Markets bet on, and lost, that government would accelerate the legalization of sports betting. Similarly, speculators bet that the U.S. government would legalize cannabis federally.
In the former case, the sports betting market has three major headwinds. High valuations, legalization delays, and heavy costs. Those three challenges suggest that the upside for investing in DraftKings (DKNG) is less appealing than it was last year.
DraftKings needs sports betting legalized in more states. Although it is legal in more than 30 states, there is an ease of entry in the market. DraftKings must spend more on advertising to build its user base now. Upon doing so, it needs to keep users engaged on its platform.
Expect delays for sports betting legalization. Critics view mobile sports betting as promoting gambling addiction. If this addiction becomes widespread, the government will push back on allowing sports betting.
After the Nasdaq Index plunged by 13%, smaller firms like FuboTV (FUBO) fell by more. The sports streamer is late in entering the sports betting market. Its advertising costs will rise as it increases its effort to keep users. Similarly, Skillz (SKLZ), a gaming firm, wants to grow its esports betting market. Its addressable market depends on the government legalizing sports betting.
Speculate on SKLZ and FUBO but consider DraftKings as having the best prospects among the mentioned firms.
