As Chris Krafcik, the managing director at Eilers & Krejcik Gaming, observed Wednesday on Twitter:
Pretty good year to be in the U.S. #onlinecasino business. In CY20TD (i.e., the year to May), total U.S. online casino GGR ($501mm) has already surpassed the 2019 total ($499mm). COVID has played a massive role, with April and May accounting for 54% of YTD online casino GGR. pic.twitter.com/hmAqefg45F
— Chris Krafcik (@CKrafcik) July 1, 2020
Online casino stocks getting big attention
And with the expansion of the online gambling business, there’s a renewed interest in the underlying stocks.
So much so that the Motley Fool, a stock insights service, devoted a 45-minute-long podcast to the business and the stocks.
The market is estimated at a staggering $450 billion.
Contributor Luis Sanchez told host Nick Sciple:
“And right now, the biggest catalyst is the US and what’s going to happen here in the next five to 10 years.”
Pennsylvania and New Jersey are driving the interest in stocks
Sciple and Sanchez pointed to the transition from physical wagering to online gambling in Pennsylvania and New Jersey as the main drivers.
Online gambling has about an 11% share globally and was increasing at about 1% to 2% annually before the virus pandemic, they observed. The desire for more tax revenue should accelerate acceptance.
At least 20 online casino markets predicted in the US
Sanchez believes that while sports gambling online will spread relatively quickly to other jurisdictions, eventually 30 to 40 states, the acceptance of online casino gambling will be slower, with just 20 to 30 states allowing online casinos.
For now, the race to service these emerging markets is primarily from European-based companies looking to make connections with US companies, sometimes partnering as providers, sometimes merging.
Flutter via FanDuel and DraftKings are the main movers
They pointed to Flutter Entertainment buying FanDuel as an example, with Flutter stock (PDYPY) up 95%. And then there is DraftKings, with its stock — DKNG — up 231% in just three months. Both companies have had years of experience in daily fantasy sports. It gave them a fan base, a data bank of gamblers and name recognition.
Flutter is not well known in the US, Sanchez pointed out, because it is a Brit stock. Shares in the US are sold over the counter, but Flutter’s assets are recognizable. They include PokerStars, the No. 1 poker company in the world, Sky Bet, Paddy Power, Betfair, The Stars Group and Fox Bet, as well as FanDuel. Sanchez believes Fox Bet, with its alliance to Fox Sports, will take off as the pandemic eases.
In the early online gambling states, like New Jersey and Pennsylvania, FanDuel has more market share than DraftKings, Sanchez said. By all measures, Flutter, by way of FanDuel, is currently the US market leader, he noted.
But DraftKings’ merger with SBTech, giving it back-end control, combined with how vertically integrated its operations are and its public offering in April, have given it a boost. Flutter, on the other hand, has many third-party partners. Owning the content allows for better margins over time, said Sanchez.
GAN is also a major player and has an expansion plan
The other stock the Motley Fool podcast examined was GAN, which went public in the states at the beginning of May.
The British company provides the back end for FanDuel’s sportsbook and iGaming offerings and software for several other operators. Sanchez said its service is basically plug-and-play, making it attractive to a range of operators. But Sciple said that for now, the company depends too much on FanDuel.
Sanchez agreed but pointed out that in a recent earnings call, GAN said it is working with an unnamed multistate partner that could double its earnings. Sciple said the company appears to be capable of scaling up quickly.
Then there is Golden Nugget
Relatedly, there are two stock deals in the news recently that were not in the Fool’s podcast: Golden Nugget and Penn National.
OnlinePokerReport detailed a move by Golden Nugget to make its online gambling business into a company of its own, with stock listed on Nasdaq as Golden Nugget Online Gaming (GNOG) Inc.
Golden Nugget is the top online casino in New Jersey and is expected to launch soon in PA.
The deal is expected to close in the third quarter of the year, with the new company valued at $745 million.
PENN stock fluctuation, links to controversial Barstool Sports
Penn National Gaming bought a 36% share of Barstool Sports early in the year. Penn’s stock shot up, only to crash as the pandemic took hold in March. Now the stock has recovered, and in fact, it had shot up again just after Barstool’s founder and public face, Dave Portnoy, appeared with PENN’s leader, Jay Snowden, on a market tip show.
But then videos of Portnoy using racist language, including saying then-NFL quarterback Colin Kaepernick looked like a terrorist, surfaced.
That led to a long segment of the most recent LegalSportsReport podcast discussing how PENN and Barstool have sidestepped the issue as the gaming company prepares to launch a Barstool betting app in August.
Time will reveal whether his recent apology on Facebook will be enough to keep Portnoy in the good graces of his newfound investors and how the Barstool-Penn partnership will play out — and affect PENN stock — in the months to come.