One of the most lucrative untapped industries in the U.S. is sports betting, and in 2020, that means online sports betting.
The numbers have confirmed this with largely the male audience under 60 being avid sports gamblers and precisely tuning into sports matches just to put down a bet.
Online sports betting is a duopoly and I recommend investors look at DraftKings (DKNG), the other member of the duopoly is FanDuel.
Legislation has backed up this premise with instances nationwide and the pace of liberalization is picking up speed such as the state of Tennessee conditionally approving licenses for its first three online sports betting operators Wednesday, bringing the state one step closer to its proposed Nov. 1 launch date.
The Tennessee Education Lottery Board's Sports Wagering Committee approved licenses for FanDuel, BetMGM, and DraftKings.
The committee also approved its first supplier application and 26 additional vendor applications, according to a news release, adding to the 13 vendors approved in previous months. It will convene again on Oct. 5 and Oct. 16 to review more applications and additional information from the sportsbook companies that received licenses.
DraftKings provided third-quarter revenue guidance on National Football League betting.
The guidance was disclosed simultaneously with an equity offering of 32 million class A shares. Half the shares will be sold by the company and half by selling shareholders.
In its S-1 filing, DraftKings expects to report third-quarter revenue of $131 million to $133 million, a 41% gain relative to the third quarter of 2019.
The company said its total amount wagered is expected to have risen 460% in the third quarter year-over-year and that internet betting revenue was expected to be up 335%.
DraftKings expects its monthly unique players to be about 1.02 million in the third quarter, up 64% from the same period a year earlier.
As major sports resumed in the third quarter and amid keen investor interest in online sports betting, DraftKings stock had rallied more than 70%.
It is currently the second-largest U.S. gambling company behind only Las Vegas Sands (LVS).
The equity offering is being led by Credit Suisse and Goldman Sachs and the underwriters have the option to purchase an additional 4.8 million shares.
The deal follows an equity offering of 40 million shares—16 million by the company and 24 million by selling shareholders—in June at $40 a share.
The online sports betting industry has been hot and that is reflected in the M&A market last week with Caesars Entertainment announcing a $3.7 billion deal to acquire UK betting company William Hill. That deal is expected to be consummated during the second half of 2021.
Caesars and William Hill currently operate a U.S. joint venture with 20% and 80% equity ownership, respectively. Through this joint venture, William Hill runs online sports betting operations in each state and retail sports betting operations in Caesars’ properties.
Even though the in-person aspect of casinos has fallen off the face of the earth, the online sports segment hasn’t been stronger and I fully expect accelerated revenue growth in the mid-term.
I expect DraftKings and FanDuel to overperform in the short and long term and they look forward to long runway in front of them.
One caveat with its underlying stock is that traders will need to deal with volatility because of the immature nature of this industry and the stock being a fresh entrant into public markets.
Expect 5-7% volatility on most days which makes it better for a long-term buy and hold if one cannot bear the heightened volatility.
