially an offset against the gross revenues, are lower than what we've seen. So that's on the TAM side.

The other way we're thinking about it is every 1% market share in our view is worth roughly about $700 million market cap. So if you have a company or a business where you think they can achieve let's say 5% market share. We think that business would be worth roughly $3.5 billion. And that's kind of how we're sound checking everything that we're doing here.

ZACK GUZMAN: Lastly, before we let you go, with the NFL season kicking off I know, you're a Steelers guy. Any bold, bold NFL calls to make?

CHAD BEYNON: I have to be loyal with my Steelers. We started last year 11 and 0, and then other defenses started to figure out what we were doing. We have a new offensive coordinator, a new running back in Najee Harris. So excited for the season and that's where my loyalty is. How about yourself?

ZACK GUZMAN: I respect it, man. I respect it. I'm a Bears fan so I just don't want to talk about the NFL anymore but we'll leave it there. Chad Beynon, Macquarie analyst breaking it all down for us on the betting front. Appreciate the time and have a good weekend.