With legalization across U.S. states set to increase, gambling stocks are on the rise, but is it an industry worth looking at yet?
Dec. 5, 2020
On November 3rd, the U.S. presidency wasn’t the only change drawing voters to polls, as on the same day, three states, Maryland, Louisiana, and South Dakota, all voted yes on a ballot to legalize sports betting, bringing the number of states that allow sports betting to 25. Meanwhile, three other states, Hawaii, Massachusetts, and Ohio, are all exploring their own measures.
This comes after a 2018 ruling by the Supreme Court ended a federal ban on the practice, and has led to the rise of companies like DraftKings and Gan Ltd, which spiked following the news.
However, this is a very new industry in the U.S., and with that comes lots of volatility. How then can investors be expected to put their faith in stocks that thrive off of an activity that has largely been illegal for most of their lives?
Online betting’s big 2021
Whether you agree with it or not, people love to gamble. Why do you think Vegas is one of the most iconic cities on the planet? And although 2020 pretty much killed foot traffic in traditional casinos, the concept is still alive and well, and growing at a staggering rate:
- In 2019, the first full year of legal sports betting in the U.S., the American Gaming Association (AGA) found that $13 billion was wagered.
- This was double 2018’s $6.5 billion.
- Over 15% of Americans (38 million adults) planned to bet on the 2019 NFL season alone.
- Another 24% stated that they would bet on NFL games “if it was legal and convenient to do so in their state.”
That was before a pandemic shut down traditional sports brokers Yes, COVID’s obliteration of sports in the early days of this pandemic did hurt online betting too — how do you make money if there’s nothing to bet on? — but despite this, the likes of Draftkings recovered well. Since it went public via a reverse merger (SPAC) on April 23, its stock has jumped 185%, largely thanks to the rising number of states legalizing the practice of online gambling and a return of professional and collegiate sports.
And it’s not like governments will be in a hurry to discourage this practice. When the coronavirus caused nationwide lockdowns in March, state governments absorbed a tough financial blow, watching countless tax streams evaporate. Lawmakers’ hunger for sources of new income has opened the door for up-and-coming vice industries, like online sports gambling, to fill the void the virus has created in states’ budgets.
The bottom line is that legalization of online sports betting now seems to be a question of when, not if, and if it follows the same success as in Europe, where it has been legal for years, then this $40 billion global industry is going to be taking us on a wild ride.
I mean, there’s even an ETF for it now, ‘The Roundhill Sports Betting & Gaming ETF’, with a very cool ticker symbol:
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.