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The Rise of Sports Gambling (A Good Bet)

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The Rise of Sports Betting

Sports betting has been growing rapidly in the United States in recent years. Before a 2018 Supreme Court decision that overturned a federal ban on sports betting, only Nevada had legal sports betting. However, since then, numerous states have legalized sports betting, and many more are considering doing so.

Though the initial sports betting prohibition was brought on by fear of negative consequences such as widespread gambling addiction, there are two sides to the story. With many states in deep budget deficits, the tax income generated from sports gambling legalization provides some much-needed revenue. In turn, politicians can justify sports gambling by using the revenue in positive ways, such as providing low-income housing or putting it towards improving crumbling infrastructure. Furthermore, most citizens want the freedom to make their own decisions when it comes to sports betting.

An Untapped Market

Last year, fewer than 10% of Americans bet on live sports games. However, despite their small relatively small customer base, sports gamblers are very active. In 2022, sports gambling produced more than $4 billion in tax revenue. With t American’s deep interest in sports and the advent and ease of mobile friendly gambling, this number will only increase.

At the time of this writing, only 30 states allow sports gambling, but many others are on the fast track to legalization. States such as Florida have legalized sports gambling but are not yet operational. Many other states have introduced bills or are set to vote on the matter. In other words, more states will likely legalize sports gambling in the coming years.

Who stands to benefit?

Based on the engagement numbers we mentioned above, it is clear that there is an appetite for mobile-friendly sports betting in the United States. The dominant player in the space is Zacks Rank #2 (Buy) stock DraftKings ((DKNG - Free Report) ). Currently, DraftKings has the biggest presence domestically and holds a monopoly in two states. DKNG has produced positive earnings surprises for four quarters in a row. After a post-pandemic hangover, the company is back on track.

Zacks Investment Research
Image Source: Zacks Investment Research

For now, the company is in the red from a bottom-line perspective. However, there is a good reason for this phenomenon. The sports betting market is racing to see which companies can get the most states and gain a foothold. Taking on new states is a cumbersome and expensive process, but DKNG has the current lead with 19 states. Despite the short-term challenges, analysts are becoming increasingly bullish on the earnings picture moving forward.

Zacks Investment Research
Image Source: Zacks Investment Research

DKNG is attractive from a technical perspective and is in the process of breaking out.

Zacks Investment Research
Image Source: Zacks Investment Research

Penn Entertainment ((PENN - Free Report) ) is another stock to watch in the space. In February, Penn completed their purchase of the popular sports website barstool sports to get more exposure to its hardcore sports fan base. Legacy casino operators such as Wynn Resorts ((WYNN - Free Report) ) and Caesars Entertainment ((CZR - Free Report) ) are also fighting for a piece of the pie.

Bottom Line

Because of DraftKings’ early foothold in many states and its aggressive growth strategy, it is the top choice in the space. While Penn is worth watching in the future, DraftKings is the dominant player and will only benefit from further legalization. Legacy players such as WYNN and CZR are unlikely to provide the same growth that a DKNG can provide, however, they benefit from a more diverse business and deeper pockets.

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