Are sports betting companies a good investment?

By Patricia Miller

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Thanks to changes in the law, sports betting is becoming more popular than ever. We look at whether or not sports betting companies as a good investment

A 1992 federal law, called the Professional and Amateur Sports Protection Act (PASPA), effectively barred Americans from being able to lay bets on the outcome of much-beloved sports like American football, ice hockey, baseball and basketball.

However, in reality, this law did little to halt the popularity of the practice. The American Gaming Association had estimated that sports fans were making $150 billion in illegal wagers every year.

In May 2018, a US Supreme Court ruling struck down PASPA, supporting a New Jersey state ruling which would make sports gambling at casinos and racetracks legal once again.

There are two-UK listed betting companies in pole position to take advantage of the rocketing interest in US sports betting, according to equity analysts.

Back in February 2020, researchers at the London-headquartered investment bank Jeffries raised its price targets on GVC Holdings (LSE:GVC), William Hill (LSE:WMH) and FTSE 100-listed Flutter Entertainment (LSE:FLTR), formerly Paddy Power Betfair. At the time all three had interests in this relatively newly-sanctioned market.

But the effects of the pandemic led William Hill to agree to a £2.9 billion takeover by Caesars Entertainment, a move that saw the company no longer being listed on the London Stock Exchange. GVC Holdings now known as Entain PLC and Flutter Entertainment remain listed on the LSE.

These sports betting companies could take advantage of what, according to casino executives from MGM and Hard Rock, could be an industry worth billions of dollars a year.

Which is why investors are asking are sports companies a good investment?

The fundamentals of sports betting companies stock

Taking the two sports betting companies previously mentioned into account, beginning with Entain PLC, formerly GVC Holdings. With a market cap of 11.60 billion, a P/E ratio of 126.72 and with share prices currently at £1936.50, Entain PLC has been attracting a lot of interest from investors.

Equally, Flutter Entertainment is a stock that is becoming increasingly interesting to investors with a market cap of £21.67 billion, a P/E ratio of 449.02 and share prices at £12,360.

Highlighting a potential “decade of growth”, Jeffries said the US market could be worth four times more per year than the UK market by 2023.

What is the bull case for sports betting companies?

The US Supreme Court ruling back in 2018 combined with a renewed interest in sports following more than a year of major sporting events being put on hold due to the global pandemic has caused much interest in sports betting companies.

The interest in the Euro 2020 football tournament and the 2020 Tokyo Olympics have provided a much welcome relief and distraction as the world slowly begins to return to some form of normality.

According to the American Gaming Association, sports betting revenues amassed $576 million on $7.8 billion worth of total bets during the first two months of 2021, double the amount for the first quarter of 2020.

The rise in sports betting has been evident, a growth that is expected to be highly profitable in years to come. Analysts at JP Morgan backed this claim as they reflected on in-game betting or micro-bets which account for approximately three quarters of total sports bets in the UK.

What is the bear case for sports betting companies?

Competition is one of the biggest bear cases for sports betting companies, with a plethora of them available it can be difficult to know which will emerge as the leaders on the stock market. William Hill with its long history quickly fell foul to the effects of an uncertain economic climate and the effects of the COVID pandemic, others could follow suit in the years to come.

Regulatory risks are a concern amongst the sports betting industry, changes to legislation can have a dramatic impact on the industry and potential their stocks if changes are not in their favour. While there has been some easing of rules in recent years, it is not guaranteed that different rules will be introduced.

Should I invest in sports betting companies?

As with all investments, buying stocks in sports betting companies could be risky. It could also be hugely profitable, traders interested in purchasing stocks should do their research and make sure they are aware of the risks and any changes to legislation that could negatively impact their investment.

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Topics:
Sports Betting

Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.