Businesses, like lawmakers, who once mapped the digitalization of their operations in one- to five-year phases have been accelerating the speed at which they create, implement and assess such initiatives. Be it the boom of the online food and grocery home delivery industry, or the global shift to virtual learning, COVID-19 has forced us to move into an online business environment.
Sports betting companies lie in an industry of particular interest, over the past two months, US policymakers have made significant strides in legalising sports betting – however, most are limiting it to in-person betting. Currently, 26 states have, some even as of November, legalised sports betting; a sharp uptake of the legislature considering 2019 was the first full year of legal sports betting in the USA.
However, only seven states have fully legalised online sports betting – but what if more will follow? A key driver for the legalization of gambling online is the generation of government revenue. Since COVID-19 rocked the States’ budgets, it may be in their interest to legalize and enable individuals to bet online, in turn, increasing tax receipts.
Since the legalization of online sports-betting has only occurred in recent years, current bettors operate mostly in illicit markets – worth between $50 billion and $200 billion. Additionally, since potential bettors may be unwilling to wager on black markets, it’s estimated that legalization may motivate between $7 billion to $30 billion in wagers from new customers through new bookmakers. This mammoth market is direct competition to its already-legal counterpart which, according to the American Gaming Association, saw $13 billion in online sports wagers in 2019.
Together, the addressable market may be between $70 billion and $243 billion. So how may one cash in?
Draft Kings ($DKNG): 369% YTD return.
Valued at $19.6 billion, DraftKings is the biggest online sports-betting company in the US with a dominant position in fantasy sports betting. According to Eilers & Krejcik Gaming, DraftKings has roughly a 30% market share of the US online sports-betting market. It has bolstered its brand awareness through (1) welcoming Michael Jordan as a special advisor to the company’s board and (2) partnering with ESPN, whereby $DKNG will be the exclusive provider for their fantasy sports betting services. Amidst the growing digitalization of sports betting, real and fantasy, DraftKings is securing strong footing in the online markets.
Penn National Gaming
Penn National Gaming ($PENN): 184% YTD return.
With a market capitalization of $11.5 billion, Penn National Gaming shares have soared this year, following their investment in Barstool Sports, the founder of which, Dave Portnoy, is nothing short of a talented marketer with a massive social media presence; his company hosts 66 million monthly users that $PENN could introduce to sports betting. Shifting its exposure from brick-and-mortar venues to online platforms, $PENN’s investment into Barstool Sports is spearheaded by their new betting app, released initially in Pennsylvania on September 15th.
In August, $365 million in sports wagers were placed in Pennsylvania, a 122% increase from July. Barstool Sports plan to expand their sports betting-app to Illinois and Colorado, further cementing Barstool Sports’ position, and therefore growing $PENN’s market share, amongst sports betting stocks. Generally, the method of increasing app signups has been to offer betting signup bonuses or offers, similar to their UK counterparts.
ETFs: Funds with broader exposure to global sports-betting and online-gambling industries.
The Roundhill Sports Betting & Gaming ETF ($BETZ): 52% YTD return.
Formed of companies from the US, UK, Australia and Ireland, the ETF was introduced in June.
VanEck Vectors Gaming ETF ($BJK): 6% YTD return.
A fund with exposure to the global gaming industry, focusing on casino operators.
The COVID-induced stimulus checks and sports-betting apps may cause an influx of sit-at-home bettors, drastically increasing the customer base. As the legalization of online sports betting is becoming a question of when and not if, which firm(s) will capture the market’s growth? Whether it’ll be today’s gambling hegemons or master marketers, the industry will be addressing a larger market, but surely it won’t be without digital business-oriented regulation and consumer protection.