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Should You Wait Until After the Election to Buy MGM?

When investors think of MGM Resorts International (NYSE: MGM) right now, they probably think of how much the casino industry has been affected by the COVID-19 pandemic. But MGM also has a segment that has been growing throughout the pandemic, with its BetMGM online sports betting and gambling app.

A number of U.S. states have already legalized sports betting, and three more have it on the ballot in the election. Those three states include Maryland, where MGM has a regional casino presence. Investors who want to get in on the sports betting action don't need to wait until the election is over to get good odds on MGM.

Woman placing sports bets on laptop

Image source: Getty Images.

Raising expectations

BetMGM was launched in 2018 and has been steadily expanding into more U.S. states. The app is a joint venture by MGM and GVC Holdings (LSE: GVC). BetMGM is currently live in eight states, and is expected to be added in three more by the end of the year.

In its recently announced third-quarter earnings results, GVC touted its progress, and said the app "is firmly on track to be the leading operator in the U.S. online sports-betting and iGaming markets." GVC said that it expects its U.S. sales to be ahead of expectations, as BetMGM has approximately 17% market share across its markets.

A growing market

GVC said it believes the sports betting and online gambling markets will be worth over $20 billion by 2025. It reported that BetMGM has doubled the size of its business in New Jersey since the start of 2020, and had a leading 22% market share for online gaming there in August.

One major advantage MGM has over other online sports betting companies is the retail casino presence. In New Jersey, for example, in addition to online gambling strength, it has a 10% market share in online sports betting, but a 24% share in retail sports betting. And the joint venture is continuing to expand the customer base through new partnerships with major league sports teams.

It has deals with the NFL's Denver Broncos, Tennessee Titans, Detroit Lions, and Las Vegas Raiders. These partnerships will help grow the brand and customer base. In its deal with the Broncos, it will have a new sportsbook lounge in the football stadium, with perks available to members of the casino's M Life Rewards program. It is also the official betting partner of both the PGA and NASCAR.

Leveraging retail

MGM has advantages over other websites like FanDuel and DraftKings (NASDAQ: DKNG), as well as retail casinos such as Wynn Resorts (NASDAQ: WYNN), in the expanding sports and online gambling markets. Its physical casino presence allows it to leverage sportsbooks in many regions. The company has casinos in seven states, including Nevada. That diverse footprint can be used to introduce bettors to the BetMGM experience. The online apps don't have that ability on their own, and companies like Wynn are concentrated mainly in Las Vegas and Macau, China.

DraftKings is also partnering with sports teams, and FanDuel has an agreement with Boyd Gaming (NYSE: BYD) for sportsbooks in its retail casinos. But MGM has all of that under one umbrella. And a recovery to pre-pandemic levels in its casino properties will only give the company another catalyst.

A good time to invest

The pandemic has crushed the performance of the retail casino properties. MGM's second-quarter revenue plunged 91% compared to the previous-year period. That makes it difficult to put a valuation on the shares at this time. But with shares still 36% below where they started 2020, investors have priced in the pandemic-related troubles.

With BetMGM increasing market share, and the overall sports betting market itself continuing to grow, a recovery in the legacy casino business is just another benefit to an investment thesis.

The number of states approving sports betting and online gambling will most likely grow in the upcoming election. That will still leave more than half of U.S. states to take up the issue.

Many investors are looking for solid stocks to invest in. Those who see potential in the sports betting and online gambling market, and who believe that traditional casinos will make a recovery, need not wait until after the election to get in on the game with MGM.

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Howard Smith owns shares of MGM Resorts International. The Motley Fool recommends Boyd Gaming and recommends the following options: short December 2020 $32 calls on Boyd Gaming. The Motley Fool has a disclosure policy.

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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