Online Sports Betting in the U.S.: Big Bets, but Some Losses Expected
In this commentary, we discuss the developments of the online betting industry in the U.S. as legalization continues to spread, the implications of significant growth in the sector, and the impact on industry participants’ credit risk profiles.Key highlights include:
-- Legalization of sports betting in the U.S. is resulting in substantial growth, including record-setting wagers on Super Bowl LVII and the 2023 March Madness Tournament.
-- Industry participants’ revenue growth has been particularly pronounced over the last two years and is expected to continue as additional states legalize.
-- Earnings, however, are expected to remain pressured in the near term due to intense competition and investment required to build brand strength and capture market share.
-- The credit risk profiles of larger players with deep pockets, diversified operations, and well-established market positions will likely benefit in the long run, but earnings could be pressured in the near term due to initial investment requirements.
“Although credit risk in the U.S. online gaming sector is fairly high, we expect it to improve once the process of individual state legalization is complete and the significant initial investments related to platform expansion and market-share battles subside. Although growth and development in the sector will likely be rapid and may benefit all industry participants, not all will perform equally and many are expected to fail,” notes Reid Usher, Assistant Vice President, Diversified Industries at DBRS Morningstar. “As such, we believe that at this time, the online gaming sector exhibits non-investment-grade characteristics, with the opportunity to migrate higher going forward.”
DBRS Morningstar is a global credit ratings business with 700 employees in eight offices globally. DBRS and Morningstar Credit Ratings are committed to empowering investor success, serving the market through leading-edge technology and raising the bar for the industry.
Together, we are the world’s fourth largest credit ratings agency and a market leader in Canada, the U.S. and Europe in multiple asset classes. We rate more than 2,600 issuers and 54,000 securities worldwide and are driven to bring more clarity, diversity and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs, while being large enough to provide the necessary expertise and resources. For more details visit us at dbrs.com.
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