Optimists say the money is available for companies in this up-and-coming sector.
The sports betting business is nothing new. It's been around for decades and is often illegal. And the industry has grown even more since the U.S. Supreme Court lifted the federal ban on sports-based betting in 2018.of sports business journal According to a report, total U.S. sports betting last year was about $121 billion, up 30% from $93.3 billion in 2022.
But if you think most of the growth in the sports betting market is a thing of the past, think again. Although well over half of the states in the country have now legalized gambling on sporting events, the business itself remains in high growth mode. why? That's because while the states themselves continue to expand gambling licenses, gambling brokers continue to educate and attract the best.
More importantly, great equity opportunities still exist for investors to take advantage of this growth exposure. I can think of the top three names.
Sports betting is gaining momentum
To their credit, many casino and entertainment technology companies were prepared for the nation's highest court ruling in 2018. However, overriding the national ban on sports betting does not inherently make it legal everywhere. It simply pushes the issue back to the discretion of each state. Some gave permission right away. Others were slow to jump into it.
But most states are now following the trend, at least to some extent. According to The Motley Fool's own internal research, a total of 38 states currently allow some form of sports-based betting, but many of those states only allow in-person betting. Other states have restrictions on the types of sports betting that can be conducted.
Nevertheless, there is one good reason for investors to believe that the sports betting business still has many miles to go before it reaches its highest altitude. That means cash-strapped states are realizing that they can generate significant revenue by taxing sports betting. The Motley Fool's findings show that states have banked a total of $4.3 billion in tax revenue since 2018, when the Supreme Court ultimately handed down its controversial ruling.
It's not a huge amount. But given that states now collectively owe trillions of dollars, every dollar helps. Recent interest rate increases have increased the need for state-level tax revenue increases, making borrowing costs higher for states as well.
Additionally, you should know that while most states currently allow some form of sports betting, two large states do not, at least not yet. That's Texas and California. These states alone account for about one-fifth of the U.S. population and are tourist destinations for would-be gamblers to place their bets. If these states legalize sports betting, it could have an explosive impact on business.
In the meantime, know that new legalization measures are currently being considered in at least five states. Against this backdrop, three specific companies are well-positioned to take full advantage of the industry's future growth.
The best sports betting stocks of the best
Some companies are better positioned to benefit from the upcoming growth of the sports betting industry than others. draft kings (DKNG -0.51%) and flutter entertainment (flute -2.24%) Two of these names.
You've probably heard of DraftKings. The company was founded in 2012 as a fantasy sports playing site. Adding online sports betting to its services was a pretty seamless fit. The company is not yet profitable, but it is rapidly moving in that direction and should be out of the red starting next year.
DKNG Revenue (Quarterly) Data by YCharts
A big key to this success is scale. DraftKings finally has it. This makes growth more efficient. Over the past few years, his average acquisition cost per customer has fallen by more than 40%.
Data Source: DraftKings November 2023 Investor Presentation.
As a result, the longer DraftKings is present and doing business in a given state, the gross profit margin (proportionate to revenue) continues to increase.
Image Source: DraftKings November 2023 Investor Presentation.
You might know more about Flutter than you think. This is the parent company of DraftKings rival FanDuel, which just became a publicly traded company in January. For better or worse, it's almost a copy of DraftKings. But both organizations are poised for strong growth, largely because sports betting services are available where people want them: on their phones and through simple apps.
And yes, there is enough online sports betting for both companies to thrive. Research firm Mordor Intelligence forecasts that the online sports betting market alone is expected to grow at an annual rate of more than 11% through 2029, in line with estimates from Straits Research.
However, the possibility of offline and in-person sports betting is equally attractive. goldman sachs The U.S. sports betting industry's revenue could rise from about $10 billion today to as much as $45 billion in the future, it said. This is “driven by a combination of new state openings and a higher share of consumer wallets being spent on sports betting,” said Ben Andrews, head of leisure and travel research at Goldman. This is a bullish number for any casino that manages a sportsbook.
Another key player to watch is pen entertainment (pen -3.67%). The company backed away from his acquisition of Barstool Sports, which made way for partnerships with bigger names. Walt Disney. Disney is allowing Penn to use the ESPN name, its powerful sports media brand, to promote its new sports betting business.
Although the deal is intended to be an online-only operation, it has the potential to bring tens of millions of ESPN fans into Penn's fold, with an incentive to visit Penn's brick-and-mortar casinos.
Of course, other companies could also benefit from the continued growth in sports betting. But these three are best positioned to reap the most benefits. They have already proven that they know how to launch and scale a betting business, and they have already brought in millions of proven sports fans.
