According to Jefferies Equity Research analyst David Katz in an October 4 investor note, controversial ESPN Bet “continues to gain momentum as it successfully converts non-bettors from the ESPN ecosystem.”

Despite his favorable outlook on ESPN Bet, which he called a modest positive for Penn Entertainment, Katz concluded that he didn’t expect it to make a significant impact on market leaders FanDuel and DraftKings. As such, he said DraftKings and FanDuel progenitor Flutter Entertainment remained his top stock picks in the sports betting sector.

While ESPN Bet isn’t making substantial inroads into the two market leaders, Katz found that it’s growing the online sports betting market (OSB) instead. Not only did 32 percent of 302 “avid sports bettors” surveyed by Jefferies use ESPN Bet, 92 percent of them placed their first wager with it.

Half of users surveyed joined ESPN Bet due to their familiarity with the brand. Said Katz, “ESPN Bet has made significant strides toward establishing itself as a top OSB platform in terms of initial volume, which supports continued momentum in PENN near-term.”

However, Jefferies’s focus group had a number of issues with ESPN Bet. They found its repertory of wagers to be narrower than the competition and its odds inferior. User experience and interface with the ESPN Bet application were also found wanting. The tendency of ESPN on-air talent to promote what were described as unfavorable wagers was another knock, with rival providers believed to have more media credibility.

On the plus side, the aesthetics of the ESPN Bet app were considered among the three best. Promotional offers were also deemed attractive, but when they ran out, punters gravitated back to their default loyalties.

Among the reasons cited for this were weaker parlay offerings and ease of use. Said Katz, “The product offerings for ESPN Bet would need to improve to challenge the top two platforms.”

Katz extrapolated that Penn’s “shares could reflect continued momentum in the near term, on the positive data points here on growing the market by capturing new players through its media channel.” Even so, he said the quality of the ESPN Bet product would be the ultimate determinant.

Although FanDuel enjoys the greatest United States market share at present, Katz found continued strength in rival DraftKings. While BetMGM is revamping its product in hopes of higher performance, Caesars Sportsbook was seen to be growing market share. Overall, the U.S. “market continues to grow larger than expected, with the current football season likely to result in positive data points.”

Good news for the sector is growing spending by bettors. Of the Jefferies focus group, 79 percent had bet more than $50 in the last year, up from 61 percent. Of those using ESPN Bet, 41 percent had wagered $51 to $100, up from November 2023’s 22 percent.

“ESPN Bet has not only grown the overall sports betting market, but the amount wagered by users has skewed higher with a majority of respondents betting between $51 and $200,” Katz elaborated. “This trend is also apparent in the broader sports betting market with spend per customer generally increasing, which will ultimately be beneficial to the financials of the sports betting operators.”

Among the focus group, those who bet between $51 and $100 had grown 11.4 percent, while those who wagered $101 to $200 were 9.3 percent more numerous. Low rollers were fewer in number, with punters who bet less than $50 down 17.7 percent.

This doesn’t mean DraftKings or FanDuel are losing momentum, Katz noted. Of those respondents who were active bettors, 57 preferred DraftKings while 48 percent opted also for FanDuel. Thirty-five percent placed ESPN Bet in their top two.

“Additionally, there is evidence that [Caesars Sportsbook] has gained ground among players, while BetMGM lags behind the peer group as, earlier this year, MGM announced FY24 will be another investment year for the digital segment,” Katz wrote.

“The ESPN deal with PENN has proven to expand the overall sports betting market by converting non-bettors,” Katz continued, “which is a modest positive for the digital segment. However, our data also suggest there is low likelihood that bettors will switch to ESPN Bet from other platforms.

“Furthermore, we continue to see that the top two players will be minimally impacted by ESPN Bet and, instead, could gain from a growing market as the apps for both DKNG and FanDuel offer superior experiences,” the analyst summarized.