SBJ Betting: Data-provider financials insulated from unlikely run of favorites

We heard lots more about “customer-friendly results” as more Q4 earnings results rolled in over the last week, as sportsbooks laid out the impact of an NFL season in which favorites covered more frequently than they had in 19 years.

The house always wins. I suspect it still will shake out that way. But a bit of me wonders whether this is entirely a product of favorites winning, or whether it will take a little while for the machines to learn how the U.S. consumer will respond to things like in-play line and odds movement.

Who’s really the favorite when that flips four times in the first quarter? And how will that play out during March Madness, when a team might go from -4 to +3 in the first five minutes of a game?

The fourth quarter of 2024 gave data distributor Genius Sports a chance to remind investors of the “picks and shovels” argument that it and competitor Sportradar made to investors as money poured into the sportsbook stocks when legalization began.

You could place a bet on which of the prospectors -- in this case, the sportsbooks -- would strike gold and find their way to profitability. Or, you could invest in the companies that sold picks and shovels to all of them, and come out ahead regardless of who won or lost.

A spate of customer-friendly results blistered all the U.S. sportsbooks in Q4. NFL favorites won 72% of games and covered the spread 54% of the time in 2024, the highest rates for both since 2005, per Sports Odds History. That was bad news for the sportsbooks, which all took big hits to their ledgers.

In its earnings call this week, FanDuel parent Flutter estimated that unfavorable on-field results cost it $550 million in revenue and $360 million in adjusted EBITDA in Q4.

In contrast, Genius reported year-on-year revenue growth of 38% to $176 million in the quarter, with adjusted EBITDA of $32 million, more than a 2x increase. The company pointed to higher pricing achieved during its latest round of sportsbook renewals and the growth of NFL in-play wagering, which made up 30% of handle in Q4.

Because Genius gets paid regardless of whether bettors win or lose, it was insulated from the unlikely run of favorites covering the spread. It also benefited from NFL in-play wagering increasing to 30% for the quarter, because it takes a larger share from in-play bets than it does from bets placed before games.

“Despite the pressure on bookmakers' win margins that we’ve seen this NFL season, our results were still exactly in line with our guidance,” Genius CEO Mark Locke told analysts. “We believe that this is a good opportunity to remind you of our differentiated, resilient business model.”

Genius also pointed to the growth of BetVision, the interactive video player that allows users to watch low-latency streams of locally available NFL games in the leading sportsbook apps.

The streaming product was available on eight sportsbook apps that combined to account for 90% of U.S. sportsbook GGR, Genius said, with weekly unique streams increasing by 33% from the first half of the season to the second half. The number of unique devices streaming games increased 19% from the front half to the back half, Genius said.

More people streamed more often as the season went on.

Not surprisingly, 76% of the handle from BetVision viewers came through in-play bets.

With a grip on 44% of U.S. sportsbook revenue, FanDuel parent Flutter is always good for a holy-moley number or two at the start of the year.

Earlier this week, it guided investors to expect about $1.4 billion of EBITDA from $7.7 billion in revenue this year.

But what caught my ear during the company’s earnings call was a discussion of the continued rollout of FanDuel’s “Your Way” function, which allows bettors to use an onscreen slider to customize prop bets, including those used in parlays. Odds rise or fall as users make those adjustments.

About 5% of those who had access to the lightly-promoted feature used it during the Super Bowl, Flutter CEO Peter Jackson told analysts, with about 90% placing wagers they couldn’t have made without customization. He said about a quarter of customers using “Your Way” had placed a parlay wager of more than 10 legs.

FanDuel is working to make the vast number of possibilities easier for bettors to manager, while learning how to quickly and accurately set odds on the complex, often intertwined array of combinations.

“The user experience of having a vastly increased array of product [can] become overwhelming and we have to make sure it isn’t,” Jackson said. “And so I think the team are doing a really nice job on sort of the user experience that we’ve made available. But it’s no good taking bets on an array of new products if you actually haven’t got the pricing (and) risk management right at the same time. You’ve got to solve all of these problems simultaneously. It’s very complex, but I think the teams are doing a brilliant job and we’re really excited to see where we can take this product.”

The headlines from Penn’s call with analysts last week justifiably highlighted CEO Jay Snowden’s acknowledgement that ESPN Bet has fallen short of expectations and, more importantly, that Penn and ESPN will have to consider terminating their deal early if they can’t turn things around by next summer.

Snowden harkened back to the company’s intent to “compete for a seat at the podium,” when it struck a 10-year, $1.5 billion deal with ESPN in August 2023, saying that “we’re not on pace right now to do that.” From May through December, ESPN Bet accounted for only 3% of handle in the 14 states that report totals from individual sportsbooks.

Penn guided investors to expect a loss of $100 million to $200 million on revenue of $1.25 billion to $1.75 billion in its online business this year, based on an expansion of ESPN Bet handle share to 4.7%, which the company said would be a one-point gain. Should it fall short of that number, Penn would consider reducing its marketing spend on the way to an exit from the deal.

“We’ve got a cost structure that right now is built for us to be a scale player because that’s where we expect to be,” Snowden said. “That’s where ESPN expects us to be. But if you’re not trending that direction, then obviously you’re not going to be operating a business from a cost structure standpoint at a scaled level.

“We have tremendous plans in place for 2025 and 2026. But, if for whatever reason, we’re not hitting the levels that we need to, then obviously as you’re approaching that third anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interests. And so, that’s always out there.”

There are reasons to think ESPN Bet could make gains this year. Penn says it will increase its promotional spend slightly, hoping to attract new trials and reinvigorate bettors who tried the app but left. Those who sample the revamped app will find a deepened parlay product that has begun to close the gap on competitors. Parlay handle mix in December and January increased to 32%, up from at the start of the previous football season, with 70% of users placing a same-game parlay, up from 46% in 2023.

Last week, the company began to roll out a video player that will allow bettors to watch low-latency ESPN game telecasts in the app.

“If you continue to look at our app and use our app, it is getting better each month,” Penn CTO Aaron LaBerge told analysts. “It’s looking better. It’s feeling better. More markets are being added. We’re adding streaming. We’re getting better in parlay distribution. We’re expanding our same-game parlay offerings. We continue to feel that we’re going to be competitive from a product perspective from here out as we continue to get better.”

Sportsbooks in New York opened the year by breaking the U.S. monthly handle record they set in October, taking $2.487 billion in bets, an increase of 27% over last January.

Neighbor New Jersey saw an even larger percentage dip, falling 33% from last year, but still taking in $1.15 billion.

With only Illinois and Arizona still to report, U.S. handle for January is pacing 7% ahead of last year, and flat compared to December.

Now that Arizona is the only December jurisdiction still outstanding, we can draw conclusions on what the handle shares of each of the leading U.S. sportsbooks looked like in 2024, based on a review of 14 states that release results of individual operators.

Spoiler alert: It looks a lot like 2023, other than at the margins. A strong Q2 and Q3 allowed DraftKings to trim FanDuel’s 2023 lead from three percentage points to one: 36% to 35%. BetMGM held in third place, at 8%.

After that, there was some shuffling.

Caesars lost two points, to 6%, and was down to 5% in both Q3 and Q4 (aka, football season). Fanatics more than doubled its 2% to get to 5%, and was at 6% in Q4, passing Caesars, which blamed its slippage on the thinning of its customer base to focus on higher value players. BetRivers sat at 3% through all four quarters, down a point from last year. ESPN Bet ended even with 2023 at 4%, but was at 3% for the second half of the year and had half the handle of Fanatics in Q4.

Those shares don’t include states that do not break out handle by individual sportsbook operators. But they are based on about two-thirds of U.S. handle.

• Georgia’s House of Representatives adjourned Thursday “without voting” on House Resolution 450 or House Bill 686, which “would legalize online sports betting by way of a constitutional amendment,” notes the Atlanta Business Chronicle.
• Hawaii “became the surprise of the legislative season as a sports betting bill advanced past the House on Tuesday,” notes Legal Sports Report. It’s the “farthest a Hawaii sports betting bill has made it in the Aloha State.”
• GeoComply, the company that blocks those outside the borders of legalized states from placing online sports bets, hired former FanDuel President Kip Levin as its CEO.
• North Carolina is approaching its first full year of legal mobile sports betting, and youth sports are “feeling the financial benefits,” writes Axios Charlotte.
• Oklahoma Gov. Kevin Stitt said that he “doesn’t support legislation that gives the tribes exclusive rights to operate sports betting,” notes the Oklahoman.