Draftkings, Caesars Entertainment and MGM Resorts International have been outperforming markets with sports betting expansion.
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With the legalization of sports betting, sporting stocks have been more desirable than ever— a trend analysts predict will continue as more states legalize sports betting.
Since last year, DraftKings has risen to 85% this year, closing at $27.76 on Sept. 22. Other rising such as Caesar Entertainment rose 30% to $46, MGM Resorts International inclined to 21% to $36.54.
Caesars, MGM, and DraftKings outperform the market beside Penn.
Sports gambling stocks have been spurred by the increase in states allowing gambling, especially in New York, whereas online gambling has exceeded expectations. In less than six months, New York State generated $302.3 million in mobile sports wagering tax revenue, more than any other state. Analysts predict only some sports betting companies are expected to do well in the next 12 months, and others are expected to perform poorly.
“Last year, the U.S. generated 7.5 billion in revenue,” said Dan Wasiolek, a senior analyst at Morning Inc. He added: “The 7.5 billion in revenue last year from U.S. sports betting can probably grow to well over 20 billion by the end of this decade. There’s a lot of growth that excites investors.”
Sporting stocks began to rise in January because more states are legalizing sports gambling. North Carolina, Vermont, and Kentucky are the most recent states to legalize sports betting. Thirty-four states have legalized sports betting, which is expected to continue in the “next five years to the low 40s,” said Wasiolek.
Even while all the stocks are likely to rise, those that will outperform the market are Draftkings, Caesars Entertainment, and MGM Resort International. The exception is Penn Entertainment, which has underperformed the market and declined 16% to $22.36 over the year.
DraftKings has been a top contender because it had the opportunity to introduce states to Fantasy Sports in May 2012— which is a game of skill. DraftKings did not need state approval for gamblers to participate in Fantasy Sports like general sports betting.
This allowed DraftKings to gain customer loyalty, so by the time online sports betting was legalized in participating states, loyal customers could place sports bets.
Draftkings was already in “a good position to launch their platform into offering sports bets,” said Wasiolek.
In addition to DraftKings customer loyalty, the company consistently finds ways to improve and become more competitive.
“We caught up with DraftKings and we see several improvements that could lead to more share gains,” said Jordan Bender, an analyst at JMP Securities, in notes from Sept. 5.
DraftKings is expected to launch a new product during football season and fully integrate its technology into the Golden Nugget.
If DraftKings integrates into the Golden Nugget, it could help DraftKings long-term because analysts think if DraftKings does not get a physical location like MGM, Caesars Entertainment, and Penn Entertainment— the brand will lose out on the opportunities to cross-sell.
Since MGM and Caesar have physical locations, there are downsides to having a physical location. For instance, both MGM and Caesars were cyber-attacked a few weeks ago.
Analysts think customers who gamble at MGM and Caesars may take hold of the recent data points and have concerns about their information getting stolen. Which may cause some customers to pull back from gambling at these casinos.
Analysts do predict there will be no long-term impact on the financial position of MGM and Caesars because cyber attacks have occurred in the hotel industry.
Data shows cyber attacks have not affected Caesar and MGM—both continued to outperform the S&P 500 along with DraftKings.
“Large operators are getting stronger, for now. BetMGM DraftKings have been the market share leaders for nearly five years after the repeal of PASPA, with 80% market share,” Eric Ross, an equity research associate at JMP Securities LLC, in notes from Sept. 5.
Penn Entertainment missed its earning estimate in February— a significant reason analysts predict the stock started declining that month. In August, Penn Entertainment announced its partnership with ESPN, and the stock continued to underperform the market, even after the announcement. Analysts predict this partnership will help Penn in the future.
Analysts think investors lost hope in Penn Entertainment when the company invested around $600 to 650 million into Barstool to give it back to Jay Snowden, the CEO and founder of Barstool, in exchange for a non-compete.
Also, analysts predict investors will pull back because Penn will aggressively spend with its new partnership with ESPN and could show some near-term losses in their business.
But as sports betting expands in the U.S.— analysts predict that more than 12 million online game users may be betting on sports by the first quarter as states such as Ohio, Massachusetts and Maryland enter their first entire football season.
“In total, 53% of the U.S. will have access to an online sportsbook by the Super Bowl in February,” said Bender and Ross.