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2 Gambling Stocks to Keep an Eye On As More States Legalize

Vaccine optimism and a rapidly expanding U.S. online gambling market have created a ton of interest in gambling stocks lately.

Casinos were shut down for a large portion of 2020 due to the pandemic, with most still operating at lower capacities and following extensive health and safety protocols. For a period, sporting events around the world had to shut down, so betting suffered. However, optimism about the rollout of vaccines and the growth of online gambling is causing plenty of excitement. 

Each individual U.S. state has the ability to legalize sports betting and online casinos, with more and more lawmakers seeing this as a great driver of tax revenue. In early-January, New York Governor Andrew Cuomo admitted that online sports betting should be looked at to help deal with the state’s $150 billion budget deficit. This could generate $500 million in revenue annually for the state.

To date, about 20 states have sports betting up and running, with a handful also having online casinos. These numbers are only going to grow over time. With the illegal sports betting market estimated to handle $150 billion worth of bets annually, there is huge potential for operators in the regulated space. 

DraftKings

DraftKings (NASDAQ: DKNG) was one of the early movers in the online sports betting space after the federal ban was lifted in May 2018. Previously, the company had become a market leader in fantasy sports. A step into sports betting was a logical move.

The company had numerous notable investors before it went public through a SPAC in April, including New England Patriots’ owner Robert Kraft. Following going public, it has attracted the likes of NBA legend Michael Jordan to come on board as a special adviser.

After entering the NASDAQ at about $12 per share, its share price has consistently been around the $40-$50 range in recent months. Most of the interest is in the potential of the U.S. online gambling sector, which Morgan Stanley forecasts to be worth $10 billion by 2025. 

DraftKings is already well-positioned to take advantage of entry into new states, as it already has a significant daily fantasy sports customer base to leverage. Therefore, it can garner brand loyalty to help carve out a larger market share as a result. It also estimates that its operations will be profitable by 2023 and Q4 revenue is set to be 10% better than forecasted.

If the price dips down in the coming months back closer to $40, it could be a very interesting play in the burgeoning online gambling space. 

MGM Resorts International

While the MGM Resorts International (NYSE: MGM) share price plummeted as the pandemic set in, it has since recovered to pre-COVID levels. The hope provided by the vaccination is good news for the company’s land-based properties. It had also slimmed down its balance sheet somewhat pre-COVID, which eased some of its burdens. 

Following the trend of gambling-related mergers, MGM recently made a takeover attempt of British-based gambling group Entain (formerly GVC Holdings). However, the $11 billion offer was rebuked for reportedly being “undervalued”. However, the two companies are still joint partners in the BetMGM online gambling venture. 

BetMGM has been rapidly expanding in both legal sports betting and online casino markets in recent times. There have also been numerous partnerships struck with notable professional sports teams and athletes. The operator stands out among many others in the online space as it can leverage the brand recognition of MGM in the U.S. alongside the vast experience that Entain has in the online gambling space globally. 

The bulk of the company’s revenue (consolidated net revenue of $1.1 billion in Q3 2020) will still come through its land-based operations for the moment. Once MGM’s big properties in the U.S. and Macau get fully up and running, conventions start to return, along with the growth of its online offering, there is plenty to be optimistic about. Any hold-ups with the rollout of vaccines or other negative news could lead to a price stutter, which could represent a good opportunity for investors to buy.

Andrew O'Malley
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.