As far as growth assets went, online gambling stocks were some of the hottest items on the market in late 2020. Though this industry has been around since the mid-1990s when Antigua and Barbuda passed the Free Trade and Processing Act, it still lagged far behind the brick-and-mortar sector, posting only a fraction of its annual revenues. However, due to pandemic-induced lockdowns and governments’ stances growing laxer regarding betting over the internet, online gambling got a shot in the arm in 2020.
In February, market research firm Fortune Business Insights posted a report titled Online Gambling Market 2021-2028that predicts that the global market will swell to generate $158 billion per year by 2028. For comparison-sake, its current size is around $66 billion. Vegas-style slots continue to be the most profitable game for online casinos.
Nevertheless, despite a generally positive outlook regarding the global sector as a whole, US-based online gambling stocks are not only failing to deliver, they are currently plummeting. After marking impressive growth in the first few months of 2021, DraftKings, Golden Nugget Online Gaming, Gan Ltd, and Pen National noticed a substantial dip in stock prices in late April and early May. For example, DraftKings stocks were trading at $70 a share in mid-March but fell to $40 in mid-May. We elaborate below on why this happened and who is to blame.
There is no doubt that real-world gambling establishments taking a break for a chunk of 2020 helped elevate interest in interactive gaming. Not only that, but once physical venues open their doors, they had to operate at half capacity and follow safety protocols that limited their appeal. Nevada’s Gaming Control Board announced that the state’s gaming revenues for the 2020 fiscal year dropped 25%, making it clear that the absence of foot traffic on casino floors contributed to gambling sites’ user numbers going up.
What is also of note is that sports betting is undergoing a digital revolution in the US, thanks to the Supreme Court striking down the Professional and Amateur Sports Protection Act in 2018. So far, fifteen states have made this activity legal, and it is slowly gaining steam in each one. However, in many of these territories, retail sportsbooks are only allowed to operate within tribal or commercial gambling venues. Therefore, open casinos meant that retail betting shops were also back in business, taking away a section of the online user pool.
In the past, most gambling brands were private companies, keeping this sector a closed book. Over the years, that changed, as many industry juggernauts became public companies with stocks trading on the New York, London, and Stockholm exchanges. That allowed a deeper understanding of how these entities operate. It turned out that most of them are far from profitable.
Reaching clients is expensive, and the competition is not only vast but fierce. Thus, spending hundreds of millions of dollars on marketing is pretty much the norm for those that want to remain competitive at a high level.
DraftKings became a publicly traded company in April of 2020, and it is the largest US pure-play brand. While it is true that DraftKings’ revenues are going up every quarter, it is also apparent that their administrative expenses are slowly exceeding them. Naturally, such trends should shift as the company grows larger. However, the wait time associated with this and market uncertainty is causing many investors to shy away.
In mid-2020, brokers were encouraging investing in online gambling. The logic behind such a move was that the global pandemic would cause substantial state budget shortfalls, which will lead local governments to seek out new tax revenues. One of the simplest ways to plug these financial holes is to pass online gambling legalization. Though that did happen in several states, including New York, online gambling stocks are now falling dramatically.
Nonetheless, that does not mean that they are a total bust. Roundhill Sports Betting & iGaming ETF seems to be maintaining, and the same can get said for Esports Technologies. The latter is a Las Vegas-based company that facilitates betting on Esports, a rising sector that may soon explode. Particularly once video game fans get allowed to attend top competitions again.
While it is true that many online gambling stocks have marked massive drops in the past two months, it is worth noting that most of them are still higher than they were before the pandemic. Brands active in this sector also have other revenue streams from which they can redirect cash flow to fund their remote gaming endeavors. Thus, it is a waiting game to see if these companies can get over this hump and handle the incoming competition. Rumors are that Las Vegas Sands and MGM Resorts are looking to expand into this arena.
Shelly Schiff has been working in the gambling industry since 2009, mainly on the digital side of things, employed byOnlineUnitedStatesCasinos.com. However, over her eleven-year career, Shelly has provided content for many other top interactive gaming websites. She knows all there is to know about slots and has in-depth knowledge of the most popular table games. Her golden retriever Garry occupies most of her leisure time. Though, when she can, she loves reading Jim Thompson-like crime novels.