Investors will come to appreciate the value of the US igaming market
Tue, Sep 15, 2020
Interest in the US sports betting market couldn’t be higher from an investor point of view, explained Daniel Politzer, VP of Equity Research at JP Morgan, but attention should also be paid to the growing igaming market.
Speaking on the ‘Gambling Gold Rush: Investment in the US’ panel at SBC Summit Barcelona – Digital, Politzer explained that the pent-up demand for sports betting products during the pandemic has led to investors are ‘plowing money in’ to the industry, subsequently leading to stock prices trading at premiums – something which he explained reflects the growing interest in the market.
He explained: “Right now, we’re in a strange scenario where virtually every sport is happening at once. For the most part, everyone has been stuck at home for the last few months, so there is this pent-up demand – and then all of the sports are released at once. A lot of these sports fans which would usually bet using the grey or black market are finding other ways to ‘get their fix’, and the easiest extension is the stock market.
“I really don’t think that interest or exuberance could really be much higher right now in terms of sports betting and the hopes for that market in the US – especially for those investors that are plowing money in. I can’t think of a time when you have more excitement and interest in these stocks.
“But we need to remember that we are in the early stages so it’s hard to work out whether these interests in stocks are going to translate into valuations. All of these stocks are trading at premiums, so the question is at what point will the sports betting and igaming market catch up to expectations? Or will expectations be right-sized?”
Politzer was joined on the panel by Jakub Růžička, Investments Manager at Penta Investments and Greg Carlin, CEO of Rush Street Gaming. The session was moderated by Anton Kaszubowski, Director of GreenLaw Limited.
Echoing a similar sentiment, Carlin highlighted the immense potential of the US gaming market, suggesting that we may see new market leaders emerge as the market progresses.
He explained: “Certainly, there is a lot of excitement for the space and rightly so. We are really in the early innings of this sports betting roll out in the US. There are some out there which say that the ultimate market size is $35 billion – we’re probably looking at a market of $1-2 billion so there is a tremendous amount of growth left.
“We don’t know who the winners are going to be but it really comes down to the long term, five or six years from now, what will the market shares be? Will it be profitable? Will the valuations be right? I do think that this is going to be a huge market. FanDuel and DraftKings are obviously off to an early start, but they’ve leveraged their DFS databases and over time we’ll see how market shares play out.”
Discussion then turned towards the untapped igaming sector, which panellists suggested could actually be a much more profitable vertical than sports betting.
Politzer added: “One thing that investors are starting to look at more is igaming. We tend to look more at sports betting. But I think right now, igaming is profitable and less competitive. I think that it’s a different dynamic than sports betting and is not necessarily dominated by the big players like DraftKings and FanDuel because the database is different.
“We’ve seen cross-play from sports betting into igaming, but I’m not sure how much it translates the other way. Over time, I think investors may come to appreciate the igaming space more. Right now, sports betting is getting all of the attention by virtue of being a bigger vertical because it’s in more states. But currently, it’s unprofitable and I think that for most operators, igaming is profitable.”