While legal U.S. sports betting gets most of the public attention, igaming offers larger long-term profits for investors and operators, three financial experts said Thursday at the SBC Barcelona Summit Digital.
“Sports betting is in more states and it’s a higher total revenue number, but it’s currently unprofitable,” said Daniel Politzer, vice president of equity research at JP Morgan Chase. “For most operators, igaming is profitable.”
He spoke at the SBC Digital panel discussion titled “Gambling Gold Rush: Investment in the U.S.” Jakub Růžička, investments manager at Penta Investments, a Central European investment group established in 1994, and Greg Carlin, CEO of Rush Street Gaming, which has four land-based casinos in the United States and online operations in multiple states, also served on the panel. Anton Kaszubowski, founder and director of GreenLaw Limited, a consulting and investment company based in Somerset, England, moderated.
The American Gaming Association reported that gross igaming revenue at commercial casinos totaled $777.8 million through July this year, almost triple the amount for last year. Sports betting at commercial casinos totaled $394 million through July, up 18.9 percent from last year, even with the temporary sports lockdown caused by the coronavirus. Online casino gaming is legal in Delaware, New Jersey, Pennsylvania, and West Virginia, with Nevada allowing online poker. Michigan has approved igaming, but it’s not offered yet.
Seventeen states have legalized sports betting, with nine markets opening in the past 12 months.
Carlin said igaming will have a bigger market and broader customer base than sports betting.
Růžička pointed to DraftKings, FanDuel, and GVC Holdings, which enjoy brand recognition and strong technology, as dominant players in the current U.S. scene.
“The question is how much the other guys will be able to compete with them in the long term,” he added.
Carlin’s Rush Street Interactive is trying to become one of those competitors, forming a Special Purpose Acquisition Company, or SPAC, to raise money. Politzer said SPACs in all industries, including sports betting and igaming, have raised about $30 billion in the past eight months. That more than doubles their 2019 total of $13 billion.
“Certainly, there’s a lot of money sloshing around,” he said. “You’ve seen valuations come up in this online sports betting and igaming area, but you also have a lot more SPACs competing for these deals.”
Politzer said stocks of some sports-betting companies are trading at a premium.
“The question is at what point the sports-betting and igaming market catches up to expectations or when expectations get right-sized.”
Carlin pointed to predictions that the online-gaming and sports-betting market could eventually total $35 billion a year and added that the current value is $1 billion to $2 billion. “You don’t know who the winners are going to be yet,” he said.
Politzer said more sports bettors are likely to cross over to igaming than vice versa.
Carlin said Rush Street has converted players from land-based casinos to online. In addition, casinos have seen younger players attracted by their sportsbooks become attracted to table games. The popularity of igaming will continue to grow and he predicted that Pennsylvania’s online market will grow even faster than New Jersey’s did.
He said he expects consolidation in the industry, pointing to 20 online sports books and casinos in New Jersey.
“I don’t think, long-term, that you’re going to see that many competitors in a market,” Carlin said.
Politzer said that as more states approve sports betting and igaming, stock prices for affected companies will bounce.
“These stocks are fairly volatile and they move on any positive hint of regulation coming down the pike, even if it may be fairly unlikely. It’s just going to continue to bring companies into the market.”
