There are a few big gaming companies that are traded on the stock exchange. Companies like Penn National Gaming, Caesars, and GAN are stock giants, but that’s no surprise. They’re large gaming companies with multiple gaming products and several streams of revenue. However, smaller sportsbook companies are beginning to populate the New York Stock Exchange. There are only a few sportsbook companies listed and even fewer to come. But here’s what we know.
What IPOs Are And How They Work
IPOs are initial public offerings. They’re big fundraising events where private companies sell public ownership of their companies for the first time. The company’s value increases, and the company is flushed with cash. It’s a big day.
It’s a particularly bright day for investors who think the sportsbook company has a particularly bright future. Theoretically, the stock price is the lowest that it’s ever going to be. If an investor can hold onto shares for a few years, it can result in a massive portfolio gain. But if the company goes under in the future, the gamble doesn’t pay off. Because big companies rarely crash and burn, this is a good day for investors to put some money down for a payoff later. (It’s one of the things that sets investing apart from gambling.)
We’ll cover two recent sportsbook IPOs and two upcoming IPOs. Although, one of them has been discussed more seriously than the other.
The Two Recent IPOs
DraftKings and theScore have both gone public in the past year. DraftKings’s IPO was in April 2020, where it sold 32 million shares for $52 each. The total amount raised in DraftKings’ IPO came out to $1.664 billion. theScore had its IPO in late February 2021 where it sold 6.9 million shares for $27 each. That raked in $186.3 million for the company. We’ve summarized it in the table below:
| DraftKings | theScore | |
|---|---|---|
| Number of Shares | 32 million | 6.9 million |
| Stock Price | $52 | $27 |
| Total Funds Raised | $1.7 billion | $186.3 million |
In every way, DraftKings’ IPO was bigger. It’s not immediately obvious why. DraftKings is the younger company by several decades. theScore started as a TV station in the ’90s and has evolved into a sports media outlet and a sportsbook company. DraftKings’ products only include its daily fantasy sports, sportsbook, and online casino.
However, that value difference suggests there’s more money in people putting money on their own opinions instead of learning from someone else’s. DraftKings’ focus on products that rely on bettors’ opinions is likely one of the biggest reasons it was valued so highly. The potential of sports betting and online casino expansion also likely played a role.
Conversely, theScore Bet launched in 2019. Until that point, theScore’s main product was its media app. That put it up against Barstool Sports and Fox Sports–two giant sports reporting companies. Its sportsbook app also had to catch up to the market share that DraftKings, FanDuel, and BetMGM have acquired. Their smaller IPO seems to reflect underwriters’ low confidence in the theScore’s ability to reach the same prominence that DraftKings has. However, it still suggests that theScore could have a bright future in the United States. But both companies still have one big challenge.
Negative Net Income And Negative Cash Flow
For the past three years, DraftKings and theScore (its most recent year is reported separately) were not profitable. Both companies have had:
- A negative net income
- Negative operating cash flow
- Negative investment cash flow
But financing cash flows are positive. That means the businesses aren’t profitable, they’re burning through cash, and they’re borrowing money to continue growing. But in the world of big companies, that’s not unusual. It can take years to become profitable.
For example, Amazon didn’t turn a profit for almost ten years. It spent that time acquiring market share and becoming the dominant player in online retail. Amazon became more efficient after it became an online retail giant. Today, it’s untouchable. So, investors who stuck by Amazon during its unprofitable years were well rewarded.
Uber investors share the same hope for the ride-sharing company. It’s also unprofitable, but it’s worth almost $100 billion. Uber has captured about 68% of the market with Lyft closing in with 32%. Investors are willing to fund Uber’s land grab in the hopes that it’ll operate efficiently.
Similarly, investors are optimistic about both DraftKings and theScore. DraftKings’ valuation is higher because it has captured about a quarter of the sports betting market. Factor in its daily fantasy and online casino products, and it’s easier to see why investors are pouring money into DraftKings. theScore doesn’t have the same dominant market position. But its sports media potential likely gives it a lift, too. DraftKings’ market share and theScore’s media potential aren’t just boosters for them. They have important implications for two other IPOs that we could see in the future.
What’s Coming Next?
Two sportsbooks could have IPOs next. One is likely, but the other is far more speculative.
FanDuel is the most likely sportsbook IPO to come next. It’s owned by Flutter, a much larger gaming company based in the UK. Flutter is considering making FanDuel public, which would be a huge event in the sports betting investment world. FanDuel has captured 40% of the sports betting market–almost twice what DraftKings has.
And it’s profitable, using its own cash to grow, and it’s growing and paying off debt. Its IPO will be a big day.
The more speculative IPO is Fox Bet. It’s a joint venture between Flutter and Fox Sports. If it goes public, it’ll also gauge the value of a dominant sports media outlet. Fox Bet hasn’t come close to DraftKings or FanDuel’s market share. But its connection with Fox Sports is valuable. Fox is a huge media brand.
So, Fox Bet’s IPO will tell us–in part–what Fox Sports’ media base is worth. It’ll also give us an early snapshot of what a Barstool Sportsbook IPO could look like. Barstool Sports is another popular sports news outlet. It’s not the same as theScore or Fox Sports. But its valuation would tell us a lot about what its competitors’ media products are worth, too.
We don’t know when FanDuel and Fox Bet will have their IPOs. We’ve only seen the beginning of sportsbook companies going public. But as sports betting continues going mainstream, the companies behind them will find their way into investors’ portfolios. Sports betting and gaming are coming to the NASDAQ.
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