Ever since online gambling was legalized in the US in 2013, the betting scene has exploded, and continues to grow rapidly. Here’s one of my favorite stats. After a COVID-related dip in gambling revenue, New Jersey sports bettors came back strong and wagered nearly a billion dollars in one month (December).
With financial figures like that coming in and around the industry, there’s lots of interest from both beginner and savvy investors, looking for opportunities in a rapidly growing market. So, are they right to be interested, and are there any particularly juicy steaks in the veritable buffet of investment opportunities (see what I did there)? We’ll take a quick look over the scene and share our opinions on the subject.
What to get out of this page
Look guys, I’m gonna be frank with you. The point of Time2play is transparency for players, bettors, and readers at all levels, and that includes on our blog. I’m a resident writer here, and that makes me a gambling guy, not a stocks guy. Don’t take anything I say as solid investment advice. So what can I do for you here?
I can give you an overview of the gambling scene, tell you what’s exciting me about it, and point out some gambling stock options relating to said excitement. That could be because there’s stuff I think presents/ed good opportunities, or because these options say something worthwhile about the US gambling scene from an investment perspective. I’m not going to tell you whether or not to invest, but I’m going to point out some things I think are worth watching, and why.
I’ll do a quick industry overview and talk about some implications that could have for investors. Then we’ll have a quick look at some specific highlights from an investment perspective, and consider some good reasons to be careful.
Investing in gambling stocks; gambling industry overview
Plenty of investment sites think there’s promise in the scene, especially since it’s a (relatively) new market to the US. Let’s consider why.
Gambling isn’t new to the US. Las Vegas and Atlantic City are 2 of the most established casino destinations in the world. Internet gambling isn’t new either, but it is quite new to the US (New Jersey online gambling launched in 2013), and still has lots of room to expand.
The market isn’t serving all states yet, which means it can’t currently be accessed by all its potential customers, which implies the industry’s profitability potential is not yet saturated. So there’s room for existing brands to grow, and there are opportunities to get in early on smaller, state-specific brands.
In a weird way, there can be some advantages to our relative lateness-to-the-party. We have the opportunity to look at how the market developed in Europe, and how legislative changes affected stock prices over there. For example, Poland recently made some changes to its advertising laws, which affected site traffic for a while. Obviously, bad news for gambling stocks.
Then, there’s those countries that accept crypto as a casino payment method. The US doesn’t do that yet, and that would have massive implications for both the crypto and iGaming markets. You may see casinos that accept US players advertising that they take crypto — that’s an easy way to tell they’re legally grey offshore casinos. Our recommendation: avoid!
Another advantage is that in Europe, iGaming is already an established industry with established big players. We can track how huge publicly traded gambling stocks like Flutter Entertainment (PDYPY) are doing as the companies enter more US markets. If you haven’t heard of Flutter, they own FanDuel and Paddy Power and a few more big sports betting names.
The fact that legalizing online gambling is a state-by-state affair can give us even more data to speculate accurately with. Adding markets in this staggered format allows us to make predictions based on what happened when the last few states introduced iGaming. While online sports betting is spreading like wildfire, precious few states have introduced online casino bets.
That means there are shots to try and get in on companies who are about to increase their revenue streams for both quick-fire investors and more deliberate ones.
Advantages of investing in US gambling stocks
- The market has room for growth as more states legalize online gambling
- Traders can see what’s already been done in Europe in order to make educated predictions.
- If crypto gambling is ever legalized in the US, there could be some interesting potential for investment.
Some specific highlights
Some investment sites who know more about stocks than I do like to point out the following:
- At its 2021 peak, Caesars Entertainment, Inc. (CZR), was up 40% over where it was the year before.
- Boyd Gaming Corp. (BYD) had a 12-Month Trailing Total Return of just over 128%.
- DraftKings (DKNG) has had price peaks of over 160% its original stock price since going public in 2020.
- One of the main gambling benchmarks, the VanEck Gaming ETF (BJK), outperformed the iShares Russell 1000 ETF (IWB) over a 12-month period, as they brought in trailing total returns of 37.5% to 35.7%, respectively.
I thought it might be fun to do a bit of a case study, and look at how legislative changes and practical introductions of internet gambling correlated to a given company’s stock price. Boyd Gaming Corp. (BYD), acquired Pennsylvania’s Valley Forge casino in 2017, around the time online gambling was legalized there.
However, even if online gambling was legalized, the first online casinos didn’t open up until 2020, including one of Valley Forge’s premier online partners; FanDuel. Between the acquisition and the 2020 stock market crash, Boyd’s stock did rise on average, but didn’t always exceed pre-acquisition levels. After recovering from the 2020 crash, the price shot up, and is still hovering at around double what it was before 2020.
Caesar’s launched their online casino and sportsbook in PA around the same time that the stock market crashed, and the shape of their graph looks remarkably similar. I don’t feel comfortable or qualified to pin correlations or draw conclusions, but they make interesting graphs for you to look at and draw your own analyses from.
Investing in gambling stocks; be careful
Well, one negative point I immediately want to make is to point out an unfortunate fact. Many gambling companies, especially in the casino bracket, aren’t publicly tradeable.
Another thing to immediately note is the effect of the COVID-19 pandemic on the market, and the myriad ways it could throw off predictions, particularly in the wider gambling industry. It’s all too easy to say that as the economy continues to recover from the pandemic, people will have more disposable income to gamble with. That implies you can expect gambling revenues, and gambling stocks, to go up.
But in reality, it’s perfectly possible that we’ve seen inflated numbers and numbers in weird places, especially with the internet gambling scene. Internet gambling revenues soared as access to land-based casinos and sportsbooks was cut off, and we don’t know what proportion of bettors and players are going to stick with the online experience or head back to the tables. It’s an unpredictable market right now, especially for single-stock investors.
There has been peaking and troughing, even in these post-2020-crash-spikes I mentioned above, and as I write this, they’re currently in the trough phase. I’m no expert investor, but in this exact second, my gut’s telling me to hold my horses before opening my wallet.
Conclusion
Gambling seems to be a market with a fair amount of potential, as a hugely profitable industry that hasn’t yet saturated its US-based revenue streams. But I believe that the real prize here is the US’s staggered state-by-state legalization approach, which allows potential investors to gather tons of information and data, and scan how shares fluctuate as gambling companies move into new markets. Let me know what you think!
