How to Invest in Sports Betting — 10 SPORTS BETTING STOCKS TO KNOW

by Tim Maloney / Updated June 30, 2020

Since the Supreme Court lifted the U.S. Federal ban on sports gambling in 2018, 21 states have legalized sports betting, and an estimated $13 billion in wagers was placed nationwide in 2019. Sports betting hedge funds may be the investment tool of the future. It was only a matter of time that the suits on Wall Street noticed the massive financial opportunities provided by sports betting. In the last few years, sports betting has seen a meteoric jump in popularity and acceptance among mainstream society. Sports betting is traditionally seen as a gamble, and most people who bet on sports are certainly gambling. Our approach here at ScoreMetrics is different – we look at sports betting as an investment. Let’s define the terms. Investing is the act of allocating capital to assets with the goal and expectation of generating a profit. DraftKings is the best pure play sports betting stock for U.S. Investors, Hershey said.

Sports betting, broadly speaking, is the act of betting on the outcome of a sporting event. For most people, even those who choose not to participate in sports betting, the notion that one can bet on sports shouldn’t be that foreign. With that said, the idea that investors can now bet on sports betting is relatively new, especially for US-based investors.

Between 1992 and 2018, sports betting was illegal at the federal level in the United States (with a few exceptions, notably Nevada). In May of 2018, the US Supreme Court found that the Profession and Amateur Sports Protection Act of 1992 (PASPA) violated the 10th Amendment of the U.S. Constitution. While this didn’t legalize sports betting in the United States, it did open the door for individual states to legalize sports betting within their borders.

Thus began a process of legalization across the individual states comprising the country, with 18 states already there, 6 in the on-deck circle (including D.C.), and 24 more moving towards legalization (per ESPN as of June 9^th). It is for this reason that sports betting is increasingly relevant to investors: unregulated sports betting cannot materially impact publicly traded companies in the way that legal sports betting can!

Source: ESPN (as of June 9, 2020)

(As an aside, the US is simply one example, albeit a large one, from a broader trend towards legalization on a global basis).

In this post, we look at the investment landscape for sports betting, a category we’ve broken down into four primary categories: Sportsbooks, Casinos, Technology, and Lead Generation (plus a bonus fifth category for those who keep reading). We provide examples of publicly traded companies in each category for reference.

Disclaimer: the companies listed below are simply examples and are not recommendations to buy or sell securities.

Sportsbook

Simply put, a sportsbook is a place where people can wager on sports. The landscape for sportsbooks has evolved fairly rapidly in recent years, driven in part by legal changes across the globe. As regulation allows, sportsbook operations continue to migrate from “brick and mortar” to online. Sportsbooks are typically structured such that bettors must risk more capital than they stand to win (i.e. bet $110 to win $100), resulting in positive gross gaming revenues. However, sportsbooks are generally less profitable to the operators than casinos, which further favor “the house”.

Below we highlight three companies that we assigned to the “sportsbook” thematic relevance category, while noting that companies in this category often have traits of other categories built in.

Flutter (FLTR LN)

Market Capitalization: $20.3 billion

Flutter Entertainment is a global sports betting and gaming operator with a portfolio of leading international brands and operations. The company's assets are allocated across four primary divisions: US (FanDuel, TVG, Betfair), Australia (SportsBet), PPB Online (Paddy Power, Betfair, Adjarabet) and PPB Retail. Flutter acquired The Stars Group, the parent company of PokerStars in 2020.

FanDuel: A well-known sports betting brand within the US, FanDuel got its start as a provider of daily fantasy sports (DFS) in the US. Using the argument that DFS is a game of skill, FanDuel and its primary competitor, DraftKings, proliferated in the 2010’s as a viable alternative to more traditional sports betting.

PaddyPower: Founded in 1988 in Dublin, PaddyPower started as a merger of three Irish bookmakers. In addition to its sportsbook, PaddyPower takes bets across other game-types in-person, over the phone, and online.

Betfair: Founded in 2000 in London, Betfair operates the world’s largest online betting exchange and was the first betting company to sponsor an English football team. Betfair listed on the London Stock Exchange prior to merging with Paddy Power to form Paddy Power Betfair in 2016.

DraftKings (DKNG)

Sports Betting Investment Thesis

Market Capitalization: $11.7 billion

DraftKings is a publicly traded daily fantasy and sports betting company headquartered in Boston, Massachusetts. Like Flutter, DraftKings leveraged the brand it built with consumers of DFS to move into sports betting more broadly in 2018, when it became the first legal mobile sports betting operator in the state of Jersey. The company continues to expand its digital footprint into iGaming via DraftKings Casino.

DraftKings became a publicly traded company in April of 2020 when a special-purpose acquisition company (SPAC) named Diamond Eagle Acquisition Corp. executed a reverse merger involving DraftKings and SBTech Global, a prominent sports betting technology provider.

SBTech: Founded in 2007, SBTech offers full-service sports betting and iGaming with global scale, operating in 20+ regulated markets and jurisdictions. The combination makes DraftKings the only US-listed vertically integrated sports betting company, while offering a possible channel for increased global expansion given SBTech’s footprint.

William Hill (WMH LN)

Market Capitalization: $1.5 billion

The oldest of the three companies included in this section, William Hill has offered sports betting services since it’s 1934 founding in London. Notably, gambling was not legal in Britain at the outset. Today, William Hill offers sports betting and online gaming across the globe and is America’s largest sportsbook operation by location count, serving 100+ locations across the country and growing.

In 2019, the company announced that then CEO Philip Bowcock would be replaced by former chief digital officer Ulrik Bengtsson as a part of its broader initiative to increase focus on online and international opportunities, citing the evolving US sports betting landscape as a key opportunity.

Casinos

Traditional casinos are well positioned to capitalize on the opportunity presented by the legalization of sports betting across the country. The operational experience associated with running sportsbooks historically where legal combined with the extensive network of gambling properties in states where sports betting either was recently legalized or will be legalized in short order offers a distinct advantage versus upstarts. Additionally, strong brands within gambling and existing customer bases should help cultivating a digital sports betting presence over time. Casino operators tend to earn their highest margins on table games and slots versus their sportsbooks.

Penn National (PENN)

Market Capitalization: $4.2 billion

Penn National Gaming is a diversified operator of gaming and racing properties and video gaming terminal operations. The company offers sports betting at its properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia, and operates an iGaming division through its subsidiary, Penn Interactive Ventures. In February 2020, the company completed the acquisition of a minority stake in Barstool Sports, a leading digital sports and media platform.

Barstool Sports: Dave Portnoy founded Barstool Sports in 2003, operating as a primarily print enterprise until 2007 when it launched on the internet. The company’s initial publication offered gambling and fantasy sports projections in the city of Boston, so suffice to say Barstool’s roots are very much in the sports betting arena. Penn plans to rebrand their retail sportsbook as the “Barstool Sportsbook” and launch an online sportsbook app in the near future.

Eldorado / Caesars (ERI / CZR)

Combined Capitalization: $12.2 billion

In June of 2019, Eldorado Resorts (NASDA

Sports Gambling Investment