DraftKings, ESPN Bet Race Ahead in Michigan, Pennsylvania Sports Betting Market

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In the titanic battlegrounds of Michigan and Pennsylvania, where mobile sports betting is an open field, two giants are gaining a foothold. DraftKings and Penn Entertainment’s ESPN Bet are seemingly the frontrunners, sweeping up market slice while their competitors, namely BetMGM and Caesars Sportsbook, engage in a fierce scramble.

The gripping narrative of financial triumph and struggle unfolded in a recent report by Morningstar analyst Dan Wasiolek. According to the documentation, ESPN Bet, operating under the mighty banners of DraftKings and Penn, saw an average surge of 7% and 4% in revenue in Michigan and Pennsylvania in February compared to the previous year, when Penn was still trading under the flag of the Barstool Sportsbook brand. Evidently, ESPN Bet has captured a sizable portion of the market in both states, and there are strong indications that this growth has been at the expense of their competitors.

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Contrasting this roaring success is the relatively grim storyline for their major rivals. Wasiolek observes a downward tumble for MGM, with a loss of 3 and 5 percentage point in market shares and a flat and declining trajectory for Caesars Sportsbook. Sadly, smaller competitors collectively witnessed a similar dip across both states.

The loss and gain of market shares play out significantly in Michigan and Pennsylvania, two juggernauts for any online sportsbook operator. The lifting of the Professional and Amateur Sports Protection Act (PASPA) by the Supreme Court in 2018, paved the way for an intriguing race. Despite being legally recognized for merely three years, Michigan has carved its place in the top ten, as only four states outpace Pennsylvania’s sports betting handle and revenue.

Leadership isn’t achieved through a chance of luck but a calculated advantage. DraftKings stands head to head with Flutter Entertainment’s FanDuel in a neck-and-neck contest for control of the US online sportsbook market. Among states where both operate, they lead the pack, a significant distance ahead of their competitors. The jump, as per Wasiolek, came from DraftKings’ early entry and superior technology, which shot their shares up 7% and 11% respectively in Pennsylvania and Michigan in February.

This encouraging data has led to heightened confidence in DraftKings’ revenue opportunity, prompting an increase in sales compound annual growth rate (CAGR) estimates for 2024-28 to 24%. The upward trend has resulted in a rise in its valuation to $47 per share, making DraftKings a golden prospect for investors to keep on their radar.

Undoubtedly, caution should be exercised, especially for investors eyeing betting on the slightly waning star of Caesars Entertainment’s digital unit. Issues regarding achieving earning targets and slowing sales in Michigan and Pennsylvania cast pessimistic clouds on the horizon.

Caution matched with optimism paves the path for ESPN Bet, whose performance since its launch last November has been impressive. It could both dent competitors and soothe investor worries about its performance in player-saturated states. Wasiolek fancies value in Penn shares, but there remains tepid concern about Penn’s crushing debt burden. Its $24 fair value estimate could offer investors a promising narrative in the expanding sports betting market, but not without its share of plot twists and leaps amid high financing costs.