п»їThe Best Sports Gambling Stock to Buy.
Why this company is the best way to invest in a growing space.
Drawn by the lure of tax dollars, states around the nation are quickly allowing sports gambling one at a time; and Governors like New York's Andrew Cuomo are hinting at more legalization to come. As a result, the market is expected to explode to $127.3 billion in sales by 2027, thanks to a brisk growth rate of 11.5% during that time.
Such strong sector tailwinds have attracted dozens of new entrants vying to capture this expansion. While there are many interesting ways to invest in the space, Penn National Gaming (NASDAQ:PENN) is by far the best. Here's why.
Image source: Getty Images.
Penn's recent quarter.
For the fourth quarter ended Dec. 31, revenue fell 23% year over year. The company had been trending ahead of analyst forecasts, but was forced to shut down some of its Midwest casinos due to the pandemic. While the decline isn't ideal, it was far less drastic than competition like MGM Resorts International and should remedy itself as the pandemic continues to ebb.
Despite this challenge, its operating margin and earnings before interest, taxes, and non-cash costs like depreciation and amortization (EBITDA) margin both expanded briskly, and its net income turned positive year over year. The positive profit trends are nice, but to continue delivering shareholder returns going forward, the company will need to grow its revenue once more. This is where Barstool Sports comes in.
Barstool Sports and Penn are thriving together.
Penn National Gaming purchased a 36% stake in the sports-media company Barstool Sports in 2020 for $450 million. Together the duo released its Barstool Sportsbook app in Pennsylvania late last year, and broke download records despite being far outspent on marketing by the likes of DraftKings . How did this happen?
Barstool's army of 66 million monthly active users (as of 12 months ago) is how. These consumers gamble weekly at a 44% clip, in other words, just over 29 million weekly sports gamblers consistently consume Barstool's content. No competitor in the space has a built-in following like this, and it shows in download data, as well as in how Barstool's product is racking up market share in Pennsylvania thus far.
In just a few months, the company has built its total bet market share to 13.4% against far more aggressive incumbent competition -- Barstool's share continues to rise. More impressively, its revenue market share was a strong 40% as of Pennsylvania's most recent data release in December 2020. This again hints at Barstool having to spend and promote far less to rack up sales; its accepted bets are more directly translating into revenue.
Pennsylvania was just the beginning -- earlier this year, the product also debuted in the state of Michigan. This time, Penn and Barstool did have first-mover advantage, unlike in Pennsylvania, and the pair certainly capitalized. For the product's opening weekend in Michigan, its total first-time depositors and bet handle were both 68% higher than in Pennsylvania. These consumers are also engaging with the product on a daily basis 80% more frequently than versus Pennsylvania -- great for Barstool's advertising sales.
The digital sportsbook is set to open in at least eight more states this year, and if the first two debuts were any indication, that should be a very positive event for the company.
An omni-channel approach.
While the sportsbook garners a great deal of investor attention, Barstool provides so much more than that to Penn.
The sports media conglomerate hosts two of the nation's most popular 20 podcasts, and enjoys meaningful advertising and merchandise revenue streams. Perhaps as a result, despite sports' 2020 hiatus, the organization set sales and profitability records while some other sports media companies struggled.
The brand is also allowing Penn to improve and expand its brick-and-mortar footprint. Together, the combination plans to open Barstool-themed entertainment destinations in cities. When looking at the effect Barstool's name had on its East Chicago property, the decision makes perfect sense.
In the week following Penn's rebranding of its East Chicago casino to Barstool, betting handle rose by 35%, while table and slot volumes also immediately shot up more than 20% each. Additionally, in the brief time Barstool Sportsbook has been open in Michigan, 15% of its users have already converted to Penn National Gaming's loyalty program -- Barstool's clout is helping everywhere.
Penn is best in breed.
There are dozens of ways to invest in sports gambling, but none with the relevant, gigantic following Barstool features. Its army of sports-loving, gambling fans is as ideal as it gets for Penn, and despite the share price's recent success, I believe we are in the early innings of its domination. This one is a large part of my portfolio, and I think you should consider it as well.

Top Gambling Stocks to Buy in 2021.
Most of 2020 felt like a roll of the dice.
Going out to the store became a roll of the pandemic dice: Will I be able to buy hand sanitizer or find any toilet paper? Am I going to catch Covid-19? What do I do with 4,000 masks once the disease is no longer a threat? Every day feels like a gamble.
Speaking of gambling, it's been front and center on many trader's radars. Stocks like Penn National Gaming ( PENN ) - Get Report and DraftKings ( DKNG ) - Get Report have been some of the most active and best-performing trading names. I don't expect that to change for either stock in 2021, but those are the obvious names. What about a few other names to consider owning in the space for 2021?
Bet on the Basics.
If you're unfamiliar with the sector, it would be best to start with the basics. Roundhill offers the Roundhill Sports Betting and iGaming exchange-traded fund ( BETZ ) . For an investor, this is going to get you broad exposure to the entire sector at a very reasonable 0.75% expense ratio. You'll get PENN and DKNG exposure here, as those two names are the ETF's largest holdings, but what I find most appealing is the reach into foreign-listed names. Many investors aren't comfortable venturing beyond the big exchanges in the U.S. to get exposure.
BETZ's U.S. exposure sits around 34.5%. Investors are going to get good-sized exposure to Britain, Australia, Malta, Sweden, and the Isle of Man. Honestly, this holding is probably my only exposure to the Isle of Man. Additionally, the fund touches sportsbooks, technology, casinos, and iGaming with a mix of small-, mid-, and large-cap names. Admittedly, a few of the names will come up below, but this should be the go-to starter for anyone wanting exposure in the space.
While we talk about DraftKings non-stop, it's important to note FanDuel is a serious player in the daily fantasy sports (DFS) and sportsbook arena. Investors can get exposure via Flutter Entertainment ( PDYPY ) , which also gets them PokerStars. FanDuel defines itself as an innovative sports-tech entertainment company that is changing the way consumers engage with their favorite sports, teams, and leagues. In addition to FanDuel, it also has Betfair US and TVG.
The company recently expanded its reach to South America and the Caribbean via a deal with CAGE Companies. FanDuel will operate over-the-counter sportsbook at retail locations for CAGE, as well as online. Given the huge competition in the U.S., getting international exposure is a huge plus. In terms of the U.S., FanDuel already has a big reach with retail sportsbooks in 11 states and online better in eight states. That will expand soon as they add Michigan and Virginia. Once that is complete, FanDuel will have exposure to about one-fourth of the U.S. population.
Recently, FanDuel dropped an investment into an Illinois racetrack it will rebrand as the FanDuel Sportsbook and Horse Racing track. This is their first foray into racetracks, so investors should watch to see if the company continues this expansion approach. They also hold relationships with Twin River Worldwide Holdings and Boyd Gaming ( BYD ) - Get Report for casino access in Colorado and New Jersey. Investors could also consider BYD as it has a 5% stake in FanDuel.
Think Far From Home.
Staying outside the U.S., Score Media and Gaming (TSCRF) is a small name that should be considered for 2021. The company holds partnerships with Penn and Twin River Worldwide ( BALY ) - Get Report . Similar to BYD, BALY is another name with lots of ties to iGaming and sportsbooks, so it should be included in the watch list, but both are far from pure plays.
TheScore's media app delivers fans highly personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. But this company is more than just media, it is also a sportsbook and iGaming company via its sports betting app, theScore Bet. It's biggest exposure lies in Canada, which has folks excited. Legislation to legalize single sports betting at a federal level is on the table. That could add billions in annual wagers.
PENN a Deal.
The attention-getter for most is theScore's deal with PENN. The two-year agreement with market access for online and mobile sports betting and iGaming in 11 states via Penn is no doubt huge. Not only did Penn make a $10 million investment into theScore, but that number should increase. Rather than paying Penn in cash for additional market access fees, theScore can require Penn to purchase more of its shares with that payment. That could pave the way for Penn to eventually acquire theScore.
Channel FuboTV.
FuboTV ( FUBO ) - Get Report is another name I like, but not at these levels. The stock is up some 267% during the fourth quarter. While a big run isn't always a stay-away sign, the valuation is getting rich here. At the start of the month, FuboTV acquired Balto Sports. This moved the sports-first streaming platform into the online sports wagering market. Since then, the shares have been on a tear.
A little bit about the core portion of the company -- FUBO's platform offers subscribers access to 50,000-plus live sporting events annually, including college football, soccer, NHL, NBA, MLB, and NFL coverage. Subscribers get a mix of over 100 channels, including 43 of the top 50 Nielson-ranked networks. The company also recently entered a multi-year agreement with Disney ( DIS ) - Get Report for distribution of all ESPN channels as well as DisneyTV.
Despite a lack of live sports, FUBO's monthly active users are clocking 140 hours per month with a total of 98.6 million hours in the second quarter. That represented growth of 83% year over year. The company also has proprietary technology to offer multi-view streaming. In 2021, the company plans to add cloud DVR storage. This is definitely a name to buy on pullbacks, but I'm much more comfortable with it in the $20s than the $30s.
D.Y.I. With DMYD.
Next is DMY Technology Group (DMYD), which will be merging with Genius Sports Group in another special purpose acquisition company (SPAC) take-down of a private company in the space.
Genius Sports sits at the center of the sports data ecosystem. The company is the official data, technology and commercial partner that powers the global ecosystem connecting sports, betting and media. You'll find it as a partner of the NBA, Premier League, AFA, FIBA, NCAA, NASCAR, and PGA Tour, and in over 150 countries. It also includes Sportzcast, a real-time scoreboard data integration platform. This standardized distribution of real-time game data allows data to be shared on scoreboard systems around the world.
Currently, 11% of revenue comes from sports, 74% from data and streaming, and 15% from media. In 2021, Genius projects revenue of $190 million and $35 million of adjusted EBITDA. The data monetization comes from 240,000-plus sporting events with 170,000-plus events under rights and 110,000-plus under exclusive rights. To add to the attractiveness, 60% of the company's revenue is recurring and its top 10 customers only make up 30% of the revenue. As gambling increases, the need for data will come with it. DMYD is poised to capitalize on that.
Also in the Cards .
Two other names that should be considered are DMYD's sister company, dMY Technology Group (DMYT), with its purchase of Rush Street Interactive; and Landcadia Holdings ( LCA ) - Get Report , with its purchase of Golden Nugget Online Gaming (GNOG). Both DMYT and LCA have run a bit beyond my comfort level to buy them right here, right now, but even a pullback of 10% to 15% should put them on your radar.
Currently, I have DMYT on my list above LCA, so if you're looking to add only one of the two, that would be my choice. They are similar names in the iGaming/iCasino space. Both trade at a fraction of the revenue multiple to DKNG. Rush Street will be growing revenue at about twice the rate of DKNG and GNOG, with about half the revenue of DKNG and more than twice that of GNOG. In terms of revenue to enterprise value, GNOG and Rush Street even out. Lastly, both Rush Street and Golden Nugget Online Gaming will have positive cash flow.
Tim Collins is a regular contributor to Real Money, TheStreetвЂ™s premium site and provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.

3 Best Sports Gambling Stocks to Buy Now.
By Garrett Baldwin , Behavioral Trading Specialist , Money Morning вЂў November 9, 2020.
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There was one clear winner in Tuesday's election, and I'm not talking about the presidency. Legal sports gambling swept victories everywhere it was on the ballot.
And with the market rallying again, the best sports gambling stocks are due to surge even higher.
Voters approved sports gambling by a wide margin in Louisiana, Maryland, and South Dakota by comfortable margins. It seems people love to bet on sports, and states love the tax revenue sports betting can generate.
Since the Supreme Court's 2018 decision allowing states to set their own rules on sports gaming, 25 states have legalized it in some form. Three more states have pending legislation that could open up gambling in those states too.
For an industry that was all but outlawed just a few years ago, this is one of the most exciting growth sectors now as the people have spoken, and companies are racing to meet the demand.
This is a fantastic development for casino stocks, but plenty of other companies are getting into the ring, including sports betting apps and e-sports companies. The future of sports gambling will mean incredible growth rates for sports betting companies and huge potential profits for investors in these companies.
Here are my best three gambling stocks to ride this hot new trendвЂ¦
A High-Flying Sports Gambling Stock with a Fantastic Future.
The obvious first stock is DraftKings Inc. (NASDAQ: DKNG).
DraftKings is known for its daily fantasy sports games, where players compete against each other by choosing players they think will have the best performance each game. But DraftKings is expanding into betting too. It's currently offering sports betting services in seven states, including the massive New York and New Jersey markets. Its daily fantasy sports products are available in eight countries internationally with 15 sports categories.
Daily fantasy sports games are available pretty much everywhere in the United States. This gives DraftKings something of a captive audience to market to when states begin to allow online betting within their borders.
The fantasy sports game is risk-free for DraftKings as prize pools are a function of how much players have bet. Draft Kings is merely taking an administrative fee off the top. That's in contrast to traditional sports books, where a major upset could lead to major losses for the casino.
In addition to sportsbooks and daily fantasy, DraftKings also has online casino games.
As more states allow sports betting and other forms of gambling, DraftKings will be well-positioned to move fantasy players over to the platform's gambling apps.
DraftKings stock has had a huge run since its SPAC took it public. The stock is up over 200% in the past year, but many observers think DraftKings is still a buy.
The shares have pulled back about 30% in the past month as the NBA and MLB season have ended and fears rose that COVID-19 could end the college and professional football seasons.
A follow-up share offering that received a tepid reception didn't help the stock much either.
The long-term outlook is much brighter than the short-term sell-off is accounting for right now. Sports betting and online casinos will continue to spread across the United States. Earnings will grow at 40% or more a year, and the stock will continue to power the shares to much higher prices.
One of the Best Casino Stocks to Own.
Penn National Gaming Inc. (NASDAQ: PENN) is primarily known as the owner of casinos and racetracks around the United States. It is a big player in sports betting as it currently operates live sports betting at its properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania, and West Virginia.
That makes it one of the key players in the industry, but the reason this is one of the best stocks to own in this space is because of Barstool Sports. Barstool started as a sports gambling newsletter and has grown into a massive sports entertainment operation. Penn National bought 36% of the company last year for $163 million in cash and stock. In three years, it will increase its ownership to 50% for another $62 million.
Barstool Sports caters to young sports fans and gamblers with a legion of podcasts, social media feeds, and even a radio show on SiriusXM. The upstart company's success has knocked industry stalwart ESPN off balance.
Joining Barstool's image and audience with a sports gambling app could do wonders for Penn National.
Penn National has a sports betting app that's approved in Pennsylvania and will spread across the country over the next few years.
It may end up owning the 20-40 years old online sports betting market in the United States.
Earnings for Penn National should also grow at better than 40% a year for the next five years, at least. That should continue to drive the stock price higher.
But our best sportsbook stock to buy is one you might not think of right away.
And that's why its growth potential is so hugeвЂ¦

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