Although there is more to the tale, the rise of prediction markets is commonly blamed for the decline in sports betting stocks. However, several experienced investors do not anticipate that yes/no exchanges will overtake established sportsbook operators anytime soon.
Fidelity Portfolio Manager Peter Belisle, who oversees the Fidelity Select Leisure Portfolio (FDLSX), is still optimistic about the long-term prospects for the US sports betting market and believes that investors who penalized sports wagering stocks due to concerns about the prediction market were mistaken.
"I think this perspective is overly simplistic and doesn’t appreciate the difference in product complexity between prediction markets and online sportsbooks,” he says in a recent note. “In 2026 and beyond, I think itwill become increasingly clear that prediction markets are not displacing sportsbooks – and there may be some eventual legal challenges anyway – all of which sets up well for reversing this negative narrative.”
According to Morningstar data, the Fidelity Select Leisure Portfolio has owned shares of DraftKings (NASDAQ: DKNG) since October 2022 and Flutter Entertainment (NYSE: FLUT), the owner of FanDuel, since November 2021. In July of last year, the mutual fund also started investing in a sports betting data provider. The $591.7 million fund only owns those sports betting names.
Belisle believes that Duopoly helps FanDuel and DraftKings
It is well known that DraftKings and FanDuel dominate what amounts to an online sports betting duopoly because they hold the top two positions based on market share in practically every state where those operators provide sports betting.
As competitors fight to steal market share from those businesses or leave the sector entirely, that advantageous posture may be strengthened over time. In those situations, Belisle sees advantages for Flutter and DraftKings.
“Existing players that haven’t established a dominant position (e.g., Penn Entertainment) are under tremendous pressure to deliver profits, while others have already exited the field (i.e., Wynn Resorts),” observes the portfolio manager. “The upshot of this is a likely decrease in marketing/promotional spend and improved profitability among established players in this space going forward.”
Wynn Resorts (NASDAQ: WYNN) was the only gaming brand to be among Belisle's fund's top ten holdings as of January 31.
Belisle is optimistic about US sports betting in the long run
Shares of DraftKings and Flutter are undoubtedly under pressure, but there is growing belief that both firms have been condemned too severely and that patient, risk-tolerant investors might find them worthwhile.
Belisle is optimistic about the long-term prospects of the US sports betting market, pointing out that although half of US adults had access to this type of betting at the end of the previous year, penetration rates remained low, suggesting potential for expansion.
“Right now, online sports gambling is a ‘winners-take-most’ market dominated by a small number of players,” Belisle concludes. “And we are nowhere near mature, long-term duopoly economics, meaning the stocks appear meaningfully cheaper on a true long-term economic basis.”
