DraftKings, ESPN Bet Adding Share in Big States While BetMGM, Caesars Lag

In a pair of the largest states where mobile sports betting is available, DraftKings (NASDAQ: DKNG) and Penn Entertainment’s (NASDAQ: PENN) ESPN Bet are grabbing market share while rivals BetMGM and Caesars Sportsbook struggle.

In a recent report, Morningstar analyst Dan Wasiolek noted ESPN Bet averaged revenue improvement of 7% and 4%, respectively in Michigan and Pennsylvania, in February compared to the year-earlier period when Penn operated sports wagering under the Barstool Sportsbook brand. He added that ESPN Bet now has a high single-digit share in both states, and it appears some of that came at the expense of competitors.

Meanwhile, MGM’s share over the same time is lower by 3 and 5 percentage points; Caesars’ is flat and down 3 percentage points; and smaller competitors are collectively lower by 3 and 3 percentage points,” observed Wasiolek.

Michigan and Pennsylvania are critical states for any mobile sportsbook operator. Since the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) in 2018, just four states have outpaced Pennsylvania in terms of sports betting handle and revenue. Michigan is 10th on that list despite mobile sports wagering being legal there for just over three years.

DraftKings Cementing Leadership in Big States

DraftKings vies with Flutter Entertainment’s (NYSE: FLUT) FanDuel for the top spot in terms of US online sportsbook market share and in the bulk of the states in which both operators conduct businesses, they’re first and second, well ahead of their rivals.

“Based on data from these states, we have increased confidence in DraftKings’ intermediate revenue opportunity and have increased our 2024-28 sales compound annual growth rate (CAGR) to 24% growth from 23%, leading to a lift in its valuation to $47 per share from $44,” wrote the analyst. “We think investors should keep DraftKings shares on their radar for any pullbacks below our valuation.”

Wasiolek is less optimistic on Caesars Entertainment’s (NASDAQ: CZR) digital unit, noting it could be difficult for that segment to achieve earnings before interest, taxes, depreciation, and amortization (EBITDA) targets due to lower share sales in Michigan and Pennsylvania.

“As a result, we now expect Caesars’ digital margins to average low-20% during the next 10 years, down from the mid-20s, driving our fair value estimate to $73 per share from $75,” said Wasiolek.

Cautious Optimism on ESPN Bet

To its credit, Penn’s ESPN Bet has performed admirably since its debut last November, and its ability to grab share from non-DraftKings/FanDuel rivals could allay investor concerns regarding the app’s performance in states where competitors have been entrenched for several years.

Wasiolek sees some value in Penn shares, though he’s cautious about the regional casino giant’s debt burden.

“Penn’s $24 fair value estimate offers investors an attractive entry point to an emerging player in the growing sports betting market, with the caveat that its more leveraged balance sheet could keep shares volatile amid enduring high financing costs,” concluded the analyst.