DraftKings Stock Leads Gambling Transformation As New Casino Stocks, Next Generation Take Over

This weekend’s Super Bowl isn’t just the climax of the NFL season. It will also feed a spectacle of online sports betting, showcasing how much the industry has transformed as DraftKings and other gambling companies offer new ways to bet.


From the explosion of online sports wagering and interactive gaming to virtual reality, the gambling landscape is undergoing seismic shifts that will reshuffle where tens of billions of dollars a year flow.

DraftKings Stock Edges Casino Stocks

Casino stocks aren’t the only game in town any more. Online gambling specialist DraftKings (DKNG) is winning big with its focus on sports bettors. And traditional casino stocks like MGM Resorts (MGM) are expanding into online sports betting and iGaming (online casino gambling) as they re-imagine this key sector of the entertainment economy.

Rising smartphone adoption, internet infrastructure improvement and easy access to gaming platforms are driving online betting. The pandemic and rise of millennials are accelerating the trend.

“The millennial generation surpassed the baby boomers, a key target market of the casino industry, in size around the year 2014,” said Stockton University professor Jane Bokunewicz, who studies millennial leisure habits. “This gap will continue to widen into the future, so casino operators need to re-imagine the casino floor to stay relevant.”

Meanwhile, more pro sports teams have broken long-held taboos on gambling to get directly involved with companies like DraftKings. And more states are lifting legal restrictions on online gambling. In fact, 50 million more Americans in 2021 can bet on sports than in 2020, according to PlayUSA.com, a news, research and analysis site covering online gambling.

Industry reports show that more than $20 billion has been bet on sports since the Supreme Court allowed states to legalize sports wagering in 2018. Now, more than 80% of sports bets are online.

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DraftKings Stock Leads The Charge

By 2027, the online gambling market is slated to reach $127.3 billion, according to Grand View Research. A flurry of deals over the past year shows how quickly companies are preparing to capture a wave of new bettors.

In December 2019, DraftKings reached a deal to go public through a merger with a blank check company. It was already an early mover into online sports betting, pivoting from its roots in fantasy sports. And last April, DraftKings stock debuted, quickly becoming a leading growth stock.

Penn National Gaming has a 36% equity stake in Barstool Sports. (PREMIO STOCK/shutterstock.com)

Among other players, regional casino operator Penn National Gaming (PENN) agreed to buy a 36% equity stake in Barstool Sports in January 2020. Caesars Entertainment (CZR) acquired William Hill (WMH), a leading U.K.-based sports betting operator with a foothold in the U.S., in September. Bally’s (BALY) bought Bet.Works, a sports betting platform provider, in November. Flutter Entertainment (PDYPY) boosted its stake in FanDuel in December to take nearly full ownership.

And last month, MGM made an $11 billion takeover bid for Entain, which is the casino giant’s joint venture partner in the BetMGM gambling app launched in 2019. Entain rebuffed the offer.

In contrast, iconic casino stocks like Las Vegas Sands (LVS) have been slower to seize the trend. Las Vegas Sands CEO Sheldon Adelson was focused more on his casinos in Asia, and was reportedly mulling a plan to exit the Las Vegas market before he died on Jan. 11.

But the U.S. is becoming an increasingly fertile ground for online gambling. Voters in several states including Maryland and Louisiana approved measures in November to legalize sports wagering. Now 20 states and Washington, D.C., allow it, with New York on the verge of legalizing too.

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Media, Michael Jordan Deals Lift DraftKings Stock

If and when legalization spreads to more states, DraftKings appears ready to take off after a flurry of partnership deals, which could lift DraftKings stock.

The company has forged ties with pro teams to boost its audience of sports fans. And that younger, predominantly male demographic overlaps significantly with regular bettors. Most recently, DraftKings inked a deal with the NBA’s Detroit Pistons, lifting DraftKings stock.

DraftKings app
DraftKings has inked deals with various star athletes, sports franchises and media companies. (Lori Butcher/shutterstock.com)

“These partnerships represent an economic way to drive customer acquisition and increase brand awareness in markets, particularly (ones) that are about to go live,” Evercore ISI research analyst Kevin Rippey said. DraftKings went live in Michigan Jan. 22.

DraftKings also inked deals with various star athletes, sports franchises and media companies. Besides a partnership with Michael Jordan, which includes an ownership stake for him, DraftKings has tie-ups with the NFL’s New York Giants, MLB’s Chicago Cubs and Disney‘s (DIS) ESPN.

In October, DraftKings signed a deal to integrate its content with AT&T‘s (T) Turner Sports platforms. This agreement made DraftKings the exclusive sports book and daily fantasy sports provider across select Turner Sports and Bleacher Report properties.

So someone watching a Turner broadcast or reading the Bleacher Report app could see DraftKings’ betting odds, daily fantasy statistics, and personalized alerts.

By the end of 2020, packed with pivotal deals, DraftKings stock had soared 180% from its April 24 debut.

Other betting and media mergers also are grabbing investor attention. FuboTV (FUBO) said Jan. 12 it’s buying online sports book Vigotry.

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Casino Stocks Adapt To Millennials

While DraftKings stock is best known as a sports-wagering play, it’s also making a significant push into casino games. That could represent a threat to more traditional casino stocks, which have gotten used to baby boomers’ love of slot machines.

DraftKings’ non-sports offerings include DraftKings Casino, which has online versions of traditional table games like blackjack, baccarat and poker.

Online Slots
Casinos are now diving into iGaming, which includes electronic versions of as slots. (Alexander Kirch/shutterstock.com)

Until now, many casino operators have been slow to reach out to younger customers, betting their interests will eventually shift to traditional gaming as they grow older.

Having older gamblers sit for hours playing slots can rake in 60% profit margins.

But many millennials, raised on smartphones and other devices, find slots boring. As a result, the gambling industry is using high-tech to attract a younger crowd online and to its casinos.

Casinos are now diving into iGaming, online games that can include electronic versions of card games as well as slots and other types of games. For example, Penn National offers mobile apps with slots and table games.

And BetMGM has table games and slots too, as well as other ways to bet that resemble video games, including a Wheel of Fortune game. MGM expects the app to generate most of its revenue from iGaming.

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Reimagining Indoor Games Too

To be sure, casinos are also revamping the gambling experience in real life.

Many have reduced their slot offerings, replacing them with arcade-style games. Casino floors are becoming more social, equipped with lounges and touch screen gaming tables.

That’s key among millennials who prize socializing as much as gaming. A recent study of millennials by the Levenson Institute of Gaming, Hospitality & Tourism at Stockton University found 83% enjoyed playing slot machines with family and friends, a boon to DraftKings stock.

“Slot machine developers have been actively trying to reach this demographic with multiplayer games, games of skill and video-game-style slot machines,” Stockton University’s Bokunewicz said.

Bally’s says its approach is a hybrid one. CEO George Papanier says Bet.Works and its partnership with Sinclair Broadcasting Group (SBGI) will expand its footprint in sports betting and iGaming.

“We view bricks and mortar and sports betting/iGaming from a mobile perspective as complementary,” Papanier said. “So we’re trying to get the best of both worlds as we try and deliver these interactive technologies.”

Meanwhile, Scientific Games (SGMS) has all its bets covered as a developer of products and services for the gambling industry. The company’s portfolio includes electronic gaming machines and game content and sports betting technology, as well as social, mobile and interactive products. Additionally, it has partnered with DraftKings to provide games for an online casino in New Jersey.

Matt Wilson, head of Scientific Games’ gaming business unit, noted the pandemic also spurred demand for electronic table games, which allow players to socially distance inside casinos.

“It’s hard to create a safe, socially distant place for players and casinos when they’re dealing cards three feet from each other,” he said. “ETGs allow casinos and consumers to have access to table games through a different construct.”

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What’s Next From Casinos?

An emerging trend in slot machine design is contactless payment. Penn National plans to roll out touchless technology sometime in 2021. Scientific Games developed Unified Wallet, which enables customers to access funds from an app on their phones to play slots. International Game Technology (IGT) and other slot technology companies have developed similar products.

“Casino slot machines are one of the few remaining points of sale that only accept cash, a seemingly archaic method in a generally technology-focused industry,” Bokunewicz said. “This can be a barrier to millennials who grew up with cashless payment options.”

Scientific Games’ Unified Wallet also provides a way for casino operators to track players and curate promotions.

Further out, casinos might one day offer gambling experiences in virtual and augmented reality settings to appeal to millennials.

Boyd Gaming (BYD) launched a VR product with HTC Corp. and IGT in 2018 called “Virtual Zone.” That product allows players to compete for prizes in the casino. And on Dec. 17, Verizon Media and Entain, whose brands include Ladbrokes, bwin and PartyPoker, as well as BetMGM, agreed to develop gambling VR technology.

“We envisage consumers meeting at a game with friends, who could in fact be elsewhere, using virtual reality headsets to watch, interact and share the experience together and, potentially, compete between themselves at half time or feel like they’re on the pitch with the players,” said Entain CEO Shay Segev.

Casino Stocks, DraftKings Stock Performance

Online gambling stocks and traditional casino stocks are in IBD’s Leisure-Gaming/Equipment industry group, which currently ranks No. 16 out of 197 industry groups.

DraftKings stock is ranked No. 4 in the group. Penn takes the No. 1 spot, followed by horse racing and casino operator Churchill Downs (CHDN). Traditional casino stocks rank lower. Caesars sits at No. 9, MGM at No. 12 and Las Vegas Sands at No. 21 on the list.

DKNG stock has jumped 18% in the past week. Shares are extended past the buy range above a 56.08 buy point in a cup with handle, according to IBD MarketSmith chart analysis.

Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.


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