Sports betting stocks are one of the hottest areas of the market right now, and industry experts expect more of the same in the years ahead.
It’s difficult to get a pulse of exactly how big the industry might become; estimates for the size of the sports betting market vary greatly in size and time horizon. Independent research firm Gambling Compliance says the U.S. betting market will range between $5.9 billion and $8.2 billion by 2024. Morgan Stanley believes the U.S. sports betting market could hit $10 billion annually by 2025; globally, it sees sports betting topping $100 billion. BofA Securities sees the U.S. market hitting $24 billion by 2030.
But one thing is clear: The stakes are high. The fact that a thematic ETF – the Roundhill Sports Betting & iGaming ETF (BETZ) – hit $100 million assets within three months of launching is indicative of just how high the stakes have gotten.
“Every play and move in sports entails an outcome that can be bet on,” says Luke Lloyd, a wealth advisor and investment strategist at Strategic Wealth Partners. “Sports betting allows people to be more engaged in the game, specifically every play, usually making it more fun and entertaining to watch.”
“Also, the rise of fantasy sports has increased the engagement from the younger generations, leading to a path of growth for many companies in the long-term as sports-betting makes its way throughout the United States and the world.”
Read on as we evaluate seven of the best sports betting stocks in the market. Each of these picks provides access to gains in sports wagering, though some are more direct bets on the trend, while others are more diversified plays on gambling generally.
Data is as of Sept. 27.
- Market value: $18.9 billion
- YTD return: 203.4%
DraftKings completed its reverse merger with the Diamond Eagle Acquisition Company SPAC on April 24. DKNG stock closed its first trading day at $19.35 per share, up from Diamond Eagle’s $17.53 close the day prior. In the five months since, it’s up almost 175%.
Analysts love the stock and the online gaming industry in which it competes. Of the 16 analysts who cover DKNG stock, 10 rate it a Buy, with the rest calling it a Hold. DraftKings has run hot, with its current price above the average target of $49.29, but analysts are raising the bar further. For instance, Evercore ISI analyst Kevin Rippey initiated the stock at Outperform on Sept. 9, giving it a $60 price target.
More recently, Argus Research’s John Eade started the company at Buy with a $65 price target, writing that “though we don’t expect DraftKings to post a profit this year or next, we do look for profitability in 2022 and solid growth over the remainder of the decade as the company benefits from economies of scale.”
DraftKings will be helped with its recently announced partnership with ESPN that will make it an exclusive provider of fantasy sports, as well as a co-exclusive partner for gambling link-outs. If you’re a sports fan, you know how vital a relationship with ESPN could be to growing its future customer base.
The company also recently signed Michael Jordan as a special adviser to the company.
Interestingly, DraftKings CEO and co-founder Jason Robins has signed on as a founder of First Mark Acquisition Corp., a SPAC looking to raise $300 million and merge with a tech-related business. The venture capital people behind this SPAC also were a lead investor in Pinterest’s (PINS) first round of seed financing and invested in every subsequent round of funding.
Investors shouldn’t worry. Robins will continue to focus on his day job of running DraftKings.
- Market value: $25.6 billion
- YTD return: 36.1%
FanDuel and DraftKings called off a planned merger due to regulatory concerns a little more than three years ago.
The two fantasy sports platforms together would have controlled more than 90% of the U.S. market. As a result, the Federal Trade Commission sued to block the transaction from making it to the finish line. Wisely, the powers that be saw a long, drawn-out legal battle as expensive to wage and terrible for each business’s overall focus.
As we mentioned, DraftKings merged with a SPAC. As for FanDuel, it merged with Paddy Power Betfair’s U.S. operations in 2018. Paddy Power contributed its U.S. assets plus $158 million in cash to the deal, some of which was used to pay down FanDuel’s debt. Paddy Power shareholders got 61% of the merged entity with options to increase the ownership to 80% and 100% over time.
FanDuel had annual revenue of $124 million and 1.3 million active customers at the time. Analysts predicted at the time that annual sports betting in the U.S. would reach somewhere between $2 billion and $6 billion by 2022.
In 2019, Paddy Power Betfair changed its name to Flutter Entertainment (PDYPY, $76.03), but as you can see, it retained the PDYPY ticker that trades over-the-counter.
A year later, Flutter completed its $12.2 billion merger with Stars Group, operators of PokerStars, the world’s largest poker site. Flutter shareholders got 55% of the company, with TSG investors getting the rest.
Despite the shutdown of sports during the pandemic, Flutter focused on its U.S. sports betting operations.
“At our full year results in February, we outlined how we expected to offer FanDuel’s online sportsbook to 21% of the U.S. population in 2021 (across nine legislated states),” Flutter stated in August. “Since then legislation has also been passed in Virginia (2.5% of US population), with planned referenda in Maryland and Louisiana in H2 to potentially approve sports betting there also.”
In the first six months of 2020, in the five states where it had sports betting online, Flutter held a 44% market share. In the two states where it had online gaming, it had a 27% market share.
Investors in this sports betting stock can expect this to increase in the year ahead.
- Market value: $10.9 billion
- YTD return: -33.6%
MGM Resorts (MGM, $22.10) has been a miserable play in 2020 given the effect of COVID on its physical casino operations. But recent moves to put it among the most noteworthy sports betting stocks are providing reason for optimism.
On Sept. 3, the NFL’s Detroit Lions named BetMGM as one of the team’s official sports betting partners. A few days later, the joint venture between MGM and GVC Holdings announced that it had become an official sports betting partner of the Las Vegas Raiders, an extension of an existing multiyear partnership between MGM Resorts and the football team.
“All of us at MGM Resorts are proud to welcome the Raiders and the NFL to Las Vegas,” MGM Resorts CEO Bill Hornbuckle said in a press release. “We look forward to providing Raiders fans a world-class sports betting and entertainment experience, both in our BetMGM Sportsbooks and digitally, through the BetMGM mobile app.”
The joint venture has signed up actor and singer Jamie Foxx to become the face of BetMGM. The arrangement includes a series of social media and traditional advertisements under a campaign dubbed the “King of Sportsbooks.”
Also, back in July 2018, MGM and GVC committed $200 million to Roar Digital, a 50/50 joint venture between the two gaming companies. In July of this year, the JV partners added $250 million to the business. In just two years, BetMGM and PartyPoker, Roar Digital’s two brands, will be operating in 11 states by the end of 2020 and has market access agreements in place that cover 50% of the U.S. population.
Roar Digital CEO Adam Greenblatt expects BetMGM to generate as much as $130 million in net revenue in 2020, most of that from its 18% market share in New Jersey’s iGaming industry. Look for its sports betting business to gain traction in 2021 and beyond.
Penn National Gaming
- Market value: $9.6 billion
- YTD return: 173.3%
While Penn National Gaming (PENN, $69.85) is best known for operating 41 gaming and racing properties in 19 states, it is the company’s growing exposure to sports betting that has sports fans frothing over its shares.
Penn boasts live sports betting at its properties in Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia. However, it is the company’s 36% stake in Barstool Sports and its partnership with the sports media empire run by David Portnoy that has piqued investors’ interest.
Barstool has 66 million monthly users that Penn would like to convert to sports bettors. On Sept. 15, the Barstool Sportsbook app went live in the state of Pennsylvania. In August, Pennsylvania saw $365 million in sports bets during the month, up 122% from the dollars bet in July. Barstool plans to launch in Illinois and Colorado next, further bolstering its position among sports betting stocks.
According to Morgan Stanley analysts, the Barstool app had 21,000 downloads per day in its first weekend live, breaking both DraftKing’s and FanDuel’s daily records. Despite the big draw in its first weekend, analysts suggest that Barstool’s gains didn’t come at its peers’ expense. This indicates that the sports betting market in the U.S. could be more extensive than anyone imagined.
“Barstool magnifies everything about it. Now you have the brand, the personalities, it will elevate their brick and mortar casinos with a Barstool retail sportsbook and a Barstool bar next to it,” says Craig-Hallum analyst Ryan Sigdahl (Buy, $75 price target). “That drives more traffic, more volume, more revenue, and just better energy within the casinos.”
That’s great news for Penn shareholders.
- Market value: $9.2 billion
- YTD return: -4.3%
Caesars Entertainment (CZR, $57.07) and Eldorado Resorts completed a $17 billion merger on July 20. The cash-and-stock deal saw Eldorado pay Caesars shareholders $7.2 billion in cash, issue 77 million shares of its stock, and assume Caesars’ long-term debt. Eldorado shareholders ended up with 51% of the merged entity, with Caesars shareholders owning the rest.
“Together, we will have an extremely powerful suite of iconic gaming and entertainment brands,” Eldorado CEO Tom Reeg said when announcing the deal in June 2019, “as well as valuable strategic alliances with industry leaders in sports betting and online gaming.”
The merged business, which Reeg runs, owns and operates more than 55 casino properties in 16 states with a loyalty program that’s 60 million strong. Eight of these casinos are on the Las Vegas Strip.
Speculation is growing that Caesars will spin off its online casinos and sports betting businesses and merge them with William Hill’s (WIMHY) U.S. operations. Caesars already owns 20% of William Hill USA, and Caesar reportedly is in talks to buy out William Hill in a deal that would value it at $3.7 billion.
“Checks cite negotiations for ownership structure/splits are in advanced stages, with a mindset of a likely spin-off before the end of this year,” Roth Capital analyst David Bain (Buy) writes in a note to clients. “Of course, there are risks to the timeline, including delays in the final throes of talks and overall market conditions.”
The analyst believes this segment of Caesars operations is worth $38 a share and estimates the U.S. sports betting market could be $9 billion by 2025. Reeg said in the company’s Q2 2020 conference call that a decision on its iGaming and sports betting operations could be made before the end of the year.
- Market value: $6.7 billion
- YTD return: 23.7%
The sign of a resilient stock is one that’s able to deliver positive results despite everything going on around it being anything but ordinary.
On Sept. 5, Churchill Downs (CHDN, $169.72) hosted the 101st running of the Kentucky Derby – the traditional first leg of the Triple Crown, which also includes stops in Baltimore for the Preakness Stakes and in New York for the Belmont Stakes.
In 2020, the Belmont went first in June, the Derby was second in early September, and the Preakness will be run on Oct. 3. The Derby’s break with tradition didn’t end there – it was held without any fans in the stands, so no grand hats, no mint juleps.
Nonetheless, CHDN has put up a total return (price plus dividends) of nearly 24% in 2020, which is remarkable given the year in sports. But longtime owners of Churchill Downs stock have become accustomed to such returns. Over the past decade, CHDN shareholders have enjoyed an annualized total return of 30.5%, more than double the broader U.S. market.
One of the reasons for these above-average returns is its diversification of revenue streams to include online wagering for horse racing through TwinSpires.com, sports betting and iGaming through its BetAmerica platform, and in-person casinos in eight states.
Although second-quarter revenues declined 61% year-over-year, to $185.1 million, it still managed to generate positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $30.1 million.
CHDN is as resilient as sports betting stocks come. Look for Churchill Downs to continue to benefit from the boom in sports wagering.
- Market value: $453.9 million
- YTD return: 78.0%
GAN (GAN, $15.13) is short for GameAccount Network, a provider of online gaming software and services to casinos in the U.S. and elsewhere. It provides both real money and simulated iGaming and sports betting software and gaming applications to these casinos.
The U.K. company went public in May, selling 6.4 million shares at $8.50 a share for gross proceeds of $54 million. Since going public, its shares have traded as high as $28.95 and as low as $10.60. Overall, it’s up 78% since its initial public offering.
GAN’s stock currently is on a downswing, however. That’s amid speculation that a deal signed to provide simulated gaming content to Penn National’s Mychoice loyalty program was overshadowed by the launch of Barstool Sports’ sports betting app in Pennsylvania.
Still, the hard numbers suggest things are going well for GAN.
On Aug. 20, GAN delivered its first quarterly report as a public company. It announced 99% revenue growth to $8.3 million, and real-money internet gaming revenue accounted for 69% of overall sales. The U.S. was responsible for 85% of those sales. On the bottom line, its adjusted EBITDA was $1.9 million – 1,050% higher than its $200,000 loss in the same quarter a year earlier.
Despite getting lost in the shuffle of these other sports betting stocks, GAN’s business shows significant traction in both simulated and real money iGaming. Any further declines in its stock price would present a buying opportunity that hasn’t been seen since its IPO in May.