iGaming 2025 legislative outlook is dim, says analyst

Posted: January 6, 2025, 06:00 pm.

Last updated: January 6, 2025, 06:00 pm.

The new year is still a week old, but the chances of new states approving iGaming this year are already looking slim, according to one analyst.

In a new report on DraftKings (NASDAQ: DKNG) – one of the gaming stocks that will benefit from more states adopting online casinos – Deutsche Bank analyst Carlo Santarelli said the operator is expected to meet its 2025 earnings and revenue guidance. The ability to do more and/or exceed that is paramount as the likelihood of legislative action to give stocks a boost is slim.

“Given the headwinds into 2024 relative to current valuations, as well as guidance, we see achievement of the 2025 target as the biggest driver of shares,” the analyst said. “Additionally, we believe the inability to deliver 2025 guidance will cast significant doubt on the long-term adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) target of $1.4 billion in 2026, which is driven by the current valuation dynamic.” It may increase even more. ,

On the legislative front of sports betting, Texas is in big trouble because if that state does not approve that form of betting this year, it could potentially shut down in 2027. Santarelli also noted that for commercial operators like DraftKings to enter California and Florida, partnerships with tribal gaming entities would be required and that those arrangements “are likely to be unattractive, leaving both states out of a potentially blue-sky opportunity set.” “Will be removed and put in a bucket with New York, where the total acreage market is significant and profits are challenging.”

iGaming Outlook Door

Currently, only seven states – Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia – allow internet casinos and none join that group in 2024.

“Of the subset of New York, Ohio, Illinois, Indiana, Maine and Maryland, we believe Ohio and Maryland have the best chances for near-term (2025) success, although we believe “The most likely scenario is for the new states to be zero by 2025,” the analyst said. “We see New York and Illinois as the least likely.”

Their list does not include Wyoming where iGaming legislation was filed last month. With Wyoming being the smallest state by population, even if it approved an online casino, it would likely be a non-event for the shares of DraftKings and competitors.

DraftKings may be acquirer

The analyst also said DraftKings has a strong cash position and is not heavily indebted, meaning it could use mergers and acquisitions to drive top-line growth, especially if it looks like that near-term. Targets may be missed.

“Acquisitions are likely to remain an important part of the strategy for DraftKings, especially as achieving guidance targets in 2025 or 2026 appear fleeting,” Santarelli said.

Last year, DraftKings acquired microbetting service provider SimpleBet Inc. and online lottery provider Jackpocket.