Bet On It: DraftKings finds itself in crosshairs of promotional offer lawsuit

Welcome to the latest edition of “Bet On It,” where The Fly looks at news and activity in the sports betting and iGaming space.

SECTOR NEWS: The U.S. law professor that created a litigation strategy that led to a $206B settlement from Big Tabacco is now taking aim against DraftKings (DKNG) over an “unfair and deceptive” promotional offer, Oliver Barnes of The Financial Times said. The lawsuit was filed in the Massachusetts Superior Court and alleged the company “knowingly and unfairly designed” a $1,000 sign-up bonus aimed to mislead new customers to join its platform to ‘maximize’ the money wagered.

Cathie Wood’s ARK Investment bought 154,000 shares of Genius Sports (GENI) Thursday and 100,000 shares on Wednesday.

Churchill Downs (CHDN) announced the opening of Derby City Gaming Downtown in Louisville, Kentucky. The $90M investment marks CDI’s sixth historical racing machine entertainment venue in Kentucky. The 43,000 sq. ft. two-story Kentucky Derby themed entertainment venue includes a gaming floor with 500 HRMs. DCG Downtown offers three food and beverage experiences: First Turn Sports Bar & Stage hosts the property’s Race & Sports Book along with a stage for live entertainment, Trophy Bar Bourbon & Cigars offers bourbons and hand-rolled cigars with a smoking patio and Fascinator Wine Bar provides a refined wine list and small bites. The entertainment destination includes 130 on-site guest parking spaces and has an exterior facade wrapped with the region’s first naked-eye 3D video board. A Kentucky Derby gift shop is located on the main level of the property with a dedicated street entrance for all ages. The development of DCG Downtown generated 400 construction jobs and will result in over 150 permanent jobs. CDI joined Messer Construction to focus project efforts on supplier diversity, economic inclusion and community engagement.

Penn Entertainment (PENN) announced that its wholly-owned subsidiary Penn Sports Interactive has entered into a long-term, multi-faceted partnership with Quail Hollow Club and the Wells Fargo Championship ahead of the launch of regulated online sports wagering in North Carolina. Under the agreement with Quail Hollow Club, Penn secures market access for its online sports wagering platform ESPN BET in North Carolina, subject to regulatory approvals. Additionally, ESPN Bet will become the exclusive official betting operator of the Wells Fargo Championship, a PGA Tour Signature Event held at Quail Hollow Club in Charlotte. As the event’s official betting operator, ESPN Bet gains access to various marketing integrations, including the opportunity to activate and engage golf fans on-site during the tournament.

Sportradar (SRAD) announced the appointment of Jim Bombassei as senior VP, investor relations and corporate finance, effective immediately. Based in New York, he will report directly to Gerard Griffin, CFO In this role, Bombassei will be responsible for building and maintaining relationships with the global investment community, and communicating the company’s business model, long-term strategy and financial performance. He will also have oversight of the company’s corporate finance function. Bombassei brings financial and investor relations experience to the role having held senior executive positions in the media, technology and gaming industries. Most recently, Bombassei served as CFO of SciPlay Corporation.

GAMING LODGING AND LEISURE: Morgan Stanley held a gaming, lodging, and leisure conference in which the firm hosted a number of companies in the space. In the gaming sector, the firm’s confidence increased in the performance of the high-end segment in Las Vegas Strip, largely driven by the recovery stemming from the Super Bowl and conventions. Meanwhile, Macau showed slower yet steady recovery patterns, and the essential aspects of online sports betting and iGaming seem healthy despite recent setbacks in sports outcomes, Morgan Stanley told investors in a research note. Regarding lodging, reports indicate resilient demand, particularly strong group and business pricing, alongside stabilizing leisure demand. Equally noteworthy is the apparent improvement in the financing landscape due to reduced rates. As for stock recommendations, the firms  takeaways strongly support its ratings on DraftKings, Hilton (HLT), Las Vegas Sands (LVS), and Wyndham (WH), affirming its belief in these stocks being overweight or having a higher potential for growth.

TOTAL ADRESSABLE MARKET ON THE RISE: According to Macquarie’s statistical model, the firm predicts a sports betting market hold of 9% from November 27 to December 3, assuming a hold of 9% for football and the same rate for all other sports. Notably, New York reported a sports betting hold of 4% from November 20 to 26, while the recent four-week handle growth shows a year-over-year increase of +35%. As of November 26th, estimation indicates that the market hold for the fourth quarter is trending towards 7.8%. The firm currently views hold as a potential minor obstacle for most operators compared to the previous year, but perceives it as neutral for DraftKings based on data from New York. Among the operators, DraftKings and Rush Street Interactive (RSI) are exhibiting leading four-week gross gaming revenue, or GGR, growth rates up 13% and 90% year-over-year, respectively. However, most other operators are experiencing a decline in growth due to lower hold rates. Despite this, the firm maintains the belief that the fourth quarter could serve as a significant catalyst for the sector, anticipating record profits and a more manageable hold comparison to the third quarter. Current forecasts suggest a growth rate of 27%,15 and 26% in North America online for the fourth quarter of 2023, 2024, and 2025, respectively. The expectations for the total addressable market in sports betting continue to rise, supported by sustained growth in New York’s betting handle.

FORECASTING 2024: BofA expects that achieving continued growth in earnings might be challenging across sectors apart from Lodging C-Corps and Online Gaming. Although stocks with higher leverage/beta and attractive valuations compared to past trends may see substantial cyclical upswings, their momentum could be limited unless there’s a shift in the overall economic and consumer sentiment from pessimistic to optimistic, the firm noted. Additionally, the potential for strategic mergers and acquisitions remains an opportunity, which could gain pace if interest rates reach their peak or if there’s an improvement in valuation multiples. The gaming sector might exhibit volatility and show a tendency towards trading activities, BofA told investors. A slowdown in revenue growth coupled with increasing expenses intersects with historically low valuations but precede negative adjustments in estimations. Considering the response to recent shortcomings such as Boyd Gaming (BYD) in Q3, a cautious approach is advisable. In Macau, there’s a deceleration in revenue growth, and margins are not as robust as anticipated, largely due to promotional activities and non-gaming aspects, the firm noted. The macroeconomic situation in China remains a looming concern. Valuations are currently around two standard deviations below the normal mark. On the Las Vegas Strip, upcoming challenges include tough comparisons with previous performances. Aspects encompass benefits from events like the Super Bowl, robust group bookings, and a strong high-end baccarat segment. However, potential downsides involve increased fixed costs resulting from the union deal. In regional markets, consumer resilience remains contingent upon sustained employment levels. Yet, obstacles emerge from new supply introductions, heightened competition, and the fading effect of stimulus measures. Despite margins currently being above their previous peak, there exist challenges. Within the online gaming domain, it stands out as a distinctive aspect in the gaming sector. Anticipated top-line growth  and operational leverage appear promising, BofA said. However, heightened competition, particularly from entities like ESPN Bet, and elevated expectations pose challenges to this sector.

STATE UPDATE: During the initial month when online sports betting was legalized, officials reported that bettors in Maine wagered close to $40M, according to the Associated Press. This amount, totaling $37.5M, was spent on online sports bets from November 3rd until the month’s conclusion, benefiting the state’s tribes, two vendors, and the government, as per the Gambling Control Unit, a division within the Maine Department of Public Safety.

OFFICIALY OFFICIAL: The Seminole Tribe of Florida has chosen to break its silence regarding its legal dominance in sports betting within the Sunshine State, despite potential ongoing legal challenges Geoff Zochodne of Covers reported. The tribe shared a video on Thursday via the Seminole-owned Hard Rock Bet’s X account. The video showcased actors passionately singing out that “Hard Rock Bet Is Legal In Florida” and emphasizing that it is “The Only One That’s Legal.” While the online sportsbook app had already commenced operations earlier in the week, both Hard Rock and the Seminole Tribe designated Thursday as the official launch date. Also, Thursday marks the introduction of in-person sports betting, craps, and roulette at the tribe’s physical casinos in Florida. To commemorate this occasion, several celebrities are slated to grace the red carpet at the Seminole Hard Rock Hotel and Casino Hollywood.

ADDITIONAL ANALYST COMMENTARY: Jefferies lowered the firm’s price target on Entain to 890 GBp from 915 GBp and reiterated a Hold rating on the shares.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (PDYPY), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).