Sports betting equities, such as DraftKings (NASDAQ:DKNG) and Rush Street Interactive (NYSE:RSI), were once hot, but that’s no longer the case.
In fact, share price erosion in the space is accumulating at a rapid pace due in large part to the investment community’s concerns about promotional spending and timelines to profitability. Still, analysts are mostly bullish on regulated sports wagering as a long-term investable thesis.
With that in mind, it might be easier for many investors to eschew stock-picking and embrace the VanEck Vectors Gaming ETF (BJK) — the original exchange traded fund dedicated to gambling companies. Since the 2018 Supreme Court decision on the Professional and Amateur Sports Protection Act (PASPA), the domestic gaming industry is rapidly evolving, and although it’s passively managed, BJK is keeping pace with the times as at least a third of the fund’s 39 holdings now have some exposure to sports wagering.
Digital gaming, including online casinos and sports betting, are seen as growth avenues for the broader gaming industry.
“Additional market expansion across the United States also led to record annual wagering in 17 of 18 existing markets, including a steep surge in Michigan following the addition of legal, mobile wagering options,” writes VanEck analyst Samir Barjon. “In 2021, ten out of the thirty states where gambling is allowed witnessed record quarterly revenues in the third quarter by already surpassing the $1B wager mark. Analysts expect the global sports betting market to grow to $134 billion from 2020-2024.”
Adding to the allure of the sports wagering thesis is that more states could join the party, driving revenue higher. For example, New York only recently allowed online/mobile sports wagering, and it’s proving to be a resounding success there. Currently, sports betting isn’t allowed in California, Texas, and Florida, the three largest states.
Of course, it’s worth noting that some BJK components aren’t dedicated sports betting firms akin to DraftKings. Rather, some of the ETF’s holdings are land-based casino operators with sports wagering exposure. That includes Caesars Entertainment (NASDAQ:CZR), one of Wall Street’s favorite casino equities.
In a note out Wednesday, Jefferies highlighted strength in Caesars’ Las Vegas operations and pointed out that some concerns surrounding the stocks are being exaggerated.
“We believe the fundamental environment for Las Vegas and regional casinos is expected to sustain its recent strength in demand, pricing and profitability,” said Jefferies. “The current concerns that the company is over-investing in its digital business expansion, or that the sale of its excess assets to 888 Holdings may not close, should be proven to be incorrect in the NT, and view the recent weakness in the shares as an opportunity.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.