It seems like every day of late, Massachusetts-based gaming company DraftKings (NASDAQ:DKNG) has been signing a new deal or building a new relationship with a professional sports entity. Not only has DraftKings signed exclusive sports betting deals with the Chicago Cubs, the Dallas Cowboys, the New England Patriots, and most recently, the New York Giants, but it has entered into the brick and mortar sportsbook arena as well, teaming with Caesar’s Palace (NASDAQ:CZR) for exclusive sportsbooks which will post live betting news and stats on ESPN. It’s been quite the year for DraftKings which is now valued at a market cap of just under $20 billion, but are they the industry leader?
DraftKings started as a Daily Fantasy Sports platform which has toed the line of gambling in several states around the country. Some states allow it as a skill-based game, but many states with conservative laws on gambling have banned DFS from being legally played within state lines. DraftKings branched out to the sportsbook industry a few years back with large brick and mortar sportsbook openings in New Jersey, Nevada, and Illinois just to name a few. DraftKings’ main competition in the DFS space is FanDuel which is actually owned by European sports gambling conglomerate Flutter Entertainment. But in the sports betting sector, a new name has appeared that could challenge DraftKings for the top spot in the industry: Penn National Gaming (NASDAQ:PENN).
Penn is a Pennsylvania-based casino company that owns brick and mortar casinos around the country. The most significant acquisition that Penn made has been a 36% stake in BarStool Sports, a popular sports community amongst the ever valuable 20-30 year old male population. BarStool Sports launched its own sports betting app recently, which has already knocked DraftKings off as the number one sports betting app being downloaded. BarStool president Dave Portnoy has a cult following on the internet and Wall Street analysts have valued Portnoy’s audience as a major windfall for Penn Gaming and a market that could continue to give back through the sports betting app. Penn’s stock has mirrored DraftKings and grown from $6 back in March to over $70 per share today. Does DraftKings need to be worried about Penn? Sort of.
The sports betting industry is not a zero sum game, and in fact many professional bettors have accounts with multiple sportsbooks to take part in what is known as line-shopping, or finding the best odds across all of the sportsbooks. The main hindrance to both DraftKings and Penn’s growth could be state legislatures and the legalization of sports betting across America. While it is definitely picking up steam, it is still banned in a surprising number of states including two of the biggest in California and Florida. The total addressable market for DraftKings is massive, but the company could be stymied, just as marijuana has, by stubborn state legislatures. DraftKings’ stock is up over 400% this year and is up nearly 50% over the past month. Is it a buy? I would monitor the stock over the next few months. The sports betting industry is at an all-time high as the pent up energy from having no sports for months is finally being released. With the NFL season and College Football starting back up, the stocks of both companies could be trading at or near their highs, so the current prices may be a tad inflated to initiate a position.
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