By Katherine Sayre
Sports bettors are beating DraftKings and FanDuel at their own game.
Gamblers' bets on their favorite National Football League teams have been on a hot streak in recent weeks, forcing sports-betting companies to pay out more winnings to their customers than expected. The action playing out on football fields across the county -- fewer upsets by underdogs and wins by fan favorites such as the Kansas City Chiefs and the Detroit Lions -- is now reverberating onto Wall Street.
Winning fan bets have prompted DraftKings and FanDuel parent Flutter Entertainment to report reduced U.S. revenue expectations through the end of the year, to the tune of hundreds of millions of dollars. It is a reminder that even for sports-betting companies that try to manage risk with sophisticated trading desks, gambling is a matter of luck, and the house can lose.
On Tuesday, Flutter cut its 2024 revenue guidance for its U.S. business, which houses FanDuel, by $50 million as a result of losses from NFL games in the start of the fourth quarter. Those losses overshadowed gains in the previous quarter.
FanDuel said its worst day this NFL season came on the second Sunday of October, when 11 of the 13 favorites won, including the Tampa Bay Buccaneers and the Baltimore Ravens.
Last week, DraftKings reduced its 2024 revenue guidance by $250 million, citing the same NFL results. The company "experienced the most customer friendly stretch of NFL sport outcomes we have ever seen," DraftKings Chief Executive Jason Robins told Wall Street analysts.
The industry's hold rate -- the amount the sportsbook takes after paying out winning bets -- was 2% on NFL games the week of Oct. 28, according to analysts at Macquarie Equity Research, compared with a long-term average of 9% for NFL games.
FanDuel and DraftKings appeal to recreational bettors who tend to bet on their favorite teams to win and star players on those rosters to have strong performances.
When the Denver Broncos beat the New Orleans Saints 33-10 last month, for example, sportsbooks took hits on who would win and by how many points, according to Macquarie.
Robins said DraftKings' outlook is still strong, and that despite the near-term volatility, as the business grows, "these impacts will become more rounding errors."
DraftKings' revenue in the third quarter, which ended before the string of bad luck in October, rose 39% year-over-year to about $1.1 billion, helped by new customer acquisition and strong betting activity. It posted a wider loss of $293.7 million from $283.1 million a year ago.
Gambling companies spent heavily on marketing and customer promotions as sports betting expanded across the U.S. in recent years, and are now focusing on improving profitability, in part by controlling costs.
Flutter's third-quarter revenue increased 27% to about $3.2 billion. It reported a $103 million loss in the September quarter, paring its year-ago loss of $275 million.
Write to Katherine Sayre at katherine.sayre@wsj.com
(END) Dow Jones Newswires
November 13, 2024 09:00 ET (14:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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