Now that the NFL season is underway, fans of the game are not the only ones in a frenzy. The sports betting industry has seen substantial growth over recent years as billions of dollars are wagered on sporting events.
Largely due to more permissive laws in an increasing number of U.S. states, combined online and land-based sports betting revenue totaled a whopping $2.3 billion in Q2 2023 revenue, according to the American Gaming Association. That figure represents a 56.6% year-over-year increase, setting an industry record for any second quarter.
Last week, the AGA released survey results showing roughly 73.5 million American adults are expected to bet on the NFL this season, representing about 28% of the adult population. Before the U.S. Supreme Court intervened in 2018, “…just over 1% of the U.S. population had access to legal sportsbooks,” as reported by ESPN. “Five years later, over half of the U.S. lives in a jurisdiction with legal betting, a percentage that continues to grow.”
Given these remarkably high numbers, investors are looking at the companies driving and benefitting from the growth of the sports betting subsector within the gaming industry. In that context, MGM Resorts International
MGM
BJK
While DraftKings and FanDuel are other notable players in the field, the more established entities in the marketplace provide a longer track record for analysis, providing more context and clarity for this sector’s investment opportunity.
Gaming stocks have shown impressive returns since 2019 when the effects of the aforementioned 2018 Supreme Court decision began to take root. However, compared with the S&P 500 – which has seen about 77% returns over the same period with more modest losses – the appeal of gaming stocks appears less striking despite the substantial growth in gaming revenues.
With the rising scale and popularity of NFL betting, examining the seasonality of returns could help identify potential investment opportunities in the gaming sector. An analysis of returns dating back to 2019 reveals noticeable seasonality. There’s a strong correlation between positive average returns during the NFL season versus negative average returns during the league’s offseason.
During the NFL offseasons in 2019 through 2022, MGM and PENN have collectively posted double digit average loss percentage during that span, while the S&P 500 gained an average of 2.9%. The NFL season from 2019 to 2022, on the other hand, shows BJK, MGM, and PENN significantly outperforming the S&P 500 on average.
The trend is evident and pronounced. With that said, it’s important to note that correlation doesn’t equal causation. Despite the trends outlined above, it’s unclear whether the increase in betting during the football season directly influences the outperformance of gaming stocks. Based on the data, diversifying through the BJK ETF may provide the highest probability of success with the least downside risk.
As we welcome a new NFL season amid the continuing growth of online sports betting, there’s more than team pride at stake. The sports betting boom brings excitement to the gaming sector and a potential opportunity for investors.
The gaming industry, particularly the sports betting sector, is undoubtedly riding a wave of growth. With a new NFL season, the dynamics in this sector could offer potential seasonal investment opportunities. However, as with any investment, it’s crucial to thoroughly research and understand the risks involved before diving in. As the season unfolds, whether you’re a passionate football fan or a savvy investor, the burgeoning sports betting sector is undoubtedly one to watch.
Disclosure: Author and 3Summit Investment Management hold no positions in stocks mentioned in this article.
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