Sports betting stocks remain one of the market's hottest areas, and industry experts expect more of the same in the years ahead.
It's difficult to get a pulse of exactly how big the industry might become; estimates for the size of the sports betting market vary greatly in size and time horizon. However, according to a Gabelli Securities and Census Bureau study, U.S. sports betting revenues are expected to grow from $2.1 billion in 2021 to $10.1 billion in 2028.
Several Wall Street research firms are targeting even bigger growth. Morgan Stanley believes the U.S. sports betting market could hit $15 billion annually by 2025, while Macquarie's forecast is $30 billion by 2030.
But one thing is clear: The stakes are high.
"Every play and move in sports entails an outcome that can be bet on," says Luke Lloyd, a wealth advisor and investment strategist at Strategic Wealth Partners. "Sports betting allows people to be more engaged in the game, specifically every play, usually making it more fun and entertaining to watch."
He adds that the increase in popularity among fantasy sports has boosted engagement from younger crowds. This, in turn, is "leading to a path of growth for many companies in the long-term as sports-betting makes its way throughout the U.S. and the world."
Read on as we evaluate nine of the best sports betting stocks in the market. Each of these picks – eight stocks and one exchange-traded fund (ETF) – provides access to gains in sports wagering, though some are more direct bets on the trend, while others are more diversified plays on gambling generally.
Data as of Sep. 17. Analysts' average long-term growth rate expectations represents the estimated average rate of earnings growth for the next three to five years. The average target price is the stock price analysts expect to see over the next 18 months. All analyst data is courtesy of S&P Global Market Intelligence.
Flutter Entertainment
- Market value: $37.2 billion
- Analysts' average long-term (LT) earnings growth rate: N/A
- Analysts' average target price: N/A
Flutter Entertainment's (PDYPY, $106.15) FanDuel subsidiary was one of a handful of U.S. sportsbooks to partner with the NFL this year.
"On Superbowl Sunday, we got a glimpse at how powerful the combination of the NFL's excitement and our platform can be in delivering an enhanced fan experience," outgoing FanDuel CEO Matt King said when the deal was announced. "We are delighted to make that combination official by pairing America's #1 sportsbook with America's #1 sports league."
FanDuel merged with Paddy Power Betfair's U.S. operations in 2018 after a potential merger with DraftKings (DKNG) was called off due to regulatory concerns. Paddy Power contributed its U.S. assets plus $158 million in cash to the deal, some of which was used to pay down FanDuel's debt. Paddy Power shareholders got 61% of the merged entity with options to increase the ownership to 80% and 100% over time.
In 2019, Paddy Power Betfair changed its name to Flutter Entertainment, but as you can see, it retained the PDYPY ticker that trades over-the-counter.
In the first six months of 2021, in the 10 states where it had sports betting online, Flutter had 31% of the market, with its sports betting share at 45% and online gaming at 20%. It has a leading market share in states such as New Jersey and Pennsylvania with mature online betting, as well as newer states like Michigan and Virginia.
Flutter is expected to spin off FanDuel at some point in 2022, though nothing has been confirmed.
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DraftKings
- Market value: $24.4 billion
- Analysts' average LT earnings growth rate: 4.5%
- Analysts' average target price: $70.56
DraftKings (DKNG, $60.42) is arguably one of the most well-known sports betting stocks out there. DKNG has been a public company for 17 months, but it has already made a mark on the industry. DraftKings completed its reverse merger with a special purpose acquisition company (SPAC) on April 24, 2020. Since then, the stock is up more than 200%.
Why?
Analysts love the stock and the online gaming industry in which it competes. Of the 27 analysts who cover DKNG stock that are tracked by S&P Global Market Intelligence, 15 rate it a Strong Buy, four say it's a Buy and eight call it a Hold. The average target price is $70.56, providing investors with a reasonable amount of expected upside from current prices.
Not only has DraftKings' stock performed well since merging with a SPAC, but it's also been exceptionally busy adding new business partners and making transformative acquisitions.
In April of this year, DraftKings became another one of the companies to become an official sports betting partner of the NFL. As part of the agreement, DraftKings will also work with the NFL to create free-to-play NFL-themed games.
And in early August, the company announced that it would buy Golden Nugget Online Gaming (GNOG) in an all-stock transaction valued at $1.56 billion. The deal will give DKNG access to the iGaming company's more than 5 million customers. In addition, the two firms expect to generate roughly $300 million in synergies once Golden Nugget's online business is fully integrated into DraftKings' operations.
The acquisition is expected to close in early in 2022.
In September, DraftKings announced the launch of online sports betting in Arizona. It is the 14th state where it's opened a mobile sportsbook for those 21 and older.
"With the launch of our digital sportsbook coinciding with NFL kickoff, the busiest and most exciting time of the year for our company, we could not have imagined a better time to introduce Arizona's sports fans to the DraftKings experience,” said Matt Kalish, co-founder and president of DraftKings North America.
DKNG launched its daily fantasy sports product in The Grand Canyon State a few weeks before kicking off its digital sportsbook. This made Arizona the 44th state to get online fantasy sports.
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Caesars Entertainment
- Market value: $22.6 billion
- Analysts' average LT earnings growth rate: N/A
- Analysts' average target price: $123.86
It's been more than a year since Caesars Entertainment (CZR, $106.07) and Eldorado Resorts completed their $17-billion merger in July 2020. The cash-and-stock deal saw Eldorado pay Caesars shareholders $7.2 billion in cash, issue 77 million shares of its stock and assume Caesars' long-term debt. Eldorado shareholders ended up with 51% of the merged entity, with Caesars' shareholders owning the rest.
"Together, we will have an extremely powerful suite of iconic gaming and entertainment brands," Eldorado CEO Tom Reeg said when announcing the deal in June 2019, "as well as valuable strategic alliances with industry leaders in sports betting and online gaming."
The merged business, which Reeg runs, owns and operates more than 49 casino properties in 16 states with 55,300 slot machines and video lottery terminals, 3,000 table games, 46,200 hotel rooms and sports wagering in 17 states.
In April 2021, the company acquired William Hill for around $4.0 billion. In September, it agreed to sell William Hill's non-U.S. assets for 2.2 billion British pounds ($3.0 billion). As a result, Caesars will generate $1.2 billion in net proceeds after paying down the debt attached to those assets.
BofA Securities analyst Shaun Kelley suggested that the sale of these assets could add $5 per share in value to share price of the sports betting stock. Kelley has a Buy rating on CZR and a target price of $125, which is significantly higher than its current value.
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MGM Resorts
- Market value: $20.0 billion
- Analysts' average LT earnings growth rate: 11%
- Analysts' average target price: $47.74
MGM Resorts (MGM, $41.54) partnered with Entain, formerly known as GVC Holdings in 2019, to launch the online sportsbook BetMGM in New Jersey. In March 2020, it did the same in Nevada. Today, it has mobile sports betting available in 13 states, with retail sports betting available in five states and many more to come.
On Sept. 9, BetMGM launched mobile sports betting in Arizona. It plans to open the first of its kind BetMGM Sportsbook in 2022 at State Farm Stadium, the home of the Arizona Cardinals.
In 2020, BetMGM generated approximately $178 million in revenue. In 2022, it's expected to reach $1 billion in revenue from the app's 160 million customer profiles. The company doesn't expect BetMGM to be profitable until 2023.
Rumors have surfaced that MGM Resorts is considering making a play for one or both of Flutter Entertainment and Skillz (SKLZ), a mobile esports company that went public in 2020 through a SPAC merger, though nothing has been confirmed.
MGM Resorts recently got an upgrade from Bernstein analyst Vitaly Umansky to Outperform from Market Perform (the equivalents of Buy and Neutral, respectively). In addition, he nearly doubled his target price on the stock to $58.90 from $29.60.
Umansky likes its gaming and sports betting businesses. In addition, MGM continues to have some of the most prime real estate in the casino industry.
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Penn National Gaming
- Market value: $11.7 billion
- Analysts' average LT earnings growth rate: N/A
- Analysts' average target price: $100.00
While Penn National Gaming (PENN, $74.59) is best known for operating 43 gaming and racing properties in 20 states, it is the company's growing exposure to sports betting that has sports fans frothing over its shares.
Penn acquired a 36% stake in Barstool Sports in early 2020. Its partnership with the sports media empire run by Dave Portnoy, has piqued investors' interest. It expects to be operating its Barstool Sportsbook online app in 10 states by the end of 2021.
In August, Penn opened the $120 million Hollywood Casino York in Pennsylvania. The roughly 80,000 square-foot casino has more than 500 slot machines, 24 table games and the first retail Barstool Sportsbook operating in the state. It is the company's 43rd property in North America. It will be a cardless, cashless and contactless facility.
In September, Penn announced it will pay $2 billion for Score Media and Gaming (SCR) in a cash-and-stock transaction that sees the Canadian company's shareholders receive $17 in cash plus 0.2398 shares of PENN stock for every SCR share held. Upon completion of the acquisition, Score shareholders will own 7% of Penn's shares. The transaction is approximately 50/50 between cash and stock.
The acquisition accelerates Penn's digital media and gaming strategy. Score Media's engaging content is expected to drive traffic to its various properties both online and in-person. Long term, it expects to generate more than $500 million in annual adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from cost synergies, along with almost $1 billion in additional revenue.
Score's user base averages 113 minutes per month viewing its content, more than major sites such as the Bleacher Report and ESPN. It is the number one sports media brand in Canada and number three in North America.
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Churchill Downs
- Market value: $8.7 billion
- Analysts' average LT earnings growth rate: 118%
- Analysts' average target price: $252.83
The sign of a resilient stock is one that's able to deliver positive results despite everything going on around it being anything but ordinary.
On May 1, Churchill Downs (CHDN, $226.91) hosted the 147th running of the Kentucky Derby – the traditional first leg of the Triple Crown, which also includes stops in Baltimore for the Preakness Stakes and in New York for the Belmont Stakes.
In 2021, the Derby was back to its traditional spot as the first race in the Triple Crown, held on the first Saturday in May. Approximately 51,838 people attended the event, the highest number of people at a U.S. sporting event since the pandemic began, according to NBC News. In 2019's running of the Derby, 150,729 were in attendance.
CHDN has put up a total return (price plus dividends) of 16.5% in 2021, less than the 18.3% return for the broader U.S. market. Longtime owners of Churchill Downs stock have become accustomed to excellent returns. Over the past decade, CHDN shareholders have enjoyed an annualized total return of 32.8%, more than double the entire U.S. market.
One of the reasons for these above-average returns is its diversification of revenue streams to include online wagering for horse racing through TwinSpires.com, sports betting and iGaming through its BetAmerica platform, and in-person casinos in eight states.
The company's second-quarter revenues increased 178% year-over-year to a record $515 million, with record adjusted EBITDA of $233 million.
CHDN is as resilient as sports betting stocks come. Look for Churchill Downs to continue to benefit from the boom in sports wagering.
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Rush Street Interactive
- Market value: $4.2 billion
- Analysts' average LT earnings growth rate: N/A
- Analysts' average target price: $19.88
Rush Street Interactive (RSI, $19.23) went public via a merger with dMY Technology Group, a SPAC, on Dec. 30, 2020. RSI shares have lost about 11% of their value since then.
Despite the online gaming and sports betting stock failing to deliver for shareholders, its business has done well so far in 2021. On the top line, it brought in $122.8 million in the second quarter, 89% higher than a year earlier. On the bottom line, its net loss was $14.0 million, down from a net loss of $63.5 million in the year-ago period.
As a result of its strong showing so far in 2021, the company raised its guidance for the remainder of the year. It now expects sales of at least $480 million at the midpoint of its guidance, up from $460 million previously. That represents 72% year-over-year growth.
RSI stock was added to both the Russell 2000 Index and Russell 3000 Index in June as part of the indexes' annual reconstitution.
In early August, Macquarie analyst Chad Beynon initiated coverage of Rush Street with an Outperform (Buy) rating and a target price of $21. It's up almost 92% since then.
"As a relative pure play and early market share leader in the U.S. iGaming space, Rush Street Interactive is well-positioned for continuous growth from the burgeoning North American iGaming and online sports betting (OSB) market,” the analyst wrote in a note to clients, per Casino.org.
Based on the company's potential for a 6% market share in iGaming and 3% in sports betting, the analyst believes RSI could hit $1.4 billion in annual revenue by 2028, a compound annual growth rate of 18%.
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GAN
- Market value: $684.5 million
- Analysts' average LT earnings growth rate: N/A
- Analysts' average target price: $24.00
GAN (GAN, $16.29) is short for GameAccount Network, a provider of online gaming software and services to casinos in the U.S. and elsewhere. It provides both real money and simulated iGaming and sports betting software and gaming applications to these casinos.
The U.K. company went public in May 2020, selling 6.4 million shares at $8.50 apiece for gross proceeds of $54 million. Since going public, its shares have traded as high as $31.81 and as low as $10.60. Overall, it's up 92% since its initial public offering (IPO).
In mid-August, the company announced a second-quarter net loss of 7 cents per share, six cents worse than the average analyst estimate. However, GAN's revenues increased 24% from the first quarter, thanks to its January 2021 purchase of internet gaming software-as-a-service (SaaS) provider Coolbet for $175.9 million.
Coolbet's business-to-consumer sports betting technology meshes nicely with GAN. The company expects to have an integrated offering for the U.S. market by the end of this year's third quarter.
Still, the hard numbers suggest things are going well for GAN.
Despite getting lost in the shuffle of these other sports betting stocks, GAN's business shows significant traction in both simulated and real money iGaming. As a result, any declines in its stock price would present a buying opportunity that hasn't been seen since its IPO in 2020.
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Roundhill Sports Betting & iGaming ETF
- Assets under management: $405.7 million
- Expenses: 0.75%, or $75 annually on every $10,000 invested
The Roundhill Sports Betting & iGaming ETF (BETZ, $31.63) is a passive investment that tracks the performance of the Roundhill Sports Betting & iGaming Index, a collection of stocks whose companies operate sportsbook, whether in-person or online, online gambling platforms, and companies that provide technology to these companies.
BETZ was launched in June 2020. It currently has 42 holdings, with its top 10 accounting for 44% of its overall portfolio. Six of the top 10 are sports betting stocks featured here, including Rush Street Interactive (6.3%) and DraftKings (4.8%).
The holdings are pretty diversified, with large-cap stocks accounting for 45%, mid-caps for 39% and small-caps for the remaining 16%. You also get geographic diversification, with the U.S. accounting for just 36.8%, followed by 12.5% for Malta and Australia at 9.7%.
Two statistics keep investors engaged in this growing industry.
First, sports betting is expected to be available to 96% of Americans by the end of 2025. Second, on the iGaming front, online gambling is projected to hit $100 billion globally by 2023.
Another sign that sports betting is becoming a major trend: ETF Series Solutions at the end of August filed a prospectus for an actively managed sports betting ETF. The new fund will be named the iBet Sports Betting & Gaming ETF and trade under the symbol "IBET." The ETF will charge 0.79%, which is only four basis points (a basis point is one-one hundredth of a percentage point) higher than passively managed BETZ.
While it's something to be aware of before investing in BETZ, the Roundhill Sports Betting & iGaming ETF's leading position within gaming funds should enable it to continue gathering assets under management.
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