Are You Ready for Some Football? 3 Stocks for Investing in the Sport
In case you were living under a rock, the NFL started its season on Thursday, and had its first full slate of Sunday games yesterday. Football is the most popular sport in America, and there is no sign that will change any time soon. Even when the NFL seems to go out of its way to alienate everyone, it retains its popularity. Cynics might say that ostracizing Colin Kaepernick for daring to have an opinion gave those on the left of American politics reason to hate the sport. Then, in a weird, hypocritical move that looks a bit like a mea culpa, the league began paying attention to social justice issues, giving those on the right reason to turn off.
People on both sides were offended, and yet the first game of the new season on Thursday drew 26 million viewers, a six-year high.
Politics, obviously, is only so important. There is something about football that makes it irresistible to Americans. It could be the violent, gladiatorial nature of the sport, or the complexity of a game in which plays are scripted and acted out. Or it could be the tribalism of fandom, or the back-and-forth nature of the scoring. It could be any or all of those things, but the evidence suggests that one of the biggest draws of the NFL is, quite simply, that it is a fun game to bet on.
The American Gaming Association (AGA) estimates that 45.2 million Americans will bet on NFL games this years, a 36% increase on last year’s numbers. The AGA does their best to include illegal bookies in the estimate, but in a country where sports gambling was illegal for so long and still is in many places, it is likely that some people still won’t admit to betting on a game. So, 45.2 million could well be an underestimate. Anything that is powerful enough to overcome political bombast in divided times, induces millions of people to break the law, and generates huge amounts of attention and revenue, should be of interest to investors.
With that, here are three stocks that can be used to bet on football.
DraftKings (DKNG): The best known among the sports betting names; DraftKings started out as a daily fantasy sports company. That business is big and still growing, but the real potential for DKNG is in their role as an online gambling platform. As more and more states legalize (and tax) online gaming, DKNG is taking off. Their last quarter’s numbers showed revenue of $298 million, a 320% year-on-year increase and they once again raised their guidance for the full year, to a range of $1.21-1.29 billion.
DKNG is priced to allow for growth, but if they keep on beating even their own bullish estimates, the stock still has plenty of room to the upside.
Flutter Entertainment PLC (PDYPY): Those like me who come from the U.K., where bookmakers have been big, legal, companies for a while, have often wondered which of the firms there would gain an advantage in the U.S. market when it opened up. Flutter, the holding company for the Irish Paddy Power bookmaking firm, seems to be winning that race right now. They saw the trend towards the daily fantasy companies dominating online sports betting early and in December of last year raised their stake in Draft Kings’ biggest rival, FanDuel, to 95%.
That gives them a solid base in the U.S., but the most interesting thing about Flutter is that they were formed when Paddy Power merged with Betfair, the U.K.'s largest betting exchange. Exchanges, where customers can act as either the bookie or the bettor, are a big thing over there. The competition amongst thousands of “bookies” creates better odds for the bettor which attracts a lot of revenue, while the exchange just takes a percentage of every bet, leaving them collecting cash without too much risk.
If we assume that online betting here will follow the pattern established in the U.K. and Ireland and that exchanges will gain ground rapidly, then the ADR PDYPY has perhaps the most potential of any online gambling stock. It does, however, have an additional risk. It is an ADR that is traded OTC and has low volume, making it subject to some volatility that is hard to protect against.
Caesars Entertainment (CZR): A more traditional American gambling stock; casino operator Caesars has bet big on building its online business, with a particular focus on the NFL. They recently announced a partnership with Genius Sports that will give them access to provide live data for their bettors. They are also one of the leading prospects to form a partnership with ESPN that could prove extremely lucrative.
The problem with CZR as opposed to either DKNG or PDYPY is that it is not a pure online sports betting play. The company is still dependent on a portfolio of brick-and-mortar casinos for a lot of its revenue and profit but, as the post-pandemic recovery continues, exposure to that business could turn out to be positive rather than negative.
All three of these stocks are positioned to benefit from the boost to online sports betting that will come with the new NFL season. DraftKings leads the way right now, while Flutter has the most potential, and Caesars is the more traditional “safest” play. Whether you pick one of the three based on those criteria or spread your investment between all three, betting on football’s continued popularity by getting exposure to online gambling looks like a smart move.
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