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The COVID-19 crisis has kicked off a mini-boom in sports betting legalizations. So says expert macro investor, Eric Fry. Though the coronavirus has hobbled numerous business sectors, it has served as a massive tailwind to others — case in point, legal sports betting. In Eric’s Smart Money issue earlier this week, he discussed the boom in sports betting — a boom that’s fueling a price-surge in certain sports-betting stocks. For example, take DraftKings. As Eric writes below, the stock has already tripled from its March lows. However, looking forward, DraftKings might not be the best way to play this megatrend (it’s booking quarterly losses). Instead, one of its under-the-radar partners is poised to become a major player in U.S. sports betting and online gambling. In today’s Digest, let’s turn to Eric for more details on this budding industry that he calls “an emerging gold mine.” I’ll let him take it from here. Have a good weekend, Jeff Remsburg |
Two Moves to Make in the Breakout Industry With ZERO to $400 Billion Upside
By Eric Fry
The “Land of the Free” is quickly becoming the “Land of the Legal Sports Bet.”
In May 2018, the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibited state-authorized sports gambling.
Unfortunately, legalized sports betting is unlikely to deliver an instant jackpot to any single gaming company.
That’s because the Supreme Court did not make national sports betting legal. The court just made it not illegal.
So now it’s up to each state to decide if, how, and when sports betting operates within its borders. That means each of the 50+ state and territorial legislatures and/or gaming authorities will determine the rules.
And so, gaming companies that hope to gain a piece of the sports betting pie must forge deals state-by-state, tribe-by-tribe, casino-by-casino.
That’s a lot of heavy lifting, and very few companies are up to the task. But those that are up to it can capitalize on an enormous opportunity.
So today, let me show you one company that is up to the task …
Why States Are Rushing to Legalize Sports Betting
DraftKings Inc. (DKNG), an online sports betting company, is in the right place at the right time … and investors seem to have noticed. The stock has tripled from its March lows and built up a massive $11.5 billion market value.
That figure could climb even higher as DraftKings finishes tidying up its capital structure following its recent initial public offering.
As such, based on near-term earnings projections, this lavish valuation may be a bit excessive. But longer term, DraftKings is a tremendous opportunity, as it’s on the ground floor of an emerging gold mine.
Online sports betting was already booming before the COVID-19 pandemic hit. Now in the wake of this epidemic, the online sports betting boom could kick into hypergrowth mode.
That’s because U.S. states are desperate for cash. They spent heavily to try to offset the effects of the coronavirus, so they are now facing deep budgetary holes. Replenishing state coffers will not be easy, especially when unemployment is hitting Depression-era levels and millions of small businesses are struggling.
In this context, legalized gambling has become low-hanging fruit for revenue-hungry states. And the political opposition to legalized gambling will probably weaken and yield to expedience.
Bottom line: The COVID-19 crisis has kicked off a mini-boom in sports betting legalizations.
Right now, just 18 U.S. states plus the District of Columbia offer sports betting, and four offer internet gambling, which can include online casino games, slots, and poker … but there’s a lot happening in state legislatures around the nation. In all, around half of the 50 states should offer online gaming in one form or another within the next year.
Therefore, it is clear that a significant opportunity is developing. But no one seems to know how large it might be. Most estimates range from $150 billion to $400 billion in annual transactions, up from essentially $0 just a couple of years ago. But you could drive a fleet of semis between those two numbers.
One way or another, the U.S. sports betting market is certain to grow rapidly — and to provide enormous profit opportunities for investors in select gambling companies.
Why DraftKings Is Ahead of the Competition
DraftKings is well-positioned to pick up a large percentage of this business. It is already taking advantage of the rising interest in online gaming. It recently launched its standalone casino application for users in New Jersey.
DraftKings’ stock still has a fight ahead of it. This is a vast new market, and the turf war for market share will be intense. High marketing and customer acquisition costs could hit profits in the near term. That’s to be expected in a newly emerging industry with an outstanding growth rate.
That said, DraftKings already has excellent name recognition within the sports betting market. It won the first big branding battle against FanDuel, and it remains at the top of consumers’ minds now.
With the return of live professional sports just weeks away, it will be DraftKings’ time to shine.
One of DraftKings’ top partners is also in the right place at the right time.
In fact, these two companies are often in the exact same place at the same time, as DraftKings accounts for about half of this partner’s U.S. revenues and about 10% of total revenues.
This company trades on a foreign exchange and remains a relative unknown to U.S. investors. Yet, it is rapidly becoming a major player in U.S. sports betting and online gambling.
It operates behind the scenes as a business-to-business service provider to casino operators and other gambling platforms, like DraftKings.
At last count, it was serving 20 gambling operators across six continents. I expect that number to grow as legal sports betting and online gambling spreads across the United States … and I expect this company’s revenues to double over the next two years — from roughly $100 million to $200 million.
Furthermore, while DraftKings is booking quarterly losses, its partner is reporting profits and positive cash flow. If its stock traded on a major U.S. exchange, its valuation would probably be much higher already.
But that’s okay. If the company continues to execute its strategy as well as it has been, the stock won’t remain a secret forever.
I recommended this small-cap stock last October to members of The Speculator, my elite-level trading service.
It’s already reached peak gains of 65.8% … but I expect it to soar far higher over the next couple of years.
I can’t name the company here. That would be unfair to my subscribers.
But you can find out how to get all the details on this company — and to make sure you’re first in line for my next potential 1,000% recommendation — by going here.
Regards,
Eric Fry
