Sports betting was federally legalized in the United States in 2018, yet it took the nascent online sports betting industry a while to reach Wall Street. Now that there are a number of public companies looking to capitalize on the growing market, I’m going to break down the intricacies of the industry and some of the potential opportunities and pitfalls that may arise for investors.
Draftkings (NASDAQ:DKNG) is a recently public company that has leveraged its position in Daily Fantasy Sports (DFS) to carve itself a chunk of the market in the much more profitable online sportsbook and casino industry. More streamlined and scalable than its competitors, Draftkings’ sole focus is online gambling, meaning it’s not restricted by maintaining and operating physical casinos, racetracks, or betting shops. A partnership with the NFL promises to reap dividends when the football season kicks off.
Flutter Entertainment (LON:FLTR) is a gambling conglomerate comprising of a number of British betting heavyweights such as Paddy Power, Skybet, and Betfair, as well as online poker and casino company The Stars Group. Perhaps the most important branch of Flutter’s extensive portfolio of brands in terms of the online sports betting market is Draftkings’ primary competitor in DFS, Fanduel, who in turn has a similar partnership with the NBA.
While it possesses much more expertise in online sports betting thanks to its many years of experience in the U.K. and Ireland, the stock itself has a few obstacles which make it less accessible than its American counterparts for investors, not least of which its 5 figure price and the fact that it’s traded on the London Stock Exchange.
Penn National Gaming
An operator of casinos and racetracks across North America, Penn National Gaming (NASDAQ:PENN) is a funny name to see at the forefront of a burgeoning industry, and unsurprisingly, it’s a lot to do with a shrewd acquisition by the company. At the start of the year, Penn bought 36% of Barstool Sports. The media company has a massive cultural following, especially amongst young males, which will be leveraged by Penn to launch Barstool Sportsbook. The new service is aiming to be live before the NFL season kicks off this year. The power of Barstool’s following should not be underestimated in this context.
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There is also free advertising from Barstool CEO David Portnoy, whose personal account has a massive following across Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB). His day trading escapades have brought him a lot of eyes in recent months and he will be sure to utilize and coordinate this attention with the launch of the company’s sportsbook.
Recently public GameAccount Network (NASDAQ:GAN) provides an interesting alternative to the list of betting providers listed here. It’s an online gambling software provider, or as it describes itself, a “turnkey online casino & sports wagering solutions.” Essentially it provides the framework to allow betting providers to move their operations online.
Think of it in terms of how Shopify (NYSE:SHOP) allows retailers to move to e-commerce with relative ease. With a swath of new upstarts and old stalwarts both looking to take advantage of the new currents in the market, GAN could be a strong agnostic bet on the industry as a whole, much like Roku (NASDAQ:ROKU) is for those who believe in the future of streaming, without wanting to stake their money on Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), or Amazon (NASDAQ:AMZN) winning out.
Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Wynn Resorts (NASDAQ:WYNN) are some of the biggest gambling businesses in the world. Their respective hotel and casino empires span across the globe. It is hard to see these gambling giants remain quiet while a new tide washes across the industry which they have stood at the helm of for so long.
MGM already has its own online sportsbook known as BetMGM, as well as a strategic partnership with Yahoo Sports. Caesars has penned a deal with Disney (NYSE:DIS) owned ESPN to bring sports betting content to the masses. It is important to know that these businesses are not standing still, yet their online presence will always be ancillary to their main resorts operations. If you are a firm believer in the online gambling trend, an investment in a business with that as its sole focus may be more suitable.
It’s rare to see an industry so clearly at the precipice of taking off. All indicators point to online gambling growing like gangbusters, not least of which the fact that states across the country are going to be scrambling for new sources of revenue due to the economic downturn caused by the shutdown. As the legal decision is now within the power of each individual state, expect a wave of new regions to open up to online sports betting over the next few years. For a more detailed rundown of the legal status of gambling in each state, check out the following two resources on the topic:
- Legal Sports Report – U.S. Betting Sites
- United States of sports betting: An updated map of where every state stands
If we look at the exuberance surrounding the stocks themselves, it’s clear that investors are thinking along the same lines. Draftkings has doubled since its reverse merger, GAN has shot up 25% in the past month since going public, and Penn is up 600% since its March lows in which cash flow problems sent the stock nosediving.
Like any new high-reward opportunity, investing in the U.S. gambling industry is fraught with risks, the very least of which is the money you might lose by being a customer of one of these businesses.
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Due to the nascent nature of the industry, there is no clear market leader. While the old casino stalwarts have a long-established history on the public markets, I think it’s safe to assume that the online sportsbook is a completely different kettle of fish for these companies. On the other hand, the newer, tech-focused companies have seen a huge influx of investor attention and sentiment with very little track record to speak of. Expect ludicrous valuations aplenty based primarily on potential in this industry for the next few years, with an ever-present risk of betting on the wrong horse.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.