By Daniel Tortis
Three years ago the Supreme Court of the United States struck down a federal ban on sports betting, allowing state governments to make their own decision regarding legalization. Prior to 2018, sports betting was only available in the state of Nevada while every other American state considered it an illegal activity. Fourteen states have already decided to legalize sports betting since the federal ban was struck down. This year, nineteen additional states are set to vote on whether or not to legalize sports betting in their jurisdiction. This means online sports betting could turn into a huge new industry in the coming years.
This is big news for investors who have put money into speculative online gambling stocks. FanDuel and Draftkings are set to be industry leaders in this new space with DraftKings already having a market cap of $28 billion. Many other online gambling companies have also recently gone public through SPAC’s. Golden Nugget Online Gaming and Rush Street Interactive Inc. are two companies that recently used this method. IPO’s can be a very lengthy process taking up to nine months, whereas a large benefit of SPAC’s is how fast companies can access capital. This is important because over these next few years it will be crucial for companies to be the first movers in the space in order to gain market share and differentiate themselves from competitors.
A huge factor in legalization of sports betting for many of these American states is the need for tax revenue. The coronavirus pandemic has forced many states to shut the economy down. This led them to take on huge budget deficits and massive spending sprees to combat the economic effects of the pandemic. President Joe Biden recently signed a 1.9 trillion stimulus bill with over $195 billion going to state governments in order to keep them afloat. It is unlikely another bill of this nature will happen anytime soon. Therefore, in the coming years many of these states will have to raise taxes in order to add revenue to balance their budgets. Sports betting could be a huge revenue source for the government. Online gambling winnings in the U.S are fully taxable. According to analysts, the online gambling market is predicted to reach USD 87.75 billion by 2024, with a compounded annual growth rate of 8.77% from 2019 to 2024.
The critical states who are deciding to pass legislation are Texas and New York. They are the second and fourth largest states in the U.S by population, and Texas and New York combined have a population larger than Canada. If legalization occurs in just one of these states, the prospects for some of these gambling stocks could be very lucrative and their stock could easily reach new highs as a result of the news.
You can endlessly debate the ethics of online gambling and the negative impact it can have on individuals and families as a result of gambling addictions. However, it looks like online betting is here to stay and it could be a huge industry in the U.S and around the world in the coming years.