23 Nov Betting on a Win with DraftKings
Sports betting is common in Australia but is in its infancy in the US. Prior to 2018 betting on the outcome of sports matches was illegal in the US but the Supreme Court changed that and allowed each individual state to decide whether to allow it or not.
Since this change in 2018, 21 of the states have legalised Sports Betting and Draftkings (DKNG) is the top pick in the sector. DKNG recently announced revenue of $132Million for the quarter which was up 98% on last year.
The industry is at the start of a multi-year expansion which is set to see even more significant growth next year as normal competitions resume. Coronavirus took a big chunk out of this year but with multiple vaccines on the horizon next year is looking much healthier.
Draftkings is the product of a three-way merger in April with Diamond Eagle Acquisition Corp and UK based SB Tech, a sports betting technology company. The combination mixes strengths in online fantasy sports, finance and best-in-class digital gambling technology. It is also the only vertically integrated public sports betting company in the United States.
The big news is the expected mass legalisation of sports betting. According to a ESPN report, an additional 26 states are on track to approve sports betting.
The appeal for the states is fees. The state can charge a tax on gambling revenue and when each state is scrambling for cash to spend on the economic recovery, a new stream is very appealing.
Sports in the US are also very suitable for in-game betting. Technology these days can easily handle play-by-play betting. Imagine a group of guys watching a game and being able to gamble on whether the next play will result in a 10 yard game or not. There are an average of around 75 plays per game of NFL. That is a lot of opportunity for in-game betting!
New Jersey was the first state to move aggressively towards iGaming. Even without SB Tech last year, DraftKings has been able to grab a 30% market share and $75million in annual sales. However, with SB Tech now in-house, the business is growing exponentially.
DraftKings is building the biggest and best platform to collect and monetise sports betting and iGaming transactions. As states clamor to replenish their coffers ravaged by the pandemic, more are likely to allow online transactions. DraftKings will gobble up the majority of this. Profits will follow.
The current pullback gives investors a chance to enter this stock now. Loop Capital Markets has a $100 price target on the stock, representing a 100% increase from current prices.