As the sports world comes back to prominence after the coronavirus-related shutdown, sports betting stocks have gotten considerable attention. Interested in this sector? Here's a play-by-play for investors.
Choose your favorite sporting metaphor—sports betting stocks are off and running, hitting prime time, reaching the big leagues—it may be true, at least, in terms of financial media attention. As fantasy sports and other forms of sports gambling have grown increasingly accessible and mainstream, investor money is pouring into the sector and related stocks have drawn quite a bit of attention.
Sports betting stocks have definitely been making the financial news, with interest amplified by reports last month that Caesars Entertainment (CZR), a U.S. casino operator, was in talks to buy UK-based sports bookmaker William Hill (WIMHY).
Should retail investors join the sports betting stock parade? Answering that question isn’t as simple as scanning the latest fantasy player rankings and picking potential “winners” from the losers and also-rans. As a long-term investing prospect/thesis, sports betting remains relatively new and unproven, and there are many “players” angling for a big prize. But, as any sports fan will surely tell you, not everyone can be a winner.
The newer sports betting stocks are in some ways akin to other tech start-ups, according to Alex Coffey, senior specialist, trader group at TD Ameritrade. He pointed out that some have yet to turn a profit, so the question of how to properly value these stocks remains uncertain. That means it’s important to step back and take time to thoroughly study this industry and know what you might be getting into before investing any money.
Here are a few investor basics on sports betting and sports gambling stocks:
Sports gambling has been legal overseas and in Las Vegas for a long time, so it’s already familiar to many Americans, Coffey said. More recently, technology and the courts have provided an assist. And with the COVID-19 pandemic leaving arenas and stadiums mostly off-limits to fans, people are cheering on their teams largely at home in front of screens.
Online, web-based fantasy sports leagues have been around for a couple decades, and modern, mobile technology and ubiquitous WiFi availability enables fantasy players real-time access to quickly set their lineups or check their scores with a few taps on their smartphones.
Technology “has played a crucial role in advancing the engagement of fans across the world,” Coffey said. Digital technology “makes it easier and more accessible for the sports bettor to wager on games, even from the comfort of their own homes.” He noted that sports gambling from the sportsbook’s perspective is a “statistics-driven” activity, where the sportsbook is trying to capture a small percentage of all of the action being wagered—known as the “juice” in gambling circles. This is important, because, in theory, the more opportunities there are for bettors to put money down, the more potential “volume” a gaming business could generate, and the more potential “juice” the sportsbook could hope to capture.
In recent years, U.S. courts have lifted many long-standing legal restrictions on sports gambling, opening these markets in a manner similar to what’s happened in the cannabis industry. In 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, which had limited regulated sports betting mostly to Nevada. Since that ruling, 18 states, plus the District of Columbia, have implemented “live, legal” sports betting, according to the American Gaming Association.
Another four states have legalized—but not yet launched—sports betting, and an additional six states have “active legislation,” where bills to legalize single-game sports betting have introduced in the state legislature or where a voter referendum is scheduled.
Many people have already had “action” on National Football League games and other sports, and, with, legal hurdles dropping, the market is poised for further expansion, research shows.
About 33.2 million American adults, or about 13% of the U.S. adult population, planned to bet on NFL games in 2020, according to the American Gaming Association (down from 15% of the population in the association’s 2019 survey). By 2025, U.S. sports gambling is forecast to generate annual revenue of $7 billion, an eight-fold increase from 2019, according to Morgan Stanley.
Do It Without Risking a Dime with paperMoney®
Coaches and players must know their “Xs and Os” before they take the field or floor. But you don’t have to be a sports fan to apply these principles to your investing strategy. The paperMoney stock trading simulator on the thinkorswim® platform is a good place to practice—consider it a “fantasy” stock market where you’re your own general manager and head coach.
According to Coffey, the growth also reflects a “normalization” of sports betting in the media and in American culture—it’s no longer a “taboo” subject sports broadcasters and sportswriters had to tip-toe around. Fantasy sports—the “game within the game,” as Coffey put it—changed the way viewers and fans interacted with their teams and sports, and also changed how the media reports on the competitions.
“At one time, football announcers wouldn’t talk about point spreads on the air. It was never part of the conversation,” Coffey said. “Now, it’s commonplace for broadcasters and studio analysts to acknowledge gambling aspects. There’s more of a national acceptance.”
Across the sports gambling landscape, there are at least a dozen U.S.-listed stocks for companies that operate traditional, land-based casinos and racetracks, online sports betting platforms or combinations of both.
DraftKings (DKNG), for example, “has emerged as one of the key players” in online sports betting, Coffey said (through the end of September, the company’s shares had more than tripled from an initial public offering [IPO] price in April). Some have speculated that FanDuel, a competing app, may also hold an IPO (FanDuel is owned by Ireland-based Flutter Entertainment)
Penn National Gaming (PENN) is an “interesting” name, Coffey said, in part because of the company’s recent purchase of a stake in Barstool Sports, a sports blogging platform that could provide cross-marketing and branding benefits.
Other companies with sports betting angles have more of a bricks-and-mortar presence familiar to anyone who’s visited Las Vegas. These include Boyd Gaming Corp. (BYD), Churchill Downs (CHDN), Las Vegas Sands (LVS), and MGM Resorts International (MGM).
Like a lot of startup companies in technology, health care or other industries, many of the new sports gambling services are—in casino parlance—a “bet on the come-line,” still unproven long-term businesses with actual profits a ways off, if they happen at all. Yes, the potential growth appears impressive. But is there room for everyone? How many of these companies will be around in five years? Hard to say.
Coffey cited a few other key questions and considerations for anyone thinking about investing in sports betting stocks: User loyalty and incentives will probably be among top factors in determining who will emerge among sports betting leaders. How much does being “first to market” factor into potential success?
“This is truly going to be something where loyalty is a major factor,” Coffey said. “How do you build brand loyalty in this space? How ‘sticky’ is the money coming into a sports betting app? Does the average sports bettor sign up for more than one app? Many may be inclined to establish a relationship with a single brand.”
Ultimately, whether sports betting stocks can or should be part of an investing strategy comes down to the same fundamentals you’d apply to any other type of investments, Coffey said. Investors should take advantage of opportunities to educate themselves, establish a carefully thought-out plan and consider all risks and potential outcomes. As veteran coaches may tell you, the more prepared you are for any possible outcome, the more likely you could be successful over time.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, and a subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of the Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 Charles Schwab & Co., Inc. Member SIPC.