What happened
Shares of DraftKings (DKNG -0.87%) climbed 5.6% on Wednesday after a rival sportsbook operator said it would pull back on ad spending.
So what
With its losses mounting, Caesars Entertainment (CZR -1.64%) plans to dial back its marketing investments in an attempt to improve its flagging profitability.
Caesars spent heavily to expand into newly legalized sports betting markets. But after obtaining a significant share of the U.S. sports gambling market faster than it expected, the casino giant will rein in its customer-acquisition efforts.
"You are going to see us dramatically curtail our traditional media spend effective immediately," CEO Tom Reeg said during a conference call with analysts. "We have accomplished what we set out to do."
Going forward, Caesars will focus its ad spend on newly launched markets.
DraftKings' stock rose on Wednesday on the prospect of a more profitable future. Image source: Getty Images.
Now what
Intense competition -- and a corresponding need to market aggressively to attract new customers -- have led many investors to question whether online betting companies like DraftKings can generate enough profits to justify their lofty stock valuations. But if industry leaders like Caesars become more disciplined in their growth plans, DraftKings could be presented with a favorable choice: keep spending and gain market share or cut spending and boost profitability.
Either outcome would be better than the one in which DraftKings has found itself over the past few years. The digital betting platform has racked up massive losses in a brutal battle for market share. Yet DraftKings' management believes the company can achieve positive adjusted earnings by the fourth quarter of 2023, and it's possible that a more disciplined competitive environment could push that timeline forward.
