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Online Sports Betting Surges But DraftKings’ Cash Burn Continues to Intensify; We Prefer More Conservative Gaming Plays Such as Churchill Downs

publication date: Feb 19, 2023
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Image: Online sports betting platform DraftKings continues to burn through hundreds of millions of dollars each year. Data: SEC Filings, Seeking Alpha. 

Over the past 52 weeks, Churchill Downs’ stock has advanced ~10%, while DraftKings’ stock is down ~7% and Penn Entertainment’s shares have fallen over 34%. Online sports betting will only grow as more and more states pass laws in favor of its adoption and more and more consumers take up gambling as a hobby, but the best risk-adjusted opportunities may still rest with the more traditional gaming operators that aren’t burning through hundreds of millions in free cash flow every year to chase growth. We don’t like the moral underpinnings of the gambling industry at all, but we cannot deny the long-term growth potential of the industry. Churchill Downs may not be levered to online sports gaming anymore, but the company remains free cash flow rich with a tremendously lucrative asset base, and for that, it’s one of our favorite picks in the group.

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