March Madness isn’t quit the same during a pandemic, with social distancing keeping folks out of bars and arenas. But one area that actually may benefit from the strange conditions around this year’s NCAA basketball tournament may be the growing business around sports gambling.
A May 2018 decision from the Supreme Court struck down the federal ban on sports gambling, leaving the legal questions up to state governments. Several jurisdictions swiftly moved to legalize sports betting, but it’s admittedly still a patchwork situation. Some states only allow physical sports books, while others allow a variety of online tools. Overall, more than half of U.S. states now have some form of sports gambling already legalized or pending approval in the near future.
If you’d rather bet on the stock market than on your favorite sports team, there are a few publicly traded companies that have pushed into this growing industry. Here are five investments to watch.
It’s been quite a wild ride for DraftKings
since that 2018 Supreme Court ruling. The company made a lot of fuss about exploring an IPO across 2019, and then in 2020 formally entered public markets via a SPAC in $3.3 billion deal just after the worst of pandemic-related disruptions for the global economy.
While COVID-19 shutdowns certainly put a damper on fantasy sports and direct gambling, this stock has exploded 450% higher in the last year on optimism about its business model and dominant standing in the space. Its unique “daily fantasy” format allows much less commitment than a whole season of fantasy football with your buddies or coworkers, and it continues to grow into new and interesting sporting venues such as UFC.
DraftKings is admittedly risky, as it has not yet achieved consistent profitability. After losing $2.76 a share in 2020, analysts expect the company to lose somewhere around $1.50 per share in 2021 and about $1.15 in fiscal 2022. It also doesn’t have a particularly wide moat, as sports gambling and fantasy platforms aren’t terribly difficult for competitors to recreate. However, the momentum should make investors take notice as sports betting continues to expand across the U.S. and present more opportunities in the years ahead.
Another gaming stock operating in the red but with potential upside amid the sports gambling craze is iconic casino operator Caesars Entertainment
Obviously this is more than just a sports book company, with casinos and racetracks at 54 properties across 16 states. But the scale of Caesars makes it a natural beneficiary of this trend — particularly as some states demand sports books operate in-person instead of simply via an app.
In its latest earnings report, Caesars notes that its sportsbook venture is now operational in 15 states and Washington D.C., with hopes to hit 20 by year-end. Additionally, 12 jurisdictions supporting mobile sports betting, too. To top it off, the company recently made a strategic investment in the daily fantasy sports platform SuperDraft.
Like DraftKings, Caesars has plenty of risk as it continues to operate in the red. And thanks to its physical locations, those losses are incredibly steep at present. But the casino operator expects to climb back into the black in fiscal 2022 — and more importantly, Wall Street seems very optimistic that the worst is over. This stock has soared an amazing 850% in the last 12 months.
isn’t a household name for many investors, considering the company is valued under $4 billion and is a bit of a strange niche play by focusing primarily on streaming video of live sporting events. In fact, its name comes from the fact that it launched in 2015 with a focus on soccer — that is, football — and operations catering to European fans rather than the major U.S. sports.
But Fubo has been growing fast, and now offers 100 channels on its platform including traditional broadcast outlets like CBS in addition to mainstream U.S. sports like the NFL. It finished 2020 with almost 550,000 total subscribers as a result. That was 72% over the prior year.
From a sports gambling perspective, what’s interesting about Fubo is that it announced this year it would acquire sports betting tech company Vigtory and expects to launch a sportsbook before the end of the year.
There’s a lot of leaps of faith you have to take here, including that Fubo can overcome the deep losses in its primary business of streaming and that it can cross-market a sports book quickly to its subscribers. But while the risks are obvious and the stock price is very volatile, it’s worth noting that the shares are up 220% in the last six months alone thanks in large part to this acquisition news and the hopes that live sports will return in earnest this fall.
Penn National Gaming
may not have the same legacy brand as Caesars, but in many ways that’s a good thing. After all, Penn National has created plenty of buzz in the last year or so in part because of a deal to deepen its partnership with sports-turned-stocks-enthusiast Dave Portnoy and his brand Barstool.
You literally can’t buy publicity like the kind of coverage that “Davey Day Trader” got last year, and his elevated brand is just what Penn National needs to plug in a generation of young new customers into its burgeoning sportsbook biz.
Penn National operates 41 properties in 19 states, and is in a great position to simply bolt on sports books to existing businesses and quickly move into new markets. Case in point: the company announced in December it would acquire a casino in Maryland specifically to take advantage of new opportunities after voters there approved sports betting on Election Day 2020.
This stock has exploded 440% higher in the last year — a sign that Wall Street has confidence in this stock regardless of the lingering impact of the pandemic — and unlike some other stocks on this list is forecast to return to comfortable profitability this fiscal year. That will only help it grow and invest in sports betting opportunities in the future, if it chooses.
Betting and iGaming ETF
Don’t want to pick individual winners in such a fast-moving environment? Well, there is a recently launched ETF that may be worth a look: Roundhill Sports Betting & iGaming ETF
Though its less than a year old, it has already grown to an impressive $500 million in assets under management as attention on the sports betting megatrend has heated up.
Large holdings currently include DraftKings and Penn National, but also European digital gaming technologies firm Kindred Group
that have proven systems internationally that could be deployed in domestic markets.
Annual fees are a bit high compared with index funds, at 0.75% or $75 annually on every $10,000 invested. But considering there isn’t really any other way to play this niche in a fund, it may be worth the cost to some traders looking for a more diversified take on the sports betting revolution.
And anyway, when you consider that this ETF has roughly doubled since its debut, those fees can be more than offset by the profit potential if the sports betting boom continues.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the securities mentioned in this article.