Since the world of sports was put on hold due to the spread of Covid-19 and the attempt to slow its spread, many market participants have noted the rise in 'retail' investors. But, many have claimed that these 'retail' investors aren't just your average mom and pop investor, the young high school or college kid who wants to make a little money while stuck at home, (although we have seen a slight uptick from these age groups and demographics participating in the stock market over the past few months.) Some believe the largest new group of investors with the most impact on the markets in recent weeks are the ex-sports gamblers, especially those gamblers that prefer online sports gambling.
I say "ex"-sports gamblers because besides just recently when PGA Tour Golf and NASCAR began competing again, sports gamblers have not been able to bet on anything when all sports activities were shut down due to Covid-19. So, it is not to say that once professional major league sports begin to operate once again in the US, these sports gamblers won't go back to their old ways of betting on games and not stocks.
However, their 'old' ways of gambling may be changing in a big way in the near term. The online fantasy sports gambling website, DraftKing (DKNG), recently went public and was already operating an online sportsbook and casino before the countrywide shutdown. Furthermore, DraftKings competitor FanDuel, owned by Flutter Entertainment (FLTR), had also already begun to operate online sports gambling websites and apps in states that have legalized sports betting before the Covid-19 shutdowns and stoppage of professional sports. Even MGM Resorts (MGM) has begun partnering with companies to build online sportsbooks and casinos in states those activities are legal.
Some believe that due to the Covid-19 shutdowns, State and local governments who currently don't allow sports betting or online sports gambling will pass laws to allow these activities in the near term as governments try to find new forms of tax revenue. So, while not only is it possible that sports gamblers are now gambling on stocks, but they may be able to legally gamble on sports, regardless of where they live, soon.
All of these small changes combined could add to big profits for the casinos and the real investors looking to profit from this new frontier. With that in mind, the team at Roundhill Investments recently started a new Exchange Traded Fund that focuses on sports gambling, online sports gambling and iGaming. The ETF is called the Roundhill Sports betting & iGaming ETF (BETZ). (Amazing ticker by the way.)
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BETZ began trading on June 4th but already has over $85 million in assets under management and 37 holdings. However, the fund is not cheap, with an expense ratio of 0.75% and a spread of 0.21%. The fund is investing in companies that are actively involved in sportsbooks and gambling operations both in-person and online, as well as those companies which provide infrastructure or technology to such companies. The top ten holdings of the fund make up 54% of the assets with the largest holding, GAN Limited (GAN), making up more than 8% of the fund.
The closest competition for BETZ is the VanEck Vectors Gaming ETF (BJK), which focuses mainly on gambling as a whole. BJK has Flutter as its top holding and DraftKings in its top ten, but it also holds large positions in Las Vegas Sands, MGM, and Galaxy Entertainment. So while it is more diversified, it's hard to say if that is the safest bet on the industry. This is because if we see a rise in online sports betting and gambling, the resorts in Las Vegas or any other city around the country that has a physical casino could see lower demand. Be honest, if you could sit in your own home and do something, or you have to travel perhaps hundreds of miles to a different city to do the same thing, what would you more regularly do? And especially if the spread of Covid-19 continues and we see more shutdowns.
Online sports gambling or just online casinos are likely the future of gambling in some form or fashion. It will not likely destroy the physical casino operations, but it will likely put a dent in their profits if we see nationwide online gambling laws passed. And if that happens, BETZ is currently the best bet.
Disclosure: This contributor held shares of DraftKings at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.