Sports Betting a Risk For Lenders, BofA Analysts Say — Barrons.com

Dow Jones Newswires

DraftKings

-3.52%

Navient Corporation 6% Senior Notes due December 15, 2043

Flutter Entertainment

-1.23%

By Nick Devor

The spread of sports betting and rise of prediction markets pose an underappreciated threat to lenders such as Sallie Mae, Bank of America Securities analysts wrote in a research note.

"For lenders the increasing availability of online betting markets raises the potential for revolving debt spikes, accelerated defaults, and higher charge-off rates, particularly among subprime borrowers," the analysts wrote, adding that widespread sports wagering represents "a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted."

Credit card issuers and firms that lend to lower-income borrowers "face elevated exposure as behavioral risks intersect with liquidity stress," the analysts wrote, calling out lenders Bread, Upstart, and One Main Financial as those most at risk.

Student loan issuers such as Sallie Mae and Navient could be affected as well, the research note said, and lenders aren't the only ones at risk.

"The negative financial impacts of sports betting are more pronounced for young men, especially in low-income areas," whose limited financial literacy makes them "highly susceptible to compulsive wagering and credit stress."

The research note, issued last week, suggests that the ease of betting on a sportsbook app can lead bettors to quickly accumulate losses without realizing the full extent of the damage done to their bank accounts. Analysts cite a U.S. News survey from July that found 25% of sports bettors have been unable to pay a bill because of their wagering habits.

While sports betting hasn't been legalized in 12 states, including California and Texas, it is effectively accessible nationwide thanks to prediction markets that offer sport event contracts. The federally-regulated financial instruments can replicate the kinds of wagers available on a sportsbook app such as DraftKings, such as parlay bets and wagers on an individual player's performance.

Prediction-market firms Kalshi and Polymarket have had a banner year, putting pressure on the gambling industry and crushing the stocks of DraftKings and FanDuel's parent Flutter Entertainment. But Bank of America analysts wrote that prediction markets don't just threaten sportsbooks.

"As these markets scale, lenders may face indirect exposure if borrowers use credit to fund speculative activity," the analysts wrote, "reinforcing the behavioral risk theme already evident in sports betting."

Write to Nick Devor at nicholas.devor@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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Polymarket Is Cleared to Offer Prediction Markets as U.S. Regulator Remains Quiet on Sports Betting — Barrons.com

Dow Jones Newswires

Flutter Entertainment

-1.23%

By Nick Devor and Bill Alpert

Polymarket can now offer event contracts to traders through brokerage firms, the prediction market announced on Tuesday.

Its return to the U.S. was authorized by the Commodity Futures Trading Commission, the federal regulator that oversees the growing prediction market business.

"With this approval, Polymarket will be able to onboard brokerages and customers directly and facilitate trading on U.S. venues," the company said in a press release.

In a post on X, Polymarket CEO Shayne Coplan called it "a key milestone for permeating the U.S. financial system."

Event contracts, also known as binary options, are built around yes/no questions such as "will the Fed cut rates again this year?"

Polymarket had been banned from operating in the U.S. since 2022 when it let customers buy those contracts without getting approval from the CFTC.

Its prediction market rival Kalshi has been operating in the U.S. as a CFTC-licensed exchange since July 2021. Kalshi won a lawsuit against the regulator in 2024 that allowed it to list event contracts based on political events.

Kalshi's event contracts for the 2024 presidential election brought prediction markets into the cultural mainstream. It has since partnered with Robinhood, which offers Kalshi event contracts on its brokerage platform.

Today's approval from the CFTC allows Polymarket to establish its own partnerships with firms like Robinhood.

Polymarket is still waiting for additional approvals that will allow American users to buy event contracts directly from the prediction market. But Tuesday's CFTC approval is likely to hasten that timeline.

Kalshi and other prediction market platforms like Crypto.com have expanded into event contracts based on the outcome of sporting events, putting pressure on the gambling industry.

The stocks of sports betting titans DraftKings and FanDuel-parent Flutter have been dragged down by the rise of prediction markets' rise, pushing both sportsbooks to unveil prediction market plans of their own.

The gambling industry is divided over whether sports event contracts count as sports bets, subject to state regulations and taxes.

The CFTC, which has been operating with an acting-head since January, hasn't made its position clear on the topic. Michael Selig, President Donald Trump's nominee to chair the CFTC, declined to answer questions during his recent Senate confirmation hearing, deferring to pending court decisions in several lawsuits.

This past week, the CFTC extended its noncommittal approach in a letter to a bipartisan group of seven senators. The group includes Democrat Catherine Cortez Masto from Nevada, where gambling has been regulated by the state for a century, and Republican John Curtis from Utah, where gambling is banned. In September, they asked the CFTC how it was regulating the sports contracts.

"The [CFTC] is implicitly permitting sports gaming products that are regulated by states and tribes," they wrote.

In the new letter, Pham said: "CFTC investigations are nonpublic and confidential." She referred to a Sept. 30 memo — the agency's first and only discussion of sports contracts — in which the CFTC takes no view and says that providers of event contracts assume the risk that courts could outlaw their products.

The most substantial answers in the CFTC's response addressed how the agency allows event contract makers to regulate themselves. The market operators have registered over 1,900 new prediction contracts this year — on matters of sports and other topics — with the operators self-certifying that they are preventing market manipulation and protecting market participants. Pham mentions no agency involvement.

Sen. Cortez Masto, remains unhappy with the agency's hands-off approach. "The CFTC's response is underwhelming and shows either their inability or unwillingness to take their mission of regulating prediction markets seriously," the senator's office said on Tuesday.

The CFTC's decision is only the latest in a spree of institutional stamps of approval that Polymarket has won this year. In October, the parent company of the New York Stock Exchange invested $2 billion in Polymarket. Two weeks later the National Hockey League brought Polymarket and Kalshi on as the league's official prediction market partners, and the Ultimate Fighting Championship announced a similar partnership with Polymarket earlier this month.

Write to Nick Devor at nicholas.devor@barrons.com and Bill Alpert at william.alpert@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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Q3 Gaming Solutions Earnings: Rush Street Interactive (NYSE:RSI) Impresses

Stock Story

DraftKings

-3.52%

Inspired Entertainment

+0.69%

playstudios

+0.31%

PLAYSTUDIOS, Inc. Warrant

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Accel Entertainment

+0.58%

Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at Rush Street Interactive and the best and worst performers in the gaming solutions industry.

Gaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.

The 7 gaming solutions stocks we track reported a mixed Q3. As a group, revenues were in line with analysts’ consensus estimates.

In light of this news, share prices of the companies have held steady as they are up 4.3% on average since the latest earnings results.

Best Q3: Rush Street Interactive

Specializing in online casino gaming and sports betting, Rush Street Interactive is an operator of digital gaming platforms.

Rush Street Interactive reported revenues of $277.9 million, up 19.7% year on year. This print exceeded analysts’ expectations by 4.3%. Overall, it was a very strong quarter for the company with a solid beat of analysts’ adjusted operating income and EPS estimates.

Richard Schwartz, Chief Executive Officer of RSI, said, "We’re pleased to report another strong quarter that underscores the resilience of our business model and player-first approach. Our third quarter results demonstrate continued momentum and acceleration of growth across key markets, led by our continued outperformance in the online casino space. Another quarter of record revenue, up 20% year-over-year, marks our tenth consecutive quarter of sequential revenue growth over the prior quarter. This growth was driven by record player acquisition and strong player engagement across our higher-value markets.

Rush Street Interactive achieved the biggest analyst estimates beat and fastest revenue growth, but had the weakest full-year guidance update of the whole group. Unsurprisingly, the stock is up 1.3% since reporting and currently trades at $18.40.

Is now the time to buy Rush Street Interactive? Access our full analysis of the earnings results here, it’s free for active Edge members.

Inspired

Specializing in digital casino gaming, Inspired is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.

Inspired reported revenues of $86.2 million, up 11.7% year on year, outperforming analysts’ expectations by 3.9%. The business had a satisfactory quarter with a beat of analysts’ EPS estimates but a miss of analysts’ Virtual Sports revenue estimates.

The market seems happy with the results as the stock is up 5.8% since reporting. It currently trades at $8.06.

Is now the time to buy Inspired? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q3: PlayStudios

Founded by a team of former gaming industry executives, PlayStudios offers free-to-play digital casino games.

PlayStudios reported revenues of $57.65 million, down 19.1% year on year, falling short of analysts’ expectations by 3%. It was a disappointing quarter as it posted a miss of analysts’ daily active users estimates and a significant miss of analysts’ adjusted operating income estimates.

PlayStudios delivered the slowest revenue growth in the group. The company reported 2.21 million monthly active users, down 25.3% year on year. As expected, the stock is down 28.3% since the results and currently trades at $0.65.

Read our full analysis of PlayStudios’s results here.

Accel Entertainment

Established in Illinois, Accel Entertainment is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.

Accel Entertainment reported revenues of $329.7 million, up 9.1% year on year. This number beat analysts’ expectations by 0.5%. Zooming out, it was a satisfactory quarter as it also produced a beat of analysts’ EPS estimates but a miss of analysts’ adjusted operating income estimates.

The stock is up 1.9% since reporting and currently trades at $10.12.

Read our full, actionable report on Accel Entertainment here, it’s free for active Edge members.

DraftKings

Getting its start in daily fantasy sports, DraftKings is a digital sports entertainment and gaming company.

DraftKings reported revenues of $1.14 billion, up 4.4% year on year. This print came in 5.6% below analysts' expectations. Overall, it was a softer quarter as it also logged full-year revenue guidance missing analysts’ expectations significantly and full-year EBITDA guidance missing analysts’ expectations significantly.

DraftKings achieved the highest full-year guidance raise but had the weakest performance against analyst estimates among its peers. The stock is up 13% since reporting and currently trades at $31.72.

Read our full, actionable report on DraftKings here, it’s free for active Edge members.

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