Online Gaming - All the Rage but Disappointing for Investors

October is the peak season for sports. Baseball playoffs are underway, leading to the World Series later this month. The NFL and college football seasons are in full swing, hockey has returned, and it will not be long before the NBA teams begin competing for a championship.

Online gaming sites have turbocharged the action as a wager only intensifies and enhances the experience. Sports betting has been around since athletes began competing, but legalized online gaming is still in its infancy.

As sites compete for gamblers, they offer many options, including individual game wagers, multi-game parlays, bets on individual performance, fantasy teams, in-game betting, and more. Bettors have an unlimited arena for participation. Meanwhile, the bettors have been the winners, and the sites have not done that well. Wagering on companies like DraftKings (DKNG) and PENN Entertainment (PENN) has been a losing proposition in 2022.

Gambling is all about risk-taking, and early buyers of online platform shares have lost their shirts. Those holding shares in DKNG, and PENN may have achieved better results betting on sporting events than the two companies since the March 2021 highs.

Sports betting is in full swing in October

• Baseball upsets over the past weeks have made for lots of wagering action.
• Football surprises only intensify gambling activity as underdogs offer big payouts.
• Hockey and basketball are getting underway.
• The World Series attracts lots of wagering action.

Betting peaks during football playoffs and March Madness

• The Super Bowl in early 2023 is one of the leading annual betting events. Gamblers can even get action on the coin toss!
• March Madness in College Basketball lasts one month and has 67 different games on which to wager over one month.
• The Kentucky Derby and Triple Crown Races attract interest and substantial gambling receipts.

DKNG collapsed- A short-seller loved to hate the stock

• DraftKings (DKNG) burst onto the scene, and the stock rose to $74.38 in March 2021.
• DKNG shares were at $13.21 on October 21, 82.2% below the March 2021 high.
• Jim Chanos, a leading short seller, has made a mint on his short position DKNG position. Chanos claimed the company was overvalued because the business model is flawed, and sports betting is an unattractive low-margin business with little opportunity for differentiation. In March 2022, when DKNG shares reached a low of $14.97, he said, “Things are getting worse, not better” for the company.

PENN shares have been ugly

• Penn Entertainment Shares (PENN) reached a high of $142 in March 2021.
• PENN was at the $30.43 level on October 21, 78.6% below the high.
• PENN shares continue to make lower highs and lower lows.

Acquisition costs have been deadly- Consolidation is on the horizon

• Online gaming companies have spent fortunes on customer acquisition, offsetting any earnings.
• The money spent will benefit the eventual buyers.
• Look for successful and well-capitalized gaming companies to swoop in and take over DKNG, PENN, and other online companies at bargain basement prices.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!