More U.S. states are legalizing sports betting, opening up a new market, and investors could capitalize on the increased wagers on sporting events through a gambling-focused ETF strategy.
Wall Street analysts argue that rising trend of legalizing sports betting could be a great opportunity for investors in 2020, CNBC reports.
In 2017, Pennsylvania was the first state to legalize sports gambling, with New Jersey following after in June 2018. Since then, a number of states have also relaxed gambling regulations, including Montana, North Carolina and West Virginia among the 20 states that have legalized sports betting.
As more states legalize sports betting, action could help boost state revenues, and it could make certain gaming stocks more attractive in the new year.
“While we believe investors are generally aware of the opportunity, the stocks don’t appear to be discounting it,” Morgan Stanley analyst Thomas Allen said in a recent note.
U.S. sports gambling revenues
Allen pointed out that U.S. sports gambling revenues are projected to surpass $800 million this year from $249 million in 2017, but gaming stocks are still falling behind the broader market since the Professional and Amateur Sports Protection Act was repealed in May 2018.
“We do not believe investors have been willing to underwrite sports betting yet, but if we enter a new mini cycle, we expect investors will start to pay attention more in 2020,” Allen added, estimating that the sports betting market could reach $7 billion in revenue by 2025.
James Wheatcroft, an equity analyst at Jefferies, is even more bullish on sports wagers, projecting the U.S. sports betting market to grow to $13 billion by 2023 and adding. That estimate, “which looks increasingly conservative” given how fast states are moving to legalize sports betting, he added. “However, conservatism is prudent given the time between legalization and implementation could be 12 months.”
As a way to capture the potentially growing market, ETF investors can look to the VanEck Vectors Gaming ETF (NasdaqGM: BJK). The fund tries to reflect the performance of the MVIS Global Gaming Index. For index eligibility, companies must generate at least 50% of their revenues from gaming. Gaming includes casinos and casino hotels, sports betting (including internet gambling and racetracks) and lottery services as well as gaming services, gaming technology and gaming equipment. However, potential investors should keep in mind that this is a global gaming ETF, with the U.S. making up 45.9% of the portfolio.
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