It’s time to buy online gambling stocks, because the 2020s will be a decade of hypergrowth for these emerging companies as online gambling and sports betting — otherwise known as “iGaming” — goes from niche to mainstream.
The story is pretty simple.
On May 14, 2018, the world changed forever when the U.S. Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act (“PASPA”). PASPA, since 1992, had prevented U.S. states — aside from Nevada, Delaware and Oregon — from engaging in the regulation and taxation of interstate gambling and sports betting.
This landmark decision gave birth to the iGaming megatrend.
For years, many industry analysts and veterans alike have considered iGaming to be the future of gambling, mostly because the convenience of gambling from home is widely seen as a strong enough value prop to one day make iGaming ubiquitous among gamblers (much as e-commerce has become ubiquitous among shoppers).
But, prior to the overturning of PAPSA, most U.S. casino operators couldn’t engage in real-money iGaming. They were limited to running simulated iGaming, or online gambling operations without real money.
Cool. Sure. But you can’t exactly disrupt the $80 billion and growing U.S. gambling industry with fake money.
Then PAPSA got overturned in May 2018. That laid the groundwork for states to create a regulatory framework for real sports betting and online gambling, and thereby create a regulated, safe market for real-money iGaming.
The future of gambling has arrived.
Over the next decade, the iGaming megatrend will gain tremendous momentum as more and more states adopt fully legal frameworks to facilitate online gambling, and many iGaming companies will undergo unprecedented, breakneck growth.
With that in mind, here are three of my favorite gambling stocks to buy to play this iGaming megatrend:
Gambling Stocks to Buy: DraftKings (DKNG)
First on this list of gambling stocks to buy for the iGaming megatrend is DraftKings.
DraftKings is the most widely known iGaming platform in America, with over 12 million registered accounts and over 500,000 monthly active players. Indeed, the company has become a household name among sports households for Daily Fantasy Sports and online sports betting.
Importantly, size matters in the iGaming market, because:
- DraftKings’ bigger-than-peer size equals more widespread brand awareness. The company can leverage more widespread awareness to attract more first-time DFS players and sports betters as the market grows.
- Size unlocks built-in network effects. Since DFS is inherently social, consumers are going to want to play DFS with friends. Given DraftKing’s already huge size, chances are high that most sports fans have at least one person in their friend group who is on DraftKings. So, when new players enter the market, they will likely enter through DraftKings thanks to these network effects.
- Bigger size also equals bigger prize money. At the end of the day, we bet on sports and card games because we want to win more money. DraftKings — as the biggest company in the iGaming market — can also offer the biggest prize money to players. Naturally, this will attract more players, which will lead to more size, bigger prize money, and then even more players. It’s a positive growth flywheel.
- More size means more resources, which means better technology. The bigger DraftKings gets, the more money the company will make, the more money the company will be able to raise, and the more money the company will have to deploy to technology. Thus, for the foreseeable future, bigger size should enable DraftKings to have a more technologically advanced platform than peers, which should improve playability and attract more players.
All in all, then, DraftKings projects as the market’s leading virtual DFS and sports betting platform for the foreseeable future. That’s big, because the global sports betting market today measures north of $70 billion, with a bunch of those dollars migrating into online sports betting platforms like DraftKings.
DraftKings’ market cap today sits around $19 billion. Long-term, then, DKNG stock has compelling upside potential.
Landcadia Holdings II (LCA)
Next up on this list of gambling stocks to buy is Golden Nugget Online Gaming, a market-leading iGaming platform which has recently hit the public markets through a reverse merger with blank-check company Landcadia Holdings II.
You may recognize the “Golden Nugget” part of the company’s name. That’s because Golden Nugget is a large casino brand with properties in Las Vegas and Atlantic City, which itself is part of a bigger hospitality company named Landry’s that owns 600 shopping outlets, 3 hotels, 2 amusement parks, and 5 casinos across America.
Golden Nugget Online Gaming – or GNOG, for short – is a pure iGaming spin-off of that larger physical casino business. Today, the company operates exclusively in the New Jersey iGaming market, where it controls about 13% of the market.
The bull thesis on LCA stock is that Golden Nugget will be able to leverage competitive advantages to sustain ~10% share of the iGaming market as that market booms and goes national in the 2020s, with the big upside potential coming the divergence between the market opportunity here ($100 billion) and Golden Nugget’s current market cap ($900 million, based on the LCA stock price today).
Thanks to four significant competitive advantages, Golden Nugget Online Gaming should be able to do just that.
First: Golden Nugget has a branding advantage over sports-first platforms like DraftKings and FanDuel, since it’s a casino-first brand that is top-of-mind for virtual slots, poker and Black jack.
Second: Golden Nugget has a content edge over peer online casino platforms, as the 870 casino titles on its platform is 130 more than anyone else in this space (and a lot of those titles are exclusive).
Third: The company has a customer service edge — Golden Nugget’s customer satisfaction rating is 96% — which is very important because in the iGaming world where consumers are betting real money on dynamic games, customer service is of utmost importance.
Fourth: Golden Nugget has a business edge over everyone thanks to something called a “Live Dealer Studio” – which, as the name implies, enables virtual tables players to interact with a live dealer via visual and audio (the company has entire “ghost” casinos set up with just dealers, tables, and cameras).
Thanks to these four compelling competitive advantages, it seems very likely that Golden Nugget will sustain ~10% share of the iGaming market for the foreseeable future. If that happens, LCA stock will soar over the next few years.
Gambling Stocks: GAN (GAN)
Last, but not least, on this list of gambling stocks to buy is iGaming technology infrastructure provider GAN.
GAN is different from the first two gambling stocks on this list in that the company doesn’t operate a consumer-facing iGaming platform. Rather, the company builds the technology infrastructure on which iGaming operations run, and sells that technology to U.S. casino operators through a Software-as-a-Service (SaaS) model.
Specifically, the company has developed a proprietary iGaming technology platform, dubbed GameSTACK, which provides the foundational technology and back-office tools necessary to help casino operators rapidly launch and scale their iGaming operations. At the center of GameSTACK is a player account management system, which stores, processes, and safeguards highly sensitive customer and player activity data.
This system is the holy grail of iGaming, because player data and security are the focal point of regulation. After all, if a casino operator cannot keep player data safe, that casino won’t be allowed to run an iGaming operation at all.
As such, GAN’s GameSTACK SaaS offering is mission-critical for U.S. casino operators and their iGaming operations.
To that end, GAN stock is a compelling picks-and-shovels pure play on the iGaming megatrend, and a name worth adding to your buy radar right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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