The sports betting market was shocked with the announcement that PENN Entertainment Inc (NASDAQ: PENN) entered into a 10-year licensing deal with Walt Disney Co (NYSE: DIS) to launch the ESPN Bet platform later this year.
Analysts were mixed with the impact on Penn Entertainment given the strong dominance of several players in the sports betting sector.
Here's a look at what Ark Invest is saying about the news.
What Happened: Sports betting company DraftKings Inc (NASDAQ: DKNG) recently reported second-quarter results that saw strong market share and led to guidance being raised.
DraftKings and FanDuel, a unit of Flutter Entertainment (OTC: PDYPY), have dominated the sports betting market with a handful of companies vying for third, fourth place and what's left.
Penn Entertainment gaining market share and challenging the dominance of DraftKings and FanDuel is not seen as a strong conclusion by Ark Invest research associate Andrew Kim.
"Operated by Penn, ESPN Bet should benefit from exclusive promotions by ESPN, including programming, content, and talent," Kim said.
News of the partnership with Disney for the ESPN brand also came as Penn announced it was selling the Barstool Sports brand back to its original founder Dave Portnoy. The Barstool Sportsbook will be rebranded to ESPN Bet.
"Despite Barstool's eminence as a standalone media company, Penn's Barstool Sportsbook failed to capture meaningful market share in U.S. sports betting, as measured by share of consumer deposits," said Kim.
Kim adde that Barstool Sportsbook had a market share of 4% in June 2023, compared to 34% and 30% for DraftKings and FanDuel, respectively.
"If Penn could not win market share with Barstool, how will it fare with ESPN, a legacy media propriety battling a multi-year decline in market share?" Kim said.
ESPN has seen its cable subscribers decline from its peak of 100 million in 2010 to around 71 million today, Kim noted.
"While no company has been able to penetrate the DraftKings-FanDuel duopoly, could ESPN Bet be the first? We would be surprised."
Why It's Important: The Ark Invest Big Ideas 2023 highlighted the belief that sports betting will grow 27% annually over the next five years.
Ark Invest Associate Portfolio Manager Nick Grous previously told Benzinga that DraftKings has stood out due to its back-end technology and vertical integration compared to other sports betting companies.
"It allows you to be more nimble than other competitors," Grous said. "That was one of the main reasons we were interested in DraftKings."
Grous also said that DraftKings has shown its willingness to go into new spaces of the sports market like media and content creation and non-fungible tokens over the past two years.
DraftKings is a key holding in three of the Ark Invest ETFs. The sports betting company is the seventh-largest holding in the flagship Ark Innovation ETF (NYSE: ARKK) representing $332.4 million in assets and a 4.3% weighting in the fund.
The Ark Next Generation Internet ETF (NYSE: ARKW) also holds DraftKings shares. The stock is the ninth-largest holding of the ETF representing $64.0 million in assets and a 4.5% weighting in the fund.
The Ark Fintech Innovation ETF (NYSE: ARKF) also holds DraftKings shares. The stock is the third-largest holding of the ETF representing $65.7 million in assets and a 7.0% weighting in the fund.
Along with holding shares of DraftKings, the other sports betting-related company owned by Ark Invest is Genius Sports Ltd. (NYSE: GENI), a data provider of sports leagues including the NFL for sports betting and sports media companies.
DraftKings CEO Jason Robins recently shared with Benzinga that he's excited for the upcoming NFL season and what the company has planned in the fall.
Speaking before the Penn and ESPN deal was announced, Robins said the company has defended itself against the competition every year and hit at the importance of nearing profitability.
DKNG Price Action: DraftKings shares were trading Tuesday at around $28.50 versus a 52-week trading range of $10.69 to $34.49. Shares of DraftKings are up 158% year-to-date in 2023.