Sports Gambling -- Where is the Value Coming From?
Meera Blueprint -- 9.24.2020
Where did sports gambling stocks come from? We all know that sports gambling has always been a market with billions of dollars exchanged, but why is Wall Street now paying attention to the industry?
In the wake of Covid-19 and sports uncertainty, why has sports gambling pure-play $DKNG returned 368% YTD and Barstool’s parent company $PENN gained 169% after the announcement of Barstool’s sports gambling app?
On record, there has been $20 billion bet on US sports since the Supreme Court legalized sports gambling federally in 1992. Since then, 20 states have legalized sports gambling. That is only 40% of all US states. So how is a company like $DKNG worth nearly $18 billion and trading at 56x current sales when less than half of US states can participate?
To give some more head-scratching context, the 2020 US sports betting market is expected to be worth $1.5 billion, and in 2023 it is estimated to be $2.7 billion. That would be extraordinary growth with a CAGR of 34%, but that still does not answer the question of why sports betting has become so expensive to invest in.
In 2019, it was estimated that the global illegal sports gambling market tops $150 billion. In addition to this massive amount of money on the sideline, professional sports are embracing sports gambling. If you are a frequent NFL, NBA, NHL, MLB, or NASCAR viewer you would notice the league embracing these types of sponsorships.
The leagues advertising the product is huge for these companies. It lowers the consumer’s risk perception of online gambling as opposed to the same bookie they have had for the past 5 years.
Much of this market is priced in with a lot of uncertainty. The industry has priced in states complying and legalizing sports gambling, in addition to legal gambling gaining share from the illegal market. This market is very similar to the cannabis industry, a lot of question markets revolving around legislation and black markets.
If you are looking to invest in this industry, you need to be on the lookout for whales like California to legalize sports betting. It is estimated that California has $18 billion annual transactions. Tread lightly with this industry, there is a lot of speculation and gambling on these stocks.
Learn Something
· CAGR: Compound Annual Growth Rate. CAGR describes the rate at which an investment would have grown if it had grown the same rate every year.
· Sports betting’s “extraordinary” growth: https://www.espn.com/chalk/story/_/id/29174799/sports-betting-growth-us-extraordinary
· Sports Betting Assumption based Valuation: https://thehustle.co/how-to-capitalize-on-the-fast-growing-sports-gambling-industry/
· Sports Betting Sponsorships: https://insidersport.com/2019/04/17/the-future-of-sports-betting-sponsorships-in-the-us/
· California Sports Betting: https://www.usbets.com/longshot-california-sports-betting-plan-mobile-delay/amp