AI in casinos and sports betting is starting to make a lot of sense (NASDAQ:DKNG)

AI is being used in various ways across the casino and sports betting sectors. Behind the scenes, casino giants MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) have implemented more AI initiatives after high-profile hacking incidents in 2023. Generative AI applications with fraud detection and the identification of suspicious activity are seen as more advanced than former systems.

Online gaming is also using AI to monitor potential fraudulent activity and maximize the promotional side of the business, by strategically timing and placing player offers and bonuses.

Sports betting operators have an even better house edge as AI-powered predictive analytics improve. Improved odds’ calculation and real-time data processing are becoming even more important as in-game betting soars in popularity. AI systems can analyze live data streams from games, processing real-time information such as statistical trends, player movements, and injuries. AI can also help with risk management, which is in focus after many sportsbooks suffered surprisingly low or even negative hold rates for the 2024 Super Bowl and NCAA college basketball tournament. While a greater use of AI may not have prevented sportbooks from being exposed to the positive Taylor Swift-boosted Kansas City Chiefs sentiment and the heavy action on East Coast favorite University of Connecticut, the tracking of new customer acquisitions and subsequent revenue per monthly user metrics will help management teams weigh the ultimate benefit or cost of having an unbalanced book against the public.

Picking AI winners

Morgan Stanley identified DraftKings (NASDAQ:DKNG) as a company that is ahead of peers in AI adoption. The Boston-based sports betting juggernaut has been using AI and machine learning with its same-game parlays and daily fantasy sports contests, which are both high-margin products for the company. While DraftKings (DKNG) has been investing in machine learning for ten years, the company is now looking for AI to be a larger focus of the business. Jefferies thinks having the most advanced technology in the competitive OSB market could drive differentiation for DraftKings (DKNG) over time. In particular, DraftKings (DKNG) is seen as having an edge in applying AI efficiencies to the odds-setting process and in customer service, which drives a large portion of its operating expenses.

Gambling products and services provider Light & Wonder (LNW) has been singled out as a potential ALI sleeper. Jefferies analyst David Katz highlighted that LNW has been exploring AI use across all avenues of the business. Chief Technical Officer Victor Blanco has been spearheading the initiative to look for ways that AI can improve efficiencies in some of the company’s more manual tasks. In an interesting twist, Light & Wonder (LNW) is looking for ways to aid mathematical models for slot machines using AI, as well as give game designers another tool to help with the creative process.

Casino operator Red Rocks Resorts (RRR) has also been using AI under the radar. Katz outlined how Red Rocks Resorts (RRR) has been implementing early-stage strategies to leverage the use of AI to manage costs, optimize staffing levels, manage inventory, and streamline processes that lead to cost savings. “In particular, the performance of basic functions could create efficiencies in staffing across the record processing and reporting aspects of the business,” he said. Similar to MGM (MGM) and Caesars (CZR), Red Rocks Resorts (RRR) is expected to use AI as a tool for detecting fraud in transactions.

Dig in further on how AI is being used broadly across the broad casino, sports betting, and iGaming sectors.

PENN Entertainment (PENN) Q1 earnings transcript

Sphere Entertainment (SPHR) Q1 earnings transcript

Sportradar (SRAD) Q1 earnings transcript

DraftKings (DKNG) Q1 earnings transcript

Genius Sports (GENI) Q1 earnings transcript

Playtika (PLTK) Q1 earnings transcript