Sports betting breaks records during pandemic

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Sports betting breaks records during pandemic

Esports Entertainment, Draftskings Inc and Skillz Inc well positioned for long term upside

 

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(Sports betting action has been brisk at South Point casino in Las Vegas.)

 

Even as the coronavirus pandemic ravages the nation, sports bettors found their way to casinos and mobile betting apps, setting records in November for monthly handle in several states, according to the American Gaming Association.

New Jersey, which surpassed Nevada in August as the No. 1 state for sports betting, took in $931.6 million in wagering in November, marking its fourth straight month of record-breaking numbers.

Pennsylvania hit a record $538 million in December sports wagering, up 60 percent from December 2019, and Iowa topped $100 million for the first time. Other states with record handle include Colorado, Indiana, and Rhode Island.

Sports betting has emerged as a gainer in the U.S. economy battered by the pandemic that forced more than 900 tribal and commercial casinos across the country to shut down for months.

Most have reopened with reduced capacity and other restrictions to mitigate the risk of spreading the virus.

“Sports betting at the South Point is better than ever,” says Michael Gaughan, owner of the Las Vegas casino-hotel and son of gaming pioneer Jackie Gaughan. “If we were not closed for three months, this would have been the biggest sports year ever.”

The pandemic has made it quite difficult to handicap and bet sports, Gaughan added. Games have been cancelled, players are missing games after testing positive or being exposed to the virus, and, to some extent, the absence of fans reduced home field advantage.

“Nevada sports win percentage has never been higher. The bettors have had a tough year so far,” Gaughan said.

Sports betting revenue was bolstered by a crowded sports calendar that included the NBA Finals and World Series in October, along with the NFL and college football seasons.

Consumer interest was strong in new legal betting markets in Colorado, Illinois, Michigan, and Washington, D.C. In total, Americans wagered a record $5.95 billion in the third quarter, generating $352.3 million in gaming revenue – the second-highest quarterly total ever.

 

Online growth

Internet gaming grew to $435 million during the quarter, in part due to the proliferation of mobile sports betting apps such as Draft Kings (DKNG), Fan Duel and William Hill (WIMHY). Draft Kings is the leading pure play on the space and

we believe 30-35% growth in revenues and earnings  will be achieved over the next five years and have a $62 price target over the next twelve months.  

That trend is expected to continue in the post-pandemic world where people conduct more of their business from home.

Casinos are partnering with software technology companies that offer secure access to mobile sports wagering platforms, ultimately threatening the bottom line of the traditional sports book.

“So far, I believe it has not really affected Vegas sports betting,” South Point casino owner Gaughan says.

While third-quarter sports wagering results are promising, a full recovery is dependent on continued public health measures to control the virus, said Bill Miller, CEO of the Washington, D.C.-based American Gaming Association.

Most casinos are operating at limited capacity, requiring temperature checks for entry and that face masks be worn at all times, except when eating or drinking, and the fear of contracting the virus has kept many bettors at home.

 

Esports threat

Esports, or electronic gaming, has carved out an explosive niche in sports wagering that may be poised to overtake traditional sports such as baseball, football, basketball, and hockey.

We believe one of the big stories of 2021 will be the continued investment outperformance of the esports and gaming sectors led by DraftKings (DKNG), Esports Entertainment Group (GMBL) and Skillz (SKLZ), each with dominant market shares, excellent management teams and attractive growth rates.

“We feel investors will flock to these new high-growth, underinvested industries in an environment of low inflation and low interest rates,” says Robert Maltbie, president of Singular Research. We have a current price target of $8.00 on Esports  (GMBL) driven by its 90% top line growth rate expected through 2022.

Esports Entertainment closed its acquisition of Esports Gaming League in January, strengthening the company’s three-pillar growth strategy.

“EGL technology underpins the esports programs for some of the world’s best-known sports franchises, including the L.A. Kings, Philadelphia Eagles and Arsenal Football Club,” Esports Entertainment CEO Grant Johnson said in a company statement. “We plan to build on this strong foundation moving forward, driving near-term revenue growth and long-term shareholder value improvement.”

Gaughan confesses that he is not deeply familiar with esports, though he doubts it will ever surpass regular sports betting in his lifetime.

“However, I never thought they would take the handles off the slot machines,” the gaming executive said. “For the most part, it seems to me to be unregulated. If people wanted to bet on it and it made sense, I might put it on the (sports book) board. As of right now, I have no interest.”

 

Growing appetite

With 18 states having legalized sports betting since the landmark 2018 U.S. Supreme Court ruling in Christie v. NCAA and four more states jumping on board, wagering amounts will continue to increase, exceeding analysts’ expectations and taking the industry to a level of vast investment opportunity. The global sports betting market is expected to reach $155 billion by 2024.

Virginia recently opened the door for Draft Kings, allowing residents to put money on the Super Bowl, the largest betting event of the year. FanDuel also launched in January and BetMGM is on the way.

This domino effect is bringing legalized sports gambling to North Carolina, Tennessee, and Washington, and we expect that other states will explore legislation that can add tax revenue to budgets in crisis. Some states such as California are struggling to approve online sports betting because of political opposition and tribal agreements.

 

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Robert Maltbie, CFA

President, Singular Research

818-222-6915

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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