My favorite part of every gambling ad is the disclaimer at the end when the VO talent says, “Gambling problem? Call 1-800-oh-shit-this-could-be-bad.” I love the juxtaposition between the 29 seconds of trying to sell you on the fact that you should be gambling and the one second, state mandated disclaimer admitting that gambling can become a serious problem. I’ve lost a lot of money gambling on sports over the last thirty years. I don’t know the exact number but it’s not pretty. I imagine it could pay for a year or two at Harvard for my daughter. Sometimes I try to imagine how much more my wife would love me if I’d taken that money and bought her the Grand Seiko she craves. Or how much closer I’d be to getting into heaven if I’d donated that money to a worthy cause like helping immigrants seeking asylum or finding Ben Simmons a new home.
Like any helpless gambler, I’ve tried to make my money back by continuing to wager on sports. I’ve had a little success but given the fact that even the best sports gamblers in the world win only 55% of their wagers, the chances of ever getting back to even are about as good as me being able to name all the members of a Korean Boy Band.
But there may be another way. When DraftKings went public last year, it occurred to me that the best way to recover my gambling losses may be to invest in the companies responsible for taking my money. I think I’d sleep better at night knowing the money I lost on a 5 team moneyline parlay that included UCLA being able to beat Fresno State – because I believed Chip Kelly had figured it out (c’mon Chip Kelly, figure it out!) – will ultimately benefit the company that took my wager. Just how big is the U.S. gambling market? According to a recent Gabelli Securities study, U.S. sports betting revenues are expected to grow from $2.1 billion in 2021 to $10.1 billion in 2028. Morgan Stanley believes the sports betting market could grow to $15 billion by 2025. Other than the new season of Stranger Things, Ozark and Succession, sports betting is the only thing that has the power to turn a random Tuesday into a pretty god damn spectacular TUESDAY! People love gambling on sports. And with the NFL, NBA, MLB and NHL forming more questionable partnerships than Woody Allen, it feels like we’re on the precipice of a sports gambling explosion. So which companies should I invest in to take advantage of the fast approaching tsunami?
MGM Resorts (MGM)
In all the years we’ve gone to Vegas for the NCAA Tournament, we’ve never stayed at MGM. I’m not sure why. Maybe because the building’s shiny exterior seemed dated. Maybe because it felt like you only stay at MGM if you’re coming to watch a fight where one man bites another man’s ear. Regardless, MGM is a serious player in the mobile sports betting world. They launched BetMGM in 2019 with mobile betting now available via the app in 13 states. They also plan to open a BetMGM Sportsbook in Arizona where the Cardinals play their home games. Poor Larry Fitzgerald never saw the day we could bet on his reception totals or the number of tackles made using his hair. According to Kiplinger, in 2020 BetMGM generated $178 million in revenue and next year that number is set to explode to $1 billion. Could be a good long term investment if you think they’ll be one of the major players left standing or another DraftKings buyout target.
DraftKings (DKNG)
The early Amazon of the mobile gambling world, DraftKings’ strategy appears to be to buy everything that moves in hopes that it can be the last dealer standing. They started out as a Fantasy Football app that ran more bad ads than Go Daddy. Later, they went public via SPAC which no one other than people who watch CNBC every day really understands. Next, they bought Golden Nugget Online Gaming, which I guess is a thing even though the only thing I think about when I hear “Golden Nugget” is the sadness that is a 70+ year-old waitresses in a tight satin outfit saying, ‘Cigars and cigarettes’ in a voice so husky it would make anyone from the state of Washington gush with pride. On the plus side, they now have huge name recognition (along with FanDuel) and their mobile sportsbook is arguably the best user interface on the market. I use DraftKings because of that fact and I own shares in the company and I hope that however much I lose via the app, I’ll make 10x as much via the stock. To date, the stock is up 88% since I purchased shares in May of 2020.
Penn National Gaming (PENN)
The company owns 43 gaming and racing properties in 20 states but the real buzz centers around the fact that they acquired a 36% stake in Dave Portnoy’s BarStool Sports. I’ll admit, I don’t get the whole Bar Stool sports thing but then I still have trouble comprehending that 74 million people voted for Trump. 74 million! That’s like a million more than 73 million. Penn National recently opened a casino in Pennsylvania and they just bought Score Media and Gaming, the #1 media brand in Canada. To me, the question is whether Pornoy is the Logan, Kendall or Roman Roy of this story. The answer to that question will determine whether investing in Penn is worth the risk.
Churchill Downs (CHDN)
Horse racing is evil. The entire industry is corrupt. They lie. They cheat. They inject horses with illegal drugs to mask the pain which leads to unnecessary suffering and, often, death. And yet every time one of the triple crown races is on TV, I find myself watching because nothing is more beautiful than watching a horse run. My mom and dad like to “bet the ponies” once or twice a year and last year, for the first time, I placed a wager on the Derby at TwinSpires.com, the site owned by Churchill Downs. The whole experience was downright pleasant. Turns out Churchill Downs has an annualized total return of 32.8% over the past decade. Who knew? With revenue from in person events plus sports betting adding to the party, the company appears to be just like a young Philly just hitting its stride.
Caesars Entertainment (CZR)
Remember Cesars? It’s still one of the best hotels on the strip especially because the sportsbook finally upgraded its movie size screens to HD. For years we sat in the Cesars sportsbook during the NCAA tournament squinting to see whether a shot went in or not. It was like watching on an old Sylvania in my grandmother’s basement. Good times. According to Kiplinger, Cesars recently merged with Eldorado Resorts and acquired European betting kingpin William Hill for $4.0 billion before selling off its non-U.S. assets for $3 billion. Cesars now owns 49 casinos, 46,200 hotel rooms and executes sports betting in 17 states. If someone is staying in a hotel and betting on sports, there’s a good chance they’re doing it on a Cesar’s property. If we finally solve the pandemic and sports gambling takes off like most analysts predict, there’s a high probability this stock will appreciate over the next 10 years.
My point is, it’s hard to make money gambling on sports. Like really, really hard. The odds are much better that these companies will prosper long term as squares like you and me waste hours of our time trying to pick winners. For once, maybe we’ll all come out ahead.
