Sports betting ETFs are experiencing an increase in activity DraftKings Inc (NASDAQ:DKNG) shares are plummeting, highlighting the way increasing competition from prediction platforms is spilling over into gaming and gambling-based ETF markets.
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Sports betting ETFs are feeling the chill from DraftKings
Leverage and reverse products such as Defiance Daily Objective 2X Long DKNG ETF (NASDAQ:DKNX) and T-REX 2X Long DKNG Daily Target ETF (BATS:DKUP), which offer dual exposure to DraftKings’ daily performance, have also seen their trading volumes rise due to the selling pressure. The two ETFs now act as high-octane sentiment indicators for stock volatility.
DKNX, which rises twice as much as DraftKings rises and vice versa, has fallen more than 49% in the past four weeks as investors hedge against more losses. The fund lost almost 11% on Friday.
Once again, DKUP, which offers leverage on the same stock, has fallen in line with DraftKings’ decline. The price has fallen by more than 50% in the past four weeks. The fund fell almost 13% on Friday.
The Roundhill sports betting and iGaming ETF (NYSE:BETZ), the largest fund tracking the sports betting industry, is down about 10% over the past month after DraftKings, one of the most heavily weighted holdings, fell more than 27%. The fund lost more than 2% on Friday.
Prediction markets distort the playing field
The latest impediment to DraftKings-linked ETFs comes from the explosive growth of Kalshi, a prediction market platform that recently raised $300 million to reach a $5 billion valuation. according to to The New York Times.
Kalshi’s surge in global volume has fueled fears of a long-term disruption of traditional sportsbooks, prompting ETF investors to reassess their exposure to legacy gambling names.
Analysts are not part of the panic
Nevertheless, ETF investors may simply be resetting their exposure, rather than abandoning the theme entirely. With DKNG technically oversold and the sport’s seasonality on the horizon, the setup for a mean-reversion trade through ETFs like DKUP could be attractive.
On Thursday, Berenberg upgraded his rating on DKNG from Hold to Buy, buoyed by the company’s impressive growth and margin expansion. Berenberg said in his note that the current “sell-off is overdone” and that the company’s fundamental performance remains unchanged.
Mizuho also maintained its Outperform rating for the company, indicating that analysts are more likely to rely on the fundamentals rather than the company’s competitive threats.
This optimism around DKNG could bode well for ETFs exposed to DraftKings.
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