Ask any investor if they know of a sure thing and they’ll show you their tax bill. As the old adage says — there are only two things in life that are certain, death and taxes. But the recent boom in the gambling industry, particularly in the United States might lead to some investors revising their opinions on sure things in the markets.
In 2021, the global gambling market was worth $287.43 billion. This grew to an astonishing $458.93 billion in 2022 and by all accounts this will increase further in the coming years with some analysts predicting a value in the region of $800 billion by 2028.
In layman’s terms, gambling is booming and it’s not slowing down. But is it a good time to invest or is the industry a bubble that’s about to pop.
Sports betting leading the charge
2018 saw the US Supreme Court rule that the Professional and Amateur Sports Protection Act of 1992 (PASPA) was unconstitutional. This ruling meant that individual states were free to set their own laws in relation to sports betting and the floodgates were opened.
Since then over half of states in the USA have passed legislation and established regulated sports betting markets. This has resulted in an unprecedented boom in the sports betting industry with some of the world’s leading gambling companies getting in on the act.
The likes of DraftKings and FanDuel, previously market leaders in daily fantasy sports, posted significant revenue gains in the past year with the latter reporting a jump of 113% in revenue for the year 2021. Meanwhile, casino operators Caesars, MGM Resorts, and Bally also launched sports betting products to huge success. Caesars’ share price soared from $59 in 2019 to $112 in 2021 thanks to its acquisition of William Hill and the success of its sports betting products.
Although many sports betting companies’ share prices have leveled off after a period of sustained growth, the potential for further expansion into newly regulated markets suggests that these could be a good option for investment.
Online casinos next?
Online casino gaming is currently legal and regulated in six states across the USA — Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, and West Virginia. However, there’s growing support for legislation across many states and this is largely down to the global pandemic.
According to market research, covid-19 enforced lockdowns led to a significant increase in online casino spending across the USA. As a result, lawmakers in unregulated states were quick to realize that the establishment of a regulated market could yield substantial tax dollars each year.
In the past year or so, the following states have introduced online casino gaming legislation. However, none have signed these bills into law as of yet.
- New Hampshire
- New York
Kentucky recently introduced its own sports betting and iGaming legislation that was expected to be passed in 2022. However, the legislative session ended before this could happen. Meanwhile, New York is expected to be the next to launch its iGaming market following the huge success of its mobile sports wagering industry which launched in early 2022.
It’s conceivable that within a few short years, there could be as many states with online casino legislation in place as there are those with sports betting. This would suggest that investing in companies that are likely to launch online casinos or that already have them in place in regulated states could be a good idea. For example, FanDuel, DraftKings, BetMGM, and Caesars all have online casinos that can launch immediately once legislation is passed.
Startups vs. established entities
From what we have discussed so far, investing in gambling stocks looks like a good opportunity. Now the question is which stocks to invest in.
While there is a certain amount of risk involved in all investments, buying startup stock is by far the riskier option. With no track record in the industry, it’s hard to say how a company will fare. This is particularly true in the gambling industry which is extremely competitive and where established names have the backing to invest heavily in marketing and promotions.
Take theScore for example. While the Toronto-based company is by no means a startup, it struggled to make an impact in the US sports betting industry and has since opted to shutter all US sports betting operations. The company cited its inability to compete with larger companies’ marketing budgets as one of the main reasons for the closure.
Due to the highly competitive nature of the US gambling industry, investing in stocks of established companies with a proven track record in the local market looks like the much better option.