Sports Betting and iGaming Stocks: DraftKings, Flutter, and the Legalization Wave

The Legalization Wave: From Taboo to $120 Billion in Handle

In May 2018, the Supreme Court struck down PASPA. That single decision unleashed the fastest legal market formation in American consumer history. Seven years later, 38 states plus the District of Columbia offer legal sports betting. The US handle — total amount wagered — surpassed $120 billion in 2024, up from essentially zero in 2017. Gross gaming revenue (what operators actually keep) hit approximately $12.5 billion. Those are not projections. Those are actual numbers.

What we find fascinating (and what most sell-side research ignores) is the maturation curve. Early-legalization states like New Jersey and Pennsylvania are now seven years into their markets. Monthly handle growth has decelerated to single digits, but revenue per user is climbing because operators have shifted from unsustainable promotional spending to product-driven retention. Same-game parlays, live in-play betting, and micro-betting are driving higher hold rates per dollar wagered. The industry is quietly transitioning from a land grab to an operating leverage story. That transition is where the real investment opportunity lives.

We should be direct about our bias here: we think sports betting and iGaming stocks represent one of the more compelling secular growth stories in consumer tech, but only if you pick the right operators and only if you're honest about the tax and regulatory overhang. Most of these companies will not earn their cost of capital. Two or three will generate extraordinary returns.

The Market Map: Who Controls the Handle

US Online Sports Betting Market Share (2024 Handle Basis)

The market has consolidated faster than almost anyone predicted. FanDuel and DraftKings together control roughly 68% of US handle. That duopoly (with BetMGM as a distant third) is structurally significant because it means the customer acquisition cost wars that burned through billions between 2020 and 2023 are winding down. When two players own two-thirds of a market, the rational move is to compete on product rather than promotional spend. We're seeing exactly that.

DraftKings: The Path from Cash Incinerator to Profit Machine

Let's be blunt about DraftKings' history. From its 2020 SPAC listing through early 2024, the company burned through approximately $4 billion in cumulative cash. Promotional spending was staggering — new-user bonuses of $1,000+, risk-free bets, deposit matches that made no economic sense at scale. The customer acquisition cost per depositing user peaked at over $500 in competitive markets like New York during launch periods. Wall Street rewarded this with a $28 billion market cap at the 2021 peak. Then it punished it. The stock fell 78% from peak to trough.

What changed? Three things, and we think the market is only pricing in one of them.

First, the obvious: new-state launches decelerated. When you're entering five to eight new states per year, your promotional budget balloons. By 2024, the major markets were live and DraftKings could shift spend from “acquire at any cost” to “retain and monetize.” Customer acquisition costs fell below $300 per depositing user by Q4 2024 and management targets $200–250 as the steady-state level. That alone improves unit economics by 40–50%.

Second (and less appreciated): same-game parlays. We'll cover this in detail below, but the short version is that SGPs have structurally improved the hold rate on DraftKings' platform from approximately 7% in 2021 to 10.5–11% in 2024. On a $50+ billion annual handle, every percentage point of hold rate improvement is worth $500+ million in incremental revenue. This is not a one-time gain — SGP penetration is still rising.

Third: iGaming leverage. DraftKings operates online casino in five states (New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia) and the segment is already contributing 25–30% of total GGR on a fraction of the sports betting footprint. iGaming carries 35–45% EBITDA margins at maturity, versus 15–25% for sportsbook. Every new state that legalizes iGaming is a step-function improvement in DraftKings' blended margin profile.

Flutter and FanDuel: The Global Champion Most Americans Don't Know

Flutter Entertainment is one of the stranger constructs in public markets. It is a Dublin-headquartered, London-listed (now also NYSE-listed) conglomerate that owns FanDuel, Paddy Power, Betfair, PokerStars, Sportsbet, Sisal, and a dozen smaller brands. Combined group revenue exceeded $14 billion in 2024. It is the largest online gambling company on the planet by revenue. And most American investors have barely heard of it.

FanDuel is the jewel. It consistently holds 38–40% of US online sports betting handle, a lead it has maintained since the market's inception. The brand has extraordinary top-of-mind awareness — FanDuel's daily fantasy sports legacy gave it a massive head start in name recognition when states began legalizing. But the competitive advantage goes deeper than brand. FanDuel's technology stack (inherited from Paddy Power Betfair's exchange-betting infrastructure) is arguably the most sophisticated real-time pricing engine in the US market. It can offer more granular in-play markets, adjust odds faster, and manage risk more dynamically than competitors relying on third-party platforms.

Flutter's global diversification is genuinely valuable in a sector exposed to regulatory risk. If New York raises taxes to 60% (not implausible), FanDuel's US margins suffer but Flutter still has Paddy Power generating 20%+ EBITDA margins in the UK, Sportsbet dominating in Australia, and Sisal printing cash in Italy. DraftKings has no such hedge. It is a pure US bet — which is fine if you believe in the US opportunity, but it concentrates regulatory risk in a single jurisdiction at a time when state legislatures are still figuring out how aggressively they want to tax this industry.

Flutter vs. DraftKings: Financial Comparison

Same-Game Parlays: The Structural Hold Rate Revolution

If we had to point to a single innovation that transformed the economics of online sports betting, it would be the same-game parlay. The concept is deceptively simple: instead of betting on just the game outcome, a bettor combines multiple legs within a single contest — say, the Chiefs to win, Patrick Mahomes to throw over 275 yards, and Travis Kelce to score a touchdown. Each leg has its own odds, and the combined payout multiplies them together. Bettors love it because it turns a $10 bet into a potential $400 payout. Operators love it because the effective hold rate on SGPs is 2–3x higher than traditional single-outcome bets.

Why does the math favor operators so heavily? Correlation. The individual legs of an SGP are not independent events. A player who scores a touchdown is more likely to also exceed his yardage total. The team that wins is more likely to cover the spread. Operators price each leg as if it were independent, but the actual correlation means the true probability of hitting every leg is meaningfully lower than the implied probability from the combined odds. This is not a flaw in the system — it is the system. And it is legal, understood by sophisticated bettors, and enormously profitable.

SGP penetration (as a percentage of total bets placed) has risen from essentially zero in 2019 to approximately 25–30% on DraftKings' platform in 2024. FanDuel reports similar figures. The structural hold rate on traditional straight bets is roughly 5–7%. On SGPs, it runs 15–25% depending on the number of legs. Blending these together, the overall platform hold rate has improved from approximately 7% in 2021 to 10.5–11% in 2024. We expect this to reach 12–13% by 2027 as SGP penetration continues climbing and operators introduce more creative parlay products (player prop parlays, micro-betting parlays, cross-sport parlays).

iGaming: The Higher-Margin Vertical That Changes Everything

Sports betting gets the headlines. iGaming (online casino — slots, blackjack, roulette, live dealer) gets the margins. We think this distinction is the single most misunderstood aspect of the US online gambling investment thesis.

Online casino is currently legal in only 8 states: New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia, Delaware, Rhode Island, and (as of late 2024) a limited launch in New York. Yet iGaming already contributes approximately 25–30% of total online GGR in the US. In New Jersey, which has had iGaming since 2013, online casino revenue exceeds sports betting revenue by nearly 2x. The pattern holds in every state where both verticals are legal: iGaming generates more revenue per user, retains users longer, and costs less to acquire because sports bettors naturally cross-sell into casino products.

The margin profile is starkly different. A mature sportsbook operation generates 15–25% EBITDA margins after accounting for promotional spending, league data fees, integrity monitoring costs, and the operational complexity of real-time odds management. A mature iGaming operation delivers 35–45% EBITDA margins because the product is software-driven (no real-time pricing engine required for slots), content licensing costs are lower, and the house edge is mathematically fixed rather than dynamically managed.

If iGaming expands from 8 states to 20–25 over the next five to seven years (which we think is the base case, not the bull case), it adds $12–18 billion in GGR to the industry at structurally superior margins. For DraftKings and FanDuel specifically, iGaming expansion would be transformative — it could lift blended EBITDA margins by 800–1,200 basis points at scale. This optionality is only partially priced into current valuations.

BetMGM and the Rest: The Fight for Third Place

BetMGM — a 50/50 joint venture between MGM Resorts (MGM) and Entain (ENT.L) — occupies an uncomfortable middle ground. At 12–14% market share, it is too large to ignore and too small to compete on scale economics with FanDuel and DraftKings. The JV structure creates additional complexity: neither MGM nor Entain has full operational control, investment decisions require joint approval, and there has been persistent speculation about one party buying out the other.

BetMGM's advantage is its connection to MGM's physical casino footprint — 30+ properties across the US that provide a built-in customer acquisition channel and cross-sell opportunity. In states like Nevada, where brick-and-mortar casino loyalty programs drive online sign-ups, BetMGM outperforms its national share. But in mobile-first states with no physical casino connection, BetMGM struggles to differentiate against the superior marketing machines of FanDuel and DraftKings.

ESPN Bet (Penn Entertainment) entered with enormous fanfare and the most powerful brand name in American sports. Execution has been mixed. The ESPN brand drives awareness but converting brand affinity into depositing users has proven harder than expected. Penn is spending heavily on the ESPN licensing deal ($1.5 billion over 10 years plus revenue share), and the sportsbook needs to reach roughly 10% market share to justify that investment. It is currently at 6–8%. We think ESPN Bet stabilizes as a credible fourth player but does not threaten the FanDuel/DraftKings duopoly in the next three years. Fanatics Sportsbook, still in its early rollout, could be a wildcard given its access to 100M+ loyalty members — but converting merchandise buyers into gamblers is a different challenge entirely.

International Markets: Where the Growth Could Surprise

The US story dominates the narrative, but international markets are an important (and underpriced) optionality for Flutter specifically. The UK and Australia are mature, heavily regulated markets that generate steady cash flow. Italy (through Sisal) is growing at mid-teens. But the real international prize is Latin America and Asia.

Brazil legalized sports betting in 2024 and is the world's fifth-largest country by population with a sports-obsessed culture. The early market is fragmented, with dozens of operators competing for share, but Flutter (through FanDuel-branded or Betfair-branded operations) and DraftKings are both eyeing entry. India — 1.4 billion people, surging smartphone penetration, cricket-centric betting culture — remains in regulatory limbo but represents the single largest untapped sports betting market globally. Japan legalized a limited form of sports wagering tied to specific events, and further deregulation is possible as the government looks for revenue sources to offset its aging population fiscal burden.

We don't model specific revenue from these markets because the regulatory timelines are too uncertain. But we do think investors should assign some option value to international expansion, particularly for Flutter, which has the global operating infrastructure and local brand relationships to scale into new markets more efficiently than US-only operators.

The Bear Case: Taxes, Regulation, and Problem Gambling

Taxation Is the Real Threat

New York charges a 51% tax on gross gaming revenue. Illinois recently implemented a graduated tax rate that reaches 40% for the largest operators. Ohio charges 20%. States are learning that sports betting operators will continue to operate even at punishing tax rates, which creates a ratchet effect: once one large state raises taxes, neighboring states face political pressure to match. If the average effective tax rate across the US rises from the current 25–30% to 40–45%, the entire profit model for operators changes. At 50%+ tax rates, sportsbooks become quasi-utilities running on razor-thin margins. DraftKings' long-term EBITDA margin targets of 20–25% assume average effective tax rates in the high 20s. Every 5 percentage points of additional taxation costs roughly 300–400 basis points of EBITDA margin.

Problem Gambling and Social License

The industry's social license is more fragile than share prices suggest. Problem gambling prevalence rates in the US have roughly doubled since 2018, tracking the legalization wave closely. State-funded responsible gambling helplines report call volume increases of 200–400% in the first two years after legalization. High-profile cases of young adults losing catastrophic sums through mobile apps generate political pressure for advertising restrictions, deposit limits, and mandatory affordability checks.

The UK experience is instructive. After a decade of light-touch online gambling regulation, the UK government introduced sweeping reforms in 2023–24: mandatory affordability checks, restrictions on VIP programs, advertising watershed rules, and enhanced responsible gambling requirements. These reforms compressed operator margins by 500–800 basis points. A similar backlash in the US — triggered by a gambling-related tragedy or a political scandal — could materialize faster than the market expects.

Competitive Intensity

The FanDuel/DraftKings duopoly feels stable, but it is not invulnerable. ESPN Bet has the most powerful sports media brand in America and a parent company (Penn Entertainment) willing to invest billions. Fanatics has 100M+ loyalty members, deep relationships with every major sports league, and $3+ billion in private funding. International operators like bet365 (the world's largest sportsbook by handle) have barely entered the US market. And Big Tech — Apple, Google, Amazon — all have the distribution, data capabilities, and balance sheets to enter sports betting if they chose to. We don't think Big Tech entry is imminent (the regulatory and reputational costs are high), but the possibility alone should temper any assumption that current market shares are permanent.

Valuation Framework: How We Think About the Names

DraftKings (DKNG): High-Beta Play on US Market Maturation

At ~$22 billion market cap and ~20–22x 2025E adjusted EBITDA, DraftKings is priced for meaningful margin expansion and continued revenue growth of 20–25% annually. The bull case is straightforward: EBITDA margins expand from low-single-digits today to 20–25% by 2028 as promotional spending normalizes, hold rates improve, and iGaming scales. That implies $1.5–2.0 billion in EBITDA on $8–9 billion in revenue, supporting a $30–38 billion market cap at 18–20x. The bear case is equally clear: tax rates rise 10+ percentage points, GAAP profitability remains elusive, and SBC dilutes shareholders by 3–4% annually. DraftKings is our preferred pick for investors with high conviction on the US market and comfort with binary-ish regulatory outcomes.

Flutter (FLUT): The Compounding Machine

Flutter at ~$42 billion and 22–25x forward earnings is the “sleep well at night” position in online gambling. GAAP profitability is already established. Geographic diversification hedges US-specific regulatory risk. FanDuel is the market leader in the most attractive single-country market in the world. And the stock has historically traded at a discount to its sum-of-parts valuation because investors struggle to value a Dublin-listed, multi-brand conglomerate. We think Flutter is worth $48–55 billion on a sum-of-parts basis, implying 15–30% upside from current levels before accounting for any iGaming expansion optionality. For quality-oriented portfolios, Flutter is the cleaner investment.

MGM Resorts (MGM): The Optionality Play Most Are Ignoring

MGM trades at 8–10x forward EBITDA, a traditional gaming multiple that assigns minimal value to BetMGM. If you back out the value of MGM's physical casino operations (which generate $3.5–4 billion in annual EBITDA and are reasonably valued at 8–9x), you are paying very little for MGM's 50% stake in BetMGM. If the JV is ever restructured — through MGM buying out Entain's stake, a spin-off, or an IPO of BetMGM — the value unlock could be significant. It is a patient investor's play, not a momentum trade.

Frequently Asked Questions