Why DraftKings & Penn Stocks End 2021 Down Big While MGM & Caesars Soared

In March, some sports gambling stocks were as hot as sports gambling itself. DraftKings hit $70 a share, while Penn National soared to $136.

And yet, the year end numbers tell a very different story.

DraftKings and Penn are down more than 60% from those highs and nearly 50% in the course of a year.

Meanwhile, brands thought of as less sexy — because they are more associated with brick and mortar buildings and having other concerns such as hospitality and rooms — went soaring. MGM and Caesars are up 45 and 26 percent, respectively, over the last year.

So what happened?

Well, first both DraftKings and Penn buys came from a more unsophisticated market, typically among the top stocks bought on Robinhood by a more youthful population. Penn, especially, because of the Barstool angle.

"I think there was a lot of fast money in those retail stocks," said Will Hershey, CEO of Roundhill Investments, which offers its BETZ, an iGaming and betting ETF that has about $300 million in assets and is up 60% in the year and a half since its founding. "A lot of the people who bought in there were just of the belief that a stock doubles every six months. I think the MGM and Caesars shareholder is more sophisticated."

MGM, together with its partner Entain, has performed better than expected, while Penn and DraftKings have been less than impressive.

"After March, people started to move away from the big names that just had high valuations to more of the value companies that had real profits," Hershey said.

2021 Gaming Stock Movement

Flutter, FanDuel's owner, is profitable, thanks in part to its huge presence in iGaming. DraftKings is not. While some are patient to watch the company spend an average of $80 million a month on marketing, others are not. Legendary short-seller Jim Chanos has publicly staked his bet against DraftKings.

Hershey said how the market has become more sophisticated could be seen by the market reaction to the announcement of which books received licenses in New York for next year.

"I think there used to be all these algorithms that every single time any state approved any book, there would be a buy on those stocks," Hershey said. "When New York was announced, especially given the tax rates, that didn't happen."

While sports gambling is the sexy part of the operation, iGaming has been huge for revenue, especially for market leaders MGM and FanDuel.

Said Hershey: "Not only does iGaming provide a more predictable algorithm for win/loss, it's also more diverse than sports betting — with a closer to 50/50 male-female split as compared to sports gambling which is almost entirely male."