The rapid legalization of sports gambling in the United States since 2018 has opened the door for many opportunities. And not just for “sharps,” and “wannabe sharp” sports bettors. In fact, given that success in beating the spread is easier said than done, what might be your best bet?
Investing in several of the publicly-traded companies with exposure to this exciting and fast growing industry! Obviously, when you talk about sports betting stocks, names like DraftKings (NASDAQ:DKNG), MGM Resorts (NYSE:MGM) and Penn National (NASDAQ:PENN) first come to mind, among several others. There may still be merit in taking long-term positions in these well-known names. Especially as they’re cashing in on football season right now. However, you may find greater upside potential exploring, and possibly buying, some of the more “underdog” names in this space.
Some of these smaller names have gone on incredible runs of their own. But besides having more runway, due to their small size, they may be takeover targets as well. As you may recall, one of the smaller games, Golden Nugget Online Gaming (NASDAQ:GNOG), accepted a takeover offer from DraftKings at a sweet premium.
Grab yourself a piece of the action with these seven sports gambling stocks, all without having to worry about covering the spread!
- Austerlitz Acquisition Corp (NYSE:AUS)
- FuboTV (NYSE:FUBO)
- Gan (NASDAQ:GAN)
- Paysafe (NYSE:PSFE)
- Rush Street Interactive (NYSE:RSI)
- Sports Entertainment Acquisition Corp (NYSE:SEAH)
- Sportradar (NASDAQ:SRAD)
7 Stocks for Sports Gambling: Austerlitz Acquisition Corp (AUS)
With the success of the special purpose acquisition company (SPAC) deal that took DraftKings public in 2020, many privately-held sportsbook operators have gone public via this route. Unfortunately, these types of stocks are not as popular as they were in early 2021. SPACs with deals still pending aren’t trading at hefty premiums as they were before.
Yet that may be a good thing for investors interested in buying sports betting SPACs like AUS stock. This vehicle, sponsored by Bill Foley (who is also one of the principals behind the Paysafe situation discussed below), is taking Wynn Resorts’ (NASDAQ:WYNN) online sportsbook business public, in a deal set to close by year’s end.
So, with SPAC stocks out of favor, why go with this play? As I discussed last month, at current prices (around $10 per share), investors buying Austerlitz (soon to be known as Wynn Interactive) ahead of the deal close may be getting in at a favorable entry point. At least, based upon the company’s projections, which call for it to eventually generate between $3.6 billion and $5.4 billion in annual revenue, and annual EBITDA of between $1 billion and $1.5 billion. For reference, the company will have a market capitalization of about $3.2 billion once the transaction completes.
Based on how badly some SPACs have fared performance post-merger (including Foley’s own Paysafe), it’s understandable if you’re hesitant to buy. But given the long-term potential growth of this industry, and the extent it could benefit Wynn Interactive? Riding out some short-term volatility now may be worth it down the road.
Admittedly calling FuboTV an underdog may be a stretch. You may remember late last year, and early this year, this stock was a favorite among retail traders. But if you consider it’s trying to make a name for itself in two industries (sports betting and sports streaming) with heavy competition? Underdog may just well be an apt description.
FUBO stock may look pricey. Even after its fall from more than $60 per share in late December, to around $28 per share today. Trading for a price-to-sales (P/S) ratio of 5.7x, and still operating deep in the red, you have to pay up today for its future potential.
It’s critics will point out it’s a small player that will struggle to gain a foothold in the sports streaming oligopoly, and what’s shaping up to be a sports betting oligopoly. However, the competitive threat may not be as intense as it appears on the surface. Why? As I discussed back in July, big media isn’t looking to muscle it out of the streaming business. In fact, FuboTV operates more like a cable operator than a rival streaming service. It pays carriage fees to the big media giants, and several of them own stakes in it.
I will concede, however, that its sportsbook operation is still in its early stages. So far, it’s only licensed to take wagers in Arizona and Iowa. That said, once the favorite, but now the underdog, it could still end up a long-term winner for investors buying it after its extended sell-off.
7 Stocks for Sports Gambling: Gan (GAN)
Unlike Austerlitz or Fubo, Gan is not in the process of buying a sportsbook operator, nor is it setting up a sportsbook operator. Instead, this company provides the back-end technology for sportsbook operators, with a software-as-a-service (SaaS) revenue model.
Since debuting on the Nasdaq exchange in 2020, GAN stock has gone on two roller coaster rides. But following its second turbocharged rally last winter, shares have seen a tremendous drop in price. They’ve fallen from just over $30 per share, to around $15 per share as of this writing.
At today’s lower prices, however, risk/return may be more than in your favor. Investors may have become less bullish about it, due to its projected deceleration in revenue growth. But as one Seeking Alpha commentator argued back in August, Gan has what the commentator coined a “smooth runway for future growth.”
In the more immediate term, shares could see an unexpected boost another way: from a possible takeover offer. More consolidation is coming to the gambling industry. This could mean a larger gaming technology company ends up snapping up Gan as a bolt-on purchase. That’s not the sole reason to buy, of course. But with a lot more going for it than sentiment suggests, it’s definitely a play to consider.
Gambling: Paysafe (PSFE)
In January and February, when SPAC stocks were still running hot, so too were shares in this former SPAC’s predecessor, Foley Trasimene Acquisition II. But since its deSPACing, when BFT stock became PSFE stock, it’s been a steady slide lower for this payment processor for the gaming industry.
Right now, it changes hands for around $8 per share. That’s a big drop from the $15-$20 per share it traded for before its deal close. Not only that, it’s down around 20% from its offering price of $10 per share. So, given it’s still trending lower, why may now be the time to buy?
SPAC stocks overall may be out of favor. But in the case of Paysafe, it’s a prime example of the market throwing out the good with the bad. Sure, it’s still a bit pricey. At today’s prices, shares trade for around 33.9x projected earnings for 2022. However, as it grows organically in the U.S. (through new partnerships), and worldwide through acquisitions (as my InvestorPlace colleague David Moadel discussed Oct. 4), results in the coming year or two could come well above estimates.
This may help fuel a big rebound for this hard hit SPAC gambling stock. Even if not fully back to its past high, a partial recovery would still be a solid jump from its current price levels.
7 Stocks for Sports Gambling: Rush Street Interactive (RSI)
Previously a more under-the-radar sports betting stock, Rush Street Interactive has caught the attention of investors. Shares in the iGaming (online casinos) and sports wagering company, which operates platforms under the betRivers and SugarHouse brand names, have doubled in price since August.
This comes after investors, concerned about its rich valuation, and high operating losses, shunned RSI stock throughout the spring. It’s not only the investing public that’s warmed back up to it. Some on the sell-side, like Roth Capital’s Edward Engel, have changed their minds. The analyst recently gave the stock a “buy” rating, and a $24 per share price target, seeing it as one of the better plays in this space.
Increased bullishness notwithstanding, it’s important to note that shares, already pulling back, may give back more of their recent gains. The main driver for its recent rally had more to do with its appeal as a takeover target (following news of the DraftKings/GNOG tie-up), rather than bullishness about the company’s underlying results.
Given the aforementioned analyst based his price target on a high EBITDA multiple applied to its 2030 results? You may want to wait until a bit more cheaper before diving into this underdog plays that suddenly become more of a crowd favorite.
Sports Entertainment Acquisition Corp (SEAH)
Trading around its offering price ($10 per share), investors aren’t assigning any sort of premium for this SPAC, which is in the process of taking digital gaming company Super Group public.
But don’t mistake the relative lack of buzz surrounding SEAH stock and its pending deal as a sign this is a play to skip out on. Instead, buying it now, ahead of the deal close, could in hindsight be a winning move. So, what is Super Group? On Aug. 31, our Chris MacDonald sat down with the CEOS of both Super Group (Neal Menashe) and Sports Entertainment Acquisition (Eric Grubman) to discuss the deal, and find out more about Super’s plans to expand in the United States.
Operating sportsbooks under the Betway brand, and online casinos through its Spin unit, this established global gaming company is looking to expand its U.S. presence. In the interview, Menashe was confident about his company’s growth potential in this market that’s still opening up. Assuming the U.S. online gambling market grows as expected, the Super Group CEO believes the company could ultimately generate $1.5 billion-$1.7 billion in annual revenue stateside. That’s impressive, considering the company’s existing annual revenues come in at around $1.5 billion today.
Add in the fact that it already sports high operating margins, and appears more reasonably priced compared to other SPAC gaming mergers? SEAH stock may be one of the best gambling stocks to buy before it starts garnering more attention from both Main Street and Wall Street investors.
7 Stocks for Sports Gambling: Sportradar (SRAD)
Debuting on the Nasdaq just a month ago, investors in the SRAD stock IPO so far have seen fast losses rather than fast profits. Priced at $27 per share, it’s since dropped to around $24.19 per share. In some ways, this makes sense. Unfortunately, this sport data and technology provider for the online gaming industry may be the victim of bad timing.
Sporting a quadruple-digit P/E ratio, at a time where rising bond yields and the specter of Federal Reserve tightening, is making richly-priced growth plays less appealing, points to shares in Sportsradar Group continuing to move lower. But once it finds support, and appears to have bottomed out? You may want to give it a second look.
Why? Between the many deals its made with sports leagues to obtain and disseminate their data, already-high operating margins, and continued strong revenue growth thanks to the expansion of sports betting in America? Sportsradar could win big.
Again, the main concern here is further multiple compression for growth stocks. Yet if this appears to let up, you may want to take a closer look, and perhaps start a position in SRAD stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.