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Can DraftKings Maintain Its Super Status After the ESPN Bet Announcement?

Motley Fool - Wed Aug 23, 2023

In the fast-paced world of online sports betting, the competition is fierce and unrelenting. Among the contenders, DraftKings(NASDAQ: DKNG) holds a prominent position as a top betting stock, drawing the attention of investors and enthusiasts alike.

But now, a new player has entered the ring: Penn Entertainment(NASDAQ: PENN). The company is divesting its Barstool Sports brand to relaunch its sportsbook as ESPN Bet through a groundbreaking partnership with Disney. As the betting landscape undergoes this transformation, savvy investors are left wondering if DraftKings can maintain its super status in the face of this formidable adversary.

DraftKings' growth strategy continues to succeed

DraftKings has been riding a wave of impressive growth. With its online sportsbook and iGaming products, the company showcases a remarkable trajectory of success. The recent second-quarter results reveal an 88% surge in revenue compared to the same period last year, showing a successful company in motion. DraftKings strategically honed its customer experience, leading to higher retention rates and monetization.

The focus on efficiency remains a cornerstone of DraftKings' strategy. Its commitment to both revenue growth and cost efficiency paid off, reflected in a substantial increase in adjusted gross margin. This efficiency-oriented approach has been instrumental in driving the company toward profitability. Notably, the second quarter of 2023 marked DraftKings' first quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a milestone that strengthens its standing in the market.

ESPN Bet made quite a grand entrance for Penn Entertainment

The sports betting market may become even more electrifying with the entry of ESPN Bet, a rebranded sportsbook courtesy of a partnership between Penn Entertainment and ESPN. The anticipation around ESPN Bet feels palpable, with its deep integration into ESPN's content and programming ecosystem. This collaboration doesn't just mark the birth of a new player; it could very well herald in a fresh chapter in the world of online sports betting.

With ESPN's exceptional audience reach and brand affinity, ESPN Bet's potential impact on the landscape cannot be underestimated. The integration of ESPN's media assets into the betting realm offers an enticing proposition for sports fans seeking both content and betting opportunities within a single platform. It's a fusion that could reshape the way consumers engage with sports and betting, though it leaves Penn on the hook for the costly divestment of a recently purchased sportsbook.

Considering DraftKings' potential response and prospects

The stage appears set for an intriguing showdown between DraftKings and ESPN Bet. DraftKings' performance and growth trajectory stand as strong indicators of its capabilities to hold its ground against this dynamic rebrand. The dominance of DraftKings in online sports betting and gross gaming revenue, coupled with the ability to drive customer engagement through innovative offerings, positions the company as a formidable contender in this evolving landscape.

The pivotal football season, often a highlight for sports betting, also looms on the horizon. DraftKings continues gearing up with product enhancements and additional features that aim to make the customer experience more immersive and enjoyable. As the anticipation builds, DraftKings stands primed to leverage its strengths and further solidify its standing among enthusiasts.

The smart bet may be the wait-and-see game

As investors and enthusiasts ponder DraftKings' fate after the ESPN Bet announcement, one thing appears clear: The betting landscape exists in a state of flux. The intriguing interplay between these giants will likely shape the industry's future. For now, the best play seems to be to observe, assess, and wait. Shareholders of either company should likely hold to see how the first few rounds play out.

DraftKings' impressive journey so far suggests it's no stranger to adapting and thriving in a competitive environment. The impact of ESPN Bet's entry remains uncertain, and only time will reveal whether it can truly challenge DraftKings' super status.

In a world where betting fortunes can shift with every game, DraftKings faces a new kind of challenge. The next chapter in this saga may well answer whether it can maintain its super status against ESPN Bet. As investors and enthusiasts hold their breath, the betting world watches closely, ready to witness the next move in this high-stakes game.

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Nicholas Robbins has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2025 $25 calls on Penn Entertainment and short January 2025 $30 calls on Penn Entertainment. The Motley Fool has a disclosure policy.

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