Consider A Long Term Bet On Global iGaming And Sports Betting Via BETZ

Summary

• Global online gaming ('iGaming'), including sports betting, is gaining in popularity. In the USA, sports betting is gaining traction as more states legalize it.
• The global online gambling market is forecast to be worth US$102.97 billion by 2025, growing at a CAGR of 11.5%.
• Roundhill Sports Betting & iGaming ETF looks to be reasonably valued as the sector looks set to take off, also helped by new COVID-19 habits of gambling online.
• I do much more than just articles at Trend Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Photo by Motortion/iStock via Getty Images

The Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ) looks well placed to ride the growth in the global sports betting (online & offline) and iGaming (online gaming) sectors in the years ahead. Sports betting in the USA is increasingly gaining traction as U.S states are legalizing sports betting. As a result the BETZ ETF is up 23.22% in 2021 as investors see the potential further opening up of sports betting in the USA.

What is sports betting and iGaming?

Sports betting is wagering on the outcome of a sports match. It can be done both online and offline.

iGaming is an umbrella term to represent the business of 'online gaming'. This includes: online sports betting, online poker, casino games, daily fantasy sports, and more.

Fantasy sports summary

Source

Note: eSports is slightly different to Fantasy Sports. eSports is the online competition that occurs in organized video game competitions.

In Fantasy Sports users create their own teams made up of real players of a professional sport like football or basketball.

A Look at the sports betting and online gambling sectors

Sports betting is gaining acceptance and popularity globally, particularly in the USA as more states legalize sports betting and online gambling. In part due to COVID-19 'online' sports betting is rapidly gaining in popularity.

A January 2021 article by Gambling News stated:

As more and more gambling businesses partner up with media groups, Wall Street analysts said they expect the US gambling and betting industry to grow quickly over the next five to ten years. Breaking the walls between casino gambling, iGaming, sports betting, and daily fantasy sports, gambling companies have expanded their reach via media partnerships and combined offerings. According to Morgan Stanley, 2025 will see a fast-growing $15 billion online gambling and sports betting market, while Macquarie Research even speculates the market could reach $30 billion by 2030.

Note: Bold emphasis above done by me.

Facts

• Statista - The global sports betting industry reached a market size of US$203 billion in 2020. Many countries participate in legal sports betting, one of the more recent being the United States starting in 2018/2019.

Note: The above figure includes both online and offline sports betting.

Forecasts

• Statista - In 2021, USA sports betting revenue is forecast to reach US$2.5 billion and, by 2025, this figure is anticipated to grow to US$8 billion.
• Morgan Stanley forecasts a $15 billion market for USA sports betting and internet gambling by 2025, an increase of 27% over 2020 levels.
• Macquarie believes online sports betting will be available to 96% of the U.S. population by 2025.
• Grand View Research - The global online gambling market is forecast to be worth US$102.97B by 2025 growing at a CAGR of 11.5%.

Note: Due to differences in criterion for various studies the above forecasts jump around quite a lot. Also there is quite a variation in the forecasts.

Source

USA legalization of sports betting appears to be improving

In 2018, US states were given the power to legalize sports betting. As mentioned below sports betting is gaining acceptance in the USA as move states legalize it. According to a sector report quoting the American Gaming Association:

At the end of 2020, 20 states plus the District of Columbia had active sportsbooks... Another five approved sports betting, but had yet to go live. Of the remaining 25 states... we can hope to see at least six states cross the finish line and legalize sports betting this year. Even the 11 states not expected to act could consider some form of legislation this year. California doesn't have active legislation right now, they're making progress toward a statewide referendum in 2022.

Source: BETZ investor presentation December 2020

Latest sports betting news

On April 23 Seeking Alpha reported:

Sports betting legislation advances in key areas. The developments on sports betting legislation continue to trend very favorably. Morgan Stanley analyst Thomas Allen points to numerous reports indicating that Florida could legalize online sports betting this year... Allen also says a recall vote in California on Governor Newsom bodes well for sports betting... Morgan Stanley thinks Connecticut, Louisiana and Ohio are likely to formally legalize sports betting this year. Across the border, a bill in Canada allowing single event wagering is advancing.

On May 4 Seeking Alpha reported:

March Madness sports betting handle estimated at $1.6B. PlayUSA Network estimates that the March Madness sports betting handle came in at $1.56B this year. "Betting on the NCAA Tournament came in on the high end of our projections. Enthusiasm in new markets, particularly in Michigan, Tennessee, and Virginia, but also in Colorado and Indiana, really helped make March Madness a massive success. It also helped that New Jersey and Nevada, the two largest markets in the U.S., met what were lofty expectations," notes PlayUSA Network analyst Eric Ramsey on the big month. The sports betting handle in Nevada for March Madness was estimated at $360M to lead all states. Next up, New Jersey was estimated to have brought in $275M in March Madness bets, while Illinois provided an exact figure of $176.8M to place third. Overall, seven states brought in over $100M in March Madness bets, per the PlayUSA Network forecast.

BETZ: currently priced at ~$31

Source: Seeking Alpha

The Roundhill Sports Betting & iGaming ETF ('BETZ') is designed to offer investors exposure to sports betting and iGaming industries by providing investment results that aim to track (less fees) the performance of the Roundhill Sports Betting & iGaming Index ('BETZ Index').

According to Roundhill stating on their website:

The Roundhill Sports Betting & iGaming Index is the first index globally designed to track the performance of the sports betting and iGaming industry. The Index consists of a tiered weight portfolio of globally-listed companies who are actively involved in the sports betting & iGaming industry. This classification includes [i] companies that operate in-person and/or online sports books [II] companies that operate online/internet gambling platforms and [iii] companies that provide infrastructure or technology to such companies in [i] or [ii].

The BETZ fund was launched only in June 2020. As of 5 May, 2021, the fund size was US$484M, was made up of 40 holdings, and has an expense ratio of 0.75%. The fund is re-balanced quarterly based on the Roundhill Sports Betting & iGaming Index.

Morningstar quotes the BETZ fund as having 35.79% U.S equity exposure and 63.07% non-U.S equity exposure. Roundhill lists the country exposure by listing location as USA 33.2%, Malta 13.1%, Sweden 10.5%, Britain 9.3%, Australia 9.1%, Isle of Man 7.1%, Ireland 4.3, Canada 4.1%, and others ~9%.

Top ten holdings (as of 5 May 2021)

Source

Brief details on the top 6 holdings shown above

PointsBet Holdings [ASX:PBH] (OTCQX:PBTHF) is a provider of a cloud-based wagering platform. The Company, through its platform, offers its clients sports and racing wagering products. It operates through three segments: Australia Trading, Technology, and United States. Its product offering includes Fixed Odds Sports, Fixed Odds Racing and PointsBetting.

Entain [LN:ENT] (OTCPK:GMVHF), formerly GVC Holdings, is a British sports betting and gambling company. Entain owns brands such as Bwin, Coral, Ladbrokes, PartyPoker, and Sportingbet.

Kindred Group [SS:KINDSDB] (OTC:KNDGF), formerly Unibet Group Plc, is an online gambling operator which consists of 9 brands, including Unibet, Maria Casino and 32Red. Kindred Group offer products such as online casino, online poker, online bingo, and sports betting. The company has major hub offices in Gibraltar, London, Stockholm and the US in addition to smaller satellite offices across Europe and Australia.

DraftKings (DKNG) is an American daily fantasy sports contest and sports betting operator. According to Wikipedia: "The company allows users to enter daily and weekly fantasy sports-related contests and win money based on individual player performances in five major American sports (MLB, the NHL, the NFL, the NBA and the PGA), Premier League and UEFA Champions League soccer, NASCAR auto racing, Canadian Football League, the XFL, mixed martial arts (MMA) and Tennis."

Flutter Entertainment [LN:FLTR] is a bookmaking holding company created by the merger of Paddy Power and Betfair, and the later acquisition of The Stars Group.

Flutter's brands

Source

Penn National Gaming (PENN) is an American operator of casinos and racetracks, based in Wyomissing, Pennsylvania. It operates 43 facilities in the United States.

Valuation

As of May 4 2021 Morningstar shows BETZ had an average PE of 26.03 and a dividend yield of 0.47%pa.

Valuation is reasonable considering the sector looks set for stellar growth in the years ahead.

Risks

• Macro-economic risks. A global slowdown may slow sports betting or iGaming. COVID-19 cancellation of sporting events etc.
• Technology change. Newer or better sports and/or iGaming platforms may arrive.
• Competition - Barrier to entry is getting higher due to the customer acquisition costs (less low hanging fruit) and regulation/licensing. This should help slow down new competitors but is always a possible threat.
• Currency risk - See above that discusses country location by listing.
• Equity market risks - The US equity market is overvalued. The BETZ fund valuation is not cheap, but growth looks strong and there are few similar competitive funds.
• ESG focused investment funds often choose to avoid gambling stocks. This could have a flow on affect to index funds etc.
• ETF risks - Liquidity and buy sell spread, valuation to NTA's, sovereign risk (looks low), management.

Further reading

• BETZ: This New Sports Betting ETF Is Worth A Look Now Before Live Sports Return
• BETZ Investor presentation December 2020
• Roundhill Sports Betting & iGaming ETF BETZ (Morningstar facts including PE ratio)
• 14 States Could Legalize Sports Betting in 2021
• A bet on America: the sports gambling gold rush

The US passion for sport could make it one of the most lucrative sports betting markets in the world

Conclusion

BETZ is an ETF that targets both sports betting (online and offline) and the iGaming industry (online poker, casino games, daily fantasy sports, and more) globally. The global online gambling sector is forecast to grow at a CAGR of 11.5%, but may do even better if US states continue to legalize iGaming and/or sports betting. Forecasts for US iGaming and sports betting growth are quite spectacular with forecast revenues rising from about US$2.5b in 2021 (just sports betting) to US$8-15b by 2025 and perhaps as much as US$30b by 2030.

Valuation for the BETZ ETF looks reasonable (PE of 26) given the significant potential growth ahead.

Risks revolve around the sector forecasts growth, the BETZ fund valuation, legislation and legalization, and other macro-economic risk factors.

I rate the Roundhill Sports Betting & iGaming ETF as a long term buy, with investors best to take an initial 'bet' and be prepared to buy more if we get a significant pullback.

As usual, all comments are welcome.

Analyst’s Disclosure: I am/we are long ROUNDHILL SPORTS BETTING & IGAMING ETF (BETZ). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information in this article is general in nature and should not be relied upon as personal financial advice.

Comments

[FrancisPV]

Interesting article as always with your publications, but in this field (games) it would not be surprising to see the blockchain alternatives and related NFTs take away a lot of business from the companies in this ETF. The blockchain/ crypto world is fostering a whole new model where participants also benefit from the value they create thanks precisely to their participation instead of giving up everything to a company’s mgt/shareholders. It is still a trend in its infancy but when the DAOs (decentralised app organisations) develop, they may very well be a formidable competition for the “traditional “ gaming industry.

[luckylalo]

@candylaftis Nice observation, but do you have an alternative investment? Or just generally, "buy crypto?"

[Apple Dan]

@candylaftis
It's a decent theory, but in fact all gambling and betting in the US is strictly regulated. You may not need a regulator to run a blockchain (not yet, anyway) but there is an audited blockchain could not legally run gambling or betting without prior regulatory approval. If a blockchain did so and it was discovered, I can guarantee you it would end up in litigation. The gambling lobbies would be sure it was.
From that standpoint what is more likely is that the incumbents adopt blockchain for the purposes you mentioned. States and the feds may permit blockchain to operate transactions, but there is NO WAY they are going to let somebody take away their tax revenues that they earn on gambling/betting handle. Their interests are aligned with the gambling/betting operators whom they have licensed.

[Apple Dan]

@Apple Dan
delete "there is" in sentence 2.

[luckylalo]

BETZ seemed like a good momentum, trend play.

But the stock has done ZILCH for the last 3 months.

[Apple Dan]

I like the thesis, but it is worth noting that several of the names in the top 10 are up enormously over the past year and are not boasting reasonable valuations. E.g. Flutter has a PER of 510.70 according to Yahoo Finance. I'm not sure how they reached an average of 26x PER unless it is based on forward-looking estimates. Or perhaps a number of the smaller holdings are out of favor and balancing out the top 10.
Long Flutter

[bason]

Good piece. I have been in BETZ since Day 1 and I am in it for the long haul. There will be a lot of volatility in the sector, but there is no denying that the sector will grow in the long run as all states will have to legalize sports gambling. I also own some of the individual names.

[A-ASTON]

I have owned BETZ since last year with no regrets.

[Diversity is Overrated]

I did a double take when I saw your name and no mention of minerals of EVs. But I quickly recognized the clear and concise writing and valuable insights. Thanks, Matt. Continued success!

[Trend Investing]

@Diversity is Overrated - Thank you.