Sports betting operators have felt the burn from a lack of NFL upsets through October and now into November.
Lower holds are leading to never-before-seen losses and adjustments of future revenue projections.
DraftKings CEO Jason Robins said during the company’s quarterly conference call Friday that the online sportsbook experienced “the most customer-friendly stretch of sport outcomes that we’ve ever seen early in the fourth quarter.” That’s a nice way of saying the house got crushed.
October put a damper on Q3 growth for some operators following a strong September for the books.
Caesars Entertainment CEO Tom Reeg recently said during the company's earnings call that Week 6, when NFL favorites rolled at an unprecedented pace, was “the single worst combination of sports betting outcomes we've seen since we started the business.”
The NFL’s Week 7 wasn’t upset-friendly, either. Reeg said the rest of the month was fairly normal, but when favorites outpace underdogs, it leads to less profit in an area sports betting operators typically excel.
“The shift to parlays cuts against you when you have sporting outcomes like that,” Reeg said.
It also didn’t help that two of the most popular teams in Major League Baseball, the New York Yankees and Los Angeles Dodgers, made it to the World Series last month.
“October is not going to look great for anybody relative to what they were expecting, but this is just part of the business that you're in,” said Reeg, whose company announced a $9 million loss in Q3. “I don't think it makes any difference to the structural story for us or for anybody else in this space.”
Forgetting October
It’s still early in terms of state revenue reports from October, but none of the handful of jurisdictions already in have reached a 10% win rate and most are around 7% following a month of heavy sports betting action.
“The impact of sport outcome on revenue is obviously going to be the same, but on EBITDA, it could be on a number that’s four times higher,” Robins said.
DraftKings went as far as scaling back its guidance for the rest of 2024 following the rough start to Q4. The company’s fiscal-year revenue range of $5.05 to $5.25 billion reported on Aug. 1 fell to the range of $4.85 billion to $4.95 billion. Adjusted EBITDA went from between $340 million and $420 million to $240 million and $280 million.
“Certainly over longer periods of time it normalizes,” Robbins said about operator hold. “It was a little bit of a down year this year. We expect to be around 10.5% structural hold and we’ll finish around 10% actual hold. I think that’s where we’re tracking now. Hopefully, sport outcomes will improve.”
September to remember
The books weren’t complaining in September. That was an incredibly strong month for operators across the U.S. as upsets reigned supreme in the NFL.
Projected playoff contenders like the Dallas Cowboys, San Francisco 49ers, Baltimore Ravens, and Cincinnati Bengals got off to slow starts.
Of the 30 U.S. states that have reported September sports betting revenue figures, 28 of them had operators enjoying a 10% or higher hold. In two other states, sportsbooks combined to win at least 9% of the total handle.
New York, the most lucrative sports betting market in the U.S., reported that sportsbooks hauled in $204.7 million, the second-most all-time in the Empire State.
Despite recording the highest handle ever in the U.S. at $2.3 billion in October, revenue fell 13.9% month-over-month. The monthly hold fell below 8%.
November turnaround?
A bounce-back didn’t follow a turning of the calendar.
NFL favorites won 10 of the 15 games in the first weekend of November.
In New York, seven of the nine online sportsbooks reported a week-over-week decrease in revenue. The win rate fell short of 10% as operators were unable to capitalize on the second consecutive week with a handle of over $500 million.
Still, gaming industry leaders understand the game of swings they are in, and when NFL oddsmakers are involved, things have a way of balancing out eventually, especially in a high-volume sports season.
“You've got a lot of the quarter left and a lot of heavy sports calendar for the next 60 days, where we feel we can start to claw some of that back,” Reeg said.
