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Sports betting reaches a new high after Super Bowl

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Oppenheimer & Co. Inc Senior Analyst Judd Kelly joins Yahoo Finance Live to discuss the outlook for sports betting after Super Bowl LVI.

Video Transcript

AKIKO FUJITA: Well, the Super Bowl pretty much gave us everything on Sunday. A great game, although, Brian, maybe not for the Bengals. An exciting halftime show and some colossal numbers when it comes to sports betting. An estimated 31 million Americans placed bets yesterday, totaling more than $7.6 billion. Even rapper Drake got in on the action here, betting in crypto, by the way. We're talking about--

BRIAN CHEUNG: Of course.

AKIKO FUJITA: --$1.25 million in Bitcoin. Let's bring in Yahoo Finance's Josh Schafer, who is crunching all the numbers for us from Sunday. Josh.

JOSH SCHAFER: Yeah, Akiko. I mean, to really confirm some of those gambling numbers we're still waiting on, I talked to some of the sportsbooks this morning. They know a couple of their big winners. DraftKings had a winner in the millions of dollars, and a couple of the other sportsbooks had some big winners as well. But we don't know exactly what the total handles were and the total bets placed just yet. Kind of like ratings and a lot of the other things with the Super Bowl, there's so many people placing these wagers. And they do still think it was a record Sunday that it's taking them a little extra long to actually crunch the numbers.

But one thing I did want to point out that was an overall win for these sportsbooks was with that high concentration of volume, we didn't see any tech support issues or major tech support issues like we saw at last year's Super Bowl and had seen in other big events in the past. You might remember Caesars last month had a few hours where they were off the network when sports gambling opened up in New York. We didn't see that for this Super Bowl. That wasn't the big narrative around sports gambling. Instead, we're talking about the numbers. So I think that's an overall win for a lot of these companies.

So I wanted to get to some of these numbers and some of the fun prop bets and big money bets that we saw. The biggest prop bet for Cooper Kupp to win the Super Bowl MVP I saw from Caesars was someone wagered $6,000 to win $42,000. Pretty fun, but I figured you guys might want to go bigger, so we got some bigger ones.

Let's hit on Drake. The famous pop star Drake placed some bets in Bitcoin. Of course, we saw someone betting in Bitcoin with all the crypto commercials we had, right? And Drake bet on Rams Odell Beckham Jr., the receiver, who actually took his salary in Bitcoin, I should add, so it was a double crypto event there. He bet on Odell Beckham Jr. to score the first touchdown, which hit. He bet on the Rams to cover, which hit.

But he also had the sad fate that a lot of bettors had last night when he bet on Odell Beckham Jr. to catch for over 62 yards. Beckham Jr. got hurt in the first half and never came back in the game, so Drake didn't hit on that bet. Overall, he bent over a million dollars worth of Bitcoin and made about $300,000 US from those bets. So even with losing one of the Beckham bets, he still made out.

Now the other bettor we wanted to talk about that did not make out is our friend Mattress Mack down in Texas. So Mattress Mack bet a total of $9.5 million yesterday, including a $4.53 million bet on the Bengals. This was kind of calculated for Mattress Mack because he runs-- he's a furniture salesman in Texas. And part of their deal was if you paid more than $3,000-- or sorry, $3,000 for furniture and the Bengals won, you got your furniture for free.

So Mattress Mack said, well, I'm going to have to give out all this free furniture if the Bengals win. I should probably bet on the Bengals, so if they do win, I can win some millions of dollars and maybe have an equal out. Now the Bengals didn't win, so he doesn't have to give out the furniture for free. But he lost $9 and 1/2 million, so I don't really know if he won or lost there. We'll have to reach out and talk to him, and maybe we can find out how he feels about it, but.

AKIKO FUJITA: I don't know, Josh. That sounds like one big loss to me. $9 and 1/2 million, that is painful to see even on paper.

JOSH SCHAFER: Yeah, absolutely.

AKIKO FUJITA: A lot of people, I guess, counting their losses today as well. Let's bring in our guests here Jed Kelly. He's senior analyst, Oppenheimer and Co. Jed, let's talk about what played out yesterday. I mean, certainly, this has been, if you're talking about the NFL season, really a record for online sports betting. How big was yesterday in getting these companies ultimately on this road to profitability?

JED KELLY: Well, I think, I mean, on the road to profitability, that's a whole different discussion, right? I think if you look at yesterday, I think the top takeaway from my perspective was there was no tech issues, right? If you're covering the stock, these companies have their infrastructure in place during the Super Bowl, during the live betting. So that's really important. I think New York State, right-- they just went live three or four weeks ago-- typically takes two to three months before all the promotions settle down.

And if you look to New Jersey, right, we're five years into it. I think DraftKings, the most highly-- is the most visible publicly traded company, they're going to start-- they're going to get their contribution profit in that market probably on the March 3 analyst day. That'll probably give investors a better roadmap on where we are profitability wise.

I tell people this all the time. If you look at our Street numbers, we're on the lower end of EBITDA for the next two to three years. And if you look at-- California goes live next year. It's the seventh largest economy in the world. There is going to be massive spending.

And I think if you look at DraftKings angle, they're trying to create a platform around fan interactivity. So they are making a lot of investments where they can develop a company that brings in multiple revenue channels from the sports fan's wallet-- media, sports betting, apparel, ticketing NFTs, et cetera. So but we were happy with the way it came out. I mean, we were looking for tech issues, and there were none.

BRIAN CHEUNG: Jed, Brian Cheung here. I want to ask about the promos because it seems like there was a massive sprint, especially with the New York market going live among all of these platforms to offer the most lucrative deals to onboard people. Whether or not these companies can retain those new kind of sign-ups is one question, but I guess from your perspective, have these companies given too much or too little promotions to try to get these customers? Because a lot of people are looking at, what, $500, $600 in free bets and wondering how is it possible that these companies have this type of a marketing spend.

JED KELLY: Well if you look at DraftKings, right, they're well capitalized. BetMGM has two profitable entities funding them. And then FanDuel has Flutter. So there's enough capital for aggressive marketing spend, and then Caesars as well. What we've seen for new state launches, right, is you see an aggressive first couple of months, and then we've seen a consistent flow where the top two or three providers take the most share.

So if you look at Michigan, right, last year, during the Super Bowl, Michigan was by far the most competitive market. 10 companies go in. Top three now are FanDuel, DraftKings, BetMGM. My guess is once New York settles down, you'll probably see those-- you'll probably see DraftKings and FanDuel, maybe Caesars, because Caesars has been pretty aggressive there, have top three share.

I think what we're hearing is people like that user interface for DraftKings and FanDuel, but Caesars took advantage because what DraftKings and FanDuel did, they did not give users of their Daily Fantasy product that $350 free bet, which Caesars did. That allowed them to get a lot of handle. I think come March Madness, you'll probably see it better. You'll have a better roadmap on where the competitive breakdown is breaking out, but we expect FanDuel and DraftKings to be the top two in the next three to four months.

BRIAN CHEUNG: Yeah, I forgot about March Madness coming up. I want to ask you just about one other kind of facet of differentiation. You mentioned that it's the product itself and the ease by which you could place these bets. That's a big pull for a lot of users.

But, you know, the conversation even at my Super Bowl party yesterday was I can't find the platform where I can bet on the Gatorade color. I can't find the platform where I can make that degenerate bet on this weird player prop or that weird national anthem length, for example. How important is just the book itself, the available bets that you can make, with these apps trying to differentiate themselves?

JED KELLY: Oh, it's extremely important. Well, some of those like Gatorade and the national anthem length, that might be restricted from regulations. But if you look at product, right, FanDuel by far has done the best job so far, right? Their same game parlay has been a home run. DraftKings, BetMGM, they're all playing catch up.

The two things you're going to want to have is you're going to want to have, one, same game parlays, and number two, you're going to have good live betting, right? Who can keep you engaged? Who can keep the most markets up? Live betting over the next three to four years is going to be extremely important. And as you get more live betting and you can have more markets, that will keep fans more engaged.

So you're kind of looking at, like, who's number one right now? You look at FanDuel because they have the highest GGR in New Jersey. If you were to look at the overall handle, it's probably much closer between DraftKings and FanDuel. But the same game parlay is really working well for FanDuel. And that's because their bet engine over in the UK is powering that. And they've been doing live betting and same game parlays for over a decade. And the UK is 10, 12 years ahead of the US in terms of the overall betting market.

AKIKO FUJITA: Well, it's incredible to see the growth so far. Jed Kelly, senior analyst, Oppenheimer and Co, it's good to talk to you today.