Sports betting stocks have been in the news quite a bit in 2020 for multiple reasons. First, the sports betting industry has been on fire in the U.S. ever since the Supreme Court struck down the law preventing sports betting back in 2018. The 1992 law had previously prohibited states from authorizing sports betting activity in their state. The reversal means that states can decide for themselves whether or not to permit legal sports betting for their residents.
Additionally, while many industries were impacted by COVID-19 in 2020, the casino and gaming industry was hit particularly hard. With travel collapsing, many of the destination gaming sites such as Las Vegas were hit extremely hard. This has accelerated the opportunity of the new crop of gaming companies such as Draft Kings and Fan Duel who are aiming to dominate online based sports betting.
Lastly, the legalization of sports gambling has had a profound impact on media companies as well. While media companies continue to struggle to properly monetize their audiences, gaming companies are looking at these media companies and their respective audiences as ways to reach new gambling customers. Hence, you’ve seen acquisitions such as Penn Gaming’s (PENN) purchase of Barstool Sports. Even without actual mergers and acquisitions, every major media company is working to strike lucrative deals with gaming companies in order to capture their share of the value.
The potential is huge. Morgan Stanley estimated back in 2018 that “there could be $216 billion legally wagered on sports by 2025.” Sports betting has the potential to fuel growth for gaming companies as well as interest for sports leagues that are seeing declines in television ratings (which could impact TV contract revenues down the road).
Where is sports betting legal? While betting is legal in 18 states plus Washington, D.C., it is coming or just went live in Virginia, North Carolina, Tennessee and Washington. It’s important to know that sports betting being legal doesn’t mean the same thing in every state. Some states permit sports betting via online mobile apps, others require you to do it in person at a casino. Still the trend seems to be increased legalized sports betting via online and mobile apps across more and more states.
So, what are the best ways for investors to capitalize on this huge trend? Let’s look at some sports betting stocks worth consideration:
Best sports betting stocks
DraftKings might be one of the best pure plays if you wish to invest in the future of online gaming. While a number of traditional gaming companies that still own huge casinos in places like Las Vegas are also capitalizing on the increasingly mobile betting space in new states, DraftKings is born of and participates in the new era of legalized sports betting.
While the company is still not profitable as it focuses on market share and growth, the company looks to become profitable in the years ahead. DraftKings has announced a partnership with ESPN in which they hope will drive more new sports bettors to the company’s gaming platforms.
MGM Resorts (MGM)
MGM along with other traditional casino stocks took a beating in 2020 with the collapse of tourism and travel. However, it is MGM’s BetMGM subsidiary (in which MGM owns as a joint venture along with GVC) that looks to the future. BetMGM is operational as a digital gaming platform in a number of states and continues to grow.
Penn National Gaming (PENN)
Penn National Gaming became a household name for young sports fan due to its acquisition of Barstool Sports early in 2020. Barstool Sports has a rabid following of young sports fans making it a prime acquisition target looking for a foothold for the next generation of sports bettors. Penn does have actual casinos and betting locations in various locations around the country, but it is obviously looking to digital as its main growth prospects of the future.
Caesars Entertainment (CZR)
Caesars, like MGM, is a traditional casino company that is looking to capitalize on the next era of sports betting in the U.S. Caesars is also tied up with William Hill which has a firm foundation in online sports betting, so further partnerships and/or a merger are possible.
GAN stands for GameAccount Network and is a company that provides software and back-end services to casinos and gaming companies. GAN is a way to play the “infrastructure” side of the sports betting boom if you’d prefer to not take a position in an actual gaming and casino company.
Bonus: Roundhill Sports Betting & iGaming ETF (BETZ)
If you aren’t sure what sports betting stock to purchase individually, you could opt for the ETF which owns a basket of such companies. A number of the sports betting stocks mentioned in this article are represented within the BETZ ETF, so give that a glance.
Should you own sports betting stocks?
As an investor, I do like participating in companies that are leaders in expanding and growing spaces. Sure you could own the best company in a declining category (e.g. tobacco, oil, or cable television for instance), but I’d prefer to have exposure to companies that have the tailwind of a growing marketplace. Sports betting is indeed that.
While digital continues to encompass more and more of our lives through things like food delivery (Door Dash, Uber Eats), household goods delivery (Amazon), entertainment (Netflix), transportation (Uber), radio and audio entertainment (Spotify), is it really such a surprise that sports betting should also get dominated over time by digital platforms?
I’d be concerned about traditional casino revenues that are reliant on tourism and travel especially as digital gambling becomes more possible in more and more states. You might think of it similar to the choice between going to a movie theater or staying home and watching Netflix. And of course, COVID-19 has accelerated all of this even more. Travel, tourism and conventions are still struggling mightily, so traditional casino operators are going to rely heavily on future growth to come from digital.
What are some things to look for? An easy one to pay attention to is the legalization of sports betting in more and more states. Sports betting in Tennessee became legal just this week, and a number of operators are already up and running. BetMGM and DraftKings for instance are already accepting bets on sports for Tennessee residents. As more and more states come online, the online market place only gets bigger and bigger for these companies. Additionally, it will be interesting to see if the pure digital players get acquired by the larger, global gaming companies. With fierce competition and more and more companies in “landgrab” mode to acquire new customers, it’s possible we see a round of consolidation later.
We’ll continue to provide updates on the gaming industry in the U.S. and our views on these various sports betting stocks as things progress.