The Contradiction in the US Sports Betting Sector: Decoding the Numbers

The numbers say one thing. The guidance says another. And the share prices? Well, they don’t seem to care. Welcome to the curious state of the US sports betting sector, a market bursting with optimism, but one where the data doesn’t quite stack up.

BetMGM: A Glimpse into the Numbers

At the center of this puzzling landscape is BetMGM, a joint venture between Entain PLC and MGM Resorts. According to a recent research note from Shore Capital, BetMGM’s performance in the first quarter of the year was nothing short of impressive. With net gaming revenue soaring by 34% to $657 million, the company significantly outpaced its larger competitors, DraftKings and FanDuel, which only managed increases of 20% and 18%, respectively.

What stands out is BetMGM’s sportsbook revenue, which surged by 67% despite a backdrop of unfavorable sporting results. This growth can be attributed to higher-margin bets like same-game parlays and a more disciplined approach to marketing. Such impressive gains would typically lay the groundwork for optimistic projections moving forward.

The Forecast Dilemma

However, this is where the plot thickens. While DraftKings and FanDuel are predicting robust growth for the remainder of the year—36% and 31% net revenue growth, respectively—BetMGM has adopted a more cautious stance, forecasting a marked deceleration to just 10%. This disparity raises eyebrows among investors and market analysts alike.

For DraftKings and FanDuel to meet their ambitious targets, Shore Capital posits that they need to accelerate their revenue growth significantly in the latter part of the year. In contrast, BetMGM’s more conservative forecast suggests not only a slowdown but also an assumption that its momentum may not hold.

A Question of Credibility

The gulf between these forecasts raises crucial questions about the credibility of management guidance in the sports betting sector. Investors are left wondering which outlook is most likely to materialize. Does BetMGM’s cautious tone indicate prudent conservatism, or is it a tactic to exceed expectations later?

The research note also raises the possibility of “upside risk” to BetMGM’s full-year projections if current trends continue. This speculation puts pressure not only on BetMGM but also on DraftKings and FanDuel to substantiate their optimistic forecasts.

Valuation Considerations for Investors

Entain’s 50% stake in BetMGM is currently seen as undervalued, according to Shore Capital. With the joint venture only partially reflected in Entain’s overall market capitalization, analysts have assigned it a conservative multiple of 2.5 times forecast net revenue. This is notably lower than DraftKings’ own valuation multiple of 3 times.

If we crunch the numbers, this suggests that BetMGM alone could be worth approximately 350 pence per Entain share, well above today’s trading price of 757 pence. Given that Entain is trading at 13 times FY26 earnings and under 7 times EBITDA, there’s ample room for a re-rating—especially if BetMGM’s performance proves to be more than just a one-off incident.

The Impact of Promotional Churn and Regulatory Fog

As investors navigate this complex landscape, it’s essential to consider the broader implications. The disparity in forecasts echoes larger questions about the maturity of the US sports betting market, the sustainability of customer acquisition strategies, and the level of trust investors can place in management guidance. This industry is often characterized by promotional churn and regulatory uncertainties, adding layers of complexity to any investment decision.

The Investment Puzzle

In the face of conflicting data and forecasts, investors are left parsing the narratives put forth by each player in the market. Trusting the early numbers may entice some, while others might lean towards the more cautious approach adopted by BetMGM. When three major players articulate such divergent views on the same market dynamics, it creates a puzzle that can only add to the intrigue surrounding this burgeoning sector.

In the world of sports betting, where each quarter brings new data and evolving strategies, the stakes couldn’t be higher. The balance between optimism and caution may ultimately shape the future trajectories of these key players. The outcome of this intricate narrative will undoubtedly be one to watch closely.