Prediction Markets Not Displacing Sportsbooks, Says Fidelity Portfolio Manager

• The manager of the Fidelity Select Leisure Portfolio is constructive on the US sports wagering industry
• The mutual fund holds shares of DraftKings and Flutter Entertainment
• Portfolio manager says prediction markets panic is an “overly simplistic” view

While there’s more to the story, weakness in sports betting stocks is widely attributed to the rise of prediction markets, but some professional investors don’t see yes/no exchanges dislodging incumbent sportsbook operators anytime soon.

Fidelity Portfolio Manager Peter Belisle, who runs the Fidelity Select Leisure Portfolio (FDLSX), remains bullish on the long-term outlook for the US sports betting industry and he’s of the mind that investors that punished sports wagering equities on the back of prediction market fears missed the mark.

I think this perspective is overly simplistic and doesn’t appreciate the difference in product complexity between prediction markets and online sportsbooks,” he says in a recent note. “In 2026 and beyond, I think it will become increasingly clear that prediction markets are not displacing sportsbooks – and there may be some eventual legal challenges anyway – all of which sets up well for reversing this negative narrative.”

The Fidelity Select Leisure Portfolio has held shares of DraftKings (NASDAQ: DKNG) since October 2022 and shares of FanDuel owner Flutter Entertainment (NYSE: FLUT) since November 2021, according to Morningstar data. The mutual fund also initiated a position in a sports betting data provider last July. Those are the only sports betting names held by the $591.7 million fund.

Belisle Sees Duopoly Benefiting DraftKings, FanDuel

It’s widely known that DraftKings and FanDuel control what amounts to be an online sports betting duopoly because in essentially all of the states in which those operators offering sports wagering, they command the top two spots as measured by market share.

“Existing players that haven’t established a dominant position (e.g., Penn Entertainment) are under tremendous pressure to deliver profits, while others have already exited the field (i.e., Wynn Resorts),” observes the portfolio manager. “The upshot of this is a likely decrease in marketing/promotional spend and improved profitability among established players in this space going forward.”

As of Jan. 31, Wynn Resorts (NASDAQ: WYNN) was a top 10 holding in Belisle’s fund making it the only gaming name with that distinction.

Belisle Long-Term Bullish on US Sports Betting

There’s no getting around the fact that shares of DraftKings and Flutter are under duress, but there’s budding sentiment that these stocks have been repudiated too harshly and that they may be worth owning for patient, risk-tolerant investors.

For his part, Belisle is constructive on the US sports wagering industry’s long-term outlook, noting that at the end of last year, half the US adult population had access to this form of wagering, but penetration rates were low, implying room for growth.

“Right now, online sports gambling is a ‘winners-take-most’ market dominated by a small number of players,” Belisle concludes. “And we are nowhere near mature, long-term duopoly economics, meaning the stocks appear meaningfully cheaper on a true long-term economic basis.”