Stocks

Online Gambling Is Booming Amid the Lockdown

Morgan Stanley analyst says the impact of Covid-19—which has shut casinos -- could spur more states to legalize online casino and sports betting.

Morgan Stanley analyst says the impact of Covid-19 could spur more states to legalize online casino and sports betting.

With casinos closed across the country and sports betting drying up, online casino-style gambling is proving to be a bright spot for the industry.

Internet gambling revenues (excluding sports betting) in New Jersey rose 66%, to $65 million in March, the state reported recently. Online gambling includes slots as well as table games like blackjack. New Jersey is a leader in internet gambling.

“We believe the impact of Covid-19 could spur more states to legalize online casino and sports betting,” Morgan Stanley gaming analyst Thomas Allen wrote in a client note.

Only a small number of states allow online casino-type gambling including New Jersey, Pennsylvania, and Nevada. More than 15 states permit online sports gambling, with an even greater number allowing sports betting at physical casinos.

Allen wrote that online gambling revenues (excluding sports betting) in New Jersey are on track to exceed $700 million this year, up from $483 million in 2019, helped by a shift of bettors from traditional casinos, as well as by online sports bettors.

Sports bettors, meanwhile, face meager offerings. On Friday, for instance, there was horse racing from a number of venues around the country, including Gulfstream Park in Florida. Other sports open to wagering include table tennis from Russia, pro basketball from Taiwan, and darts.

Despite the collapse in online sports betting, investors remain excited about Diamond Eagle Acquisition (ticker: DEAC), a special purpose acquisition company that has a deal to merge with internet sports betting leader DraftKings.

Diamond Eagle shares gained 49 cents, to $16.58 Friday, up about 50% this year. The stock had traded around $10 before it announced the merger with DraftKings in late 2019. Many casino stocks are off 40% or more this year. Diamond Eagle shareholders are due to vote on the merger on Thursday. Upon approval, the company will change its name to DraftKings.

Diamond Eagle has a sizable market value of $5.8 billion based on a fully diluted share count of around 347 million shares. That is considerably above the market values of Penn National Gaming (PENN) and Eldorado Resorts (ERI) in the $1 billion to $2 billion range, as well as exceeding that of Caesars Entertainment (CZR) at about $5 billion.

Diamond Eagle’s strong stock price shows investor enthusiasm for what had been the high-growth online sports gambling business led by DraftKings and FanDuel, which is controlled by Flutter Entertainment (PDYPY).

Most online sports betting is done on mobile phones. Once professional sports resume, many bettors may feel more comfortable wagering on sports on their phones than going to a casino for traditional games like blackjack, craps, and slots.

Barron’s wrote a cover story earlier this year about the boom in online sports gambling.

Writing about the prospect for more states legalizing online casino and sports gambling, Allen said:

“Covid-19 will likely have a negative impact on state budgetary positions, forcing them to look for new sources of taxes. In addition, legalization and the rollout of online forms of gambling can be much quicker than building bricks-and-mortar casinos (Massachusetts a good example). Finally, online can be at least a slight offset to lost revenues during phases of social distancing as we are experiencing today.”

Write to Andrew Bary at andrew.bary@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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