The gradual opening of key markets – including the United States and Canada – to legalized sports betting has been eagerly anticipated not just by those who want a more convenient and safe way to place wagers, but also by companies offering online betting services and their backers.
Both institutional and retail investors are keeping a close eye on the stocks of those publicly traded companies most heavily involved in such emerging markets. Four of the biggest organisations with interests in the US market are Draftkings Inc., Caesars Entertainment Inc., Flutter Entertainment PLC (which owns the FanDuel brand) and MGM Resorts. Are any of them a good pick for growth in 2022?
DraftKings (NASDAQ: DKNG) was launched back in 2012 as a daily fantasy sports platform. Over the last 10 years it has enjoyed impressive growth in this sector, securing major funding and investment deals with the likes of Major League Baseball, Fox Sports (now The Walt Disney Company) and the Kraft Group.
Given the demographic of its user base, it perhaps came as no surprise that DraftKings was quick off the mark in launching a sportsbook product (the first company to do so) following the 2018 US Supreme Court decision that overturned the Professional and Amateur Sports Protection Act (PASPA), paving the way for individual states to regulate and legalize sports betting.
Since first dipping its toes in the water in New Jersey in 2018, DraftKings has been granted mobile operating licenses in an additional six states and has launched retail sports betting in several locations nationwide.
DraftKings stock has endured something of a difficult last 12 months. More than 70% of its value has been wiped since it peaked at $75.38 back in March 2021, with several major institutional investors taking short positions partly in response to concerns over the company’s allegedly unsustainable marketing spending.
However, the outlook for 2022 looks more promising, with 2021 Q3 results revealing a 31% increase in monthly unique players and a 60% increase in year-on-year revenue. A recent poll of analysts put the stock’s 12-month median price target at $58 – more than one and a half times greater than the current price.
Caesars Entertainment (NASDAQ: CZR), formerly Eldorado Resorts, has a storied history in the US gambling space, having opened its first casino in Reno, Nevada back in 1973. Caesars is one of a slew of major brands determined not to be left behind in the predicted gold rush unleashed by the legalization of sports betting nationwide.
It has made some big moves in this market during the last 12 months, most notably its acquisition of historic sports betting brand William Hill for $3.7 billion in April 2021. It has since offloaded William Hill’s European businesses to 888 Holdings which indicates that the US market – where most William Hill assets will be rebranded as Caesars Sports book – is the group’s clear focus.
Caesars stock nosedived by a whopping 23% in January 2022, however this may be a short-lived symptom of a market that is simply very volatile. As far as the medium to long-term future is concerned, many argue that Caesars Entertainment is well-placed for decent growth across its online sports betting business as well as its strong casino portfolio.
Dublin-headquartered Flutter Entertainment (LSE: FLTR) is a success story from the other side of the pond. It was created following the 2016 merger of two genuine heavyweights of the UK and Irish sports betting industry, Betfair and Paddy Power.
While not a ‘US’ gambling stock, Flutter is included in this article as in May 2018, shortly after PASPA was overturned, it got well and truly stuck into the US sports betting market via its acquisition of FanDuel. Like its main competitor DraftKings, FanDuel has its origins in daily fantasy sports and has since expanded its offerings to include sports betting. It’s now the official daily sports and sports betting partner of the NHL.
FanDuel has also looked to diversify its sports betting business to include retail locations. Plans were recently announced, for example, for FanDuel to open a “state-of-the-art sportsbook lounge” at the United Center in Chicago (home of the NBA’s Chicago Bulls and NHL’s Chicago Blackhawks).
It will be interesting to see how successful FanDuel and others in the US market are in enabling users to link their online and retail play (successful models in the mature UK sports betting market include Ladbrokes’ The Grid, William Hill Plus, and Coral Connect). Such products could be crucial in deciding which gambling stocks perform the best over the medium to long term. Flutter has recently been showered with ‘buy’ ratings and healthy price targets from a range of banks, so it’s certainly one to watch in 2022.
MGM Resorts International (NYSE: MGM) is another of the big-name US companies that is heavily invested in the future of online sports betting across the United States. Formerly Grand Name Co., MGM Grand Inc., and MGM Mirage, the MGM brand is one of the most recognisable in US gambling and the MGM Grand Hotel is a Las Vegas Strip landmark.
BetMGM is MGM Resorts’ play at the US online sports betting market, which it created as part of a joint venture with GVC Holdings (now Entain – the owner of sports betting megabrands including bwin, Coral and Ladbrokes). BetMGM has signed a slew of high profile exclusive betting partnerships with major league sports teams and, at the time of writing, is open for betting in over a dozen states.
As one of the nine mobile sportsbooks to have been granted a license to operate in the key state of New York, BetMGM is hard to overlook in terms of growth potential. MGM Resorts has already bounced back from its slump as a result of the COVID-19 pandemic, and is reportedly looking to expand its property portfolio while continuing to push hard on the online market, so there’s potential for plenty of upside here in 2022.
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