Pros and cons of investing in sports betting stocks
As with any industry, there are pluses and minuses to investing in sports betting stocks.
Pros
- The U.S. is still in its early days of legalized sports betting, and many states have yet to fully legalize it. That provides significant growth opportunities.
- Technological advances and data collection provide additional growth opportunities to expand the market with more betting products and broader event coverage.
Cons
- Federal law and regulations could curb U.S. sports betting, such as the new limit on gambling loss deductions in the latest tax legislation.
- Prediction markets present a new competitive threat to dedicated sports betting companies.
What to look for when investing in sports betting stocks
There are a few important factors to consider when picking a sports betting stock to buy, including:
- Does the company have a strong, established brand that provides a competitive moat?
- Does it have better technology than its peers, enabling it to offer more bet types at good prices?
- Is it focused on the fast-growing and rapidly changing U.S. market, or does it have more exposure to well-established international markets?
Future of sports betting stocks
Sports betting is a well-established industry in many countries, but the U.S. -- one of the biggest potential markets in the world -- is still in its infancy and remains in flux. As a result, the future of sports betting stocks, particularly those with a big concentration of business in the United States, is somewhat uncertain.
The trend favors more and more U.S. states legalizing sports betting, providing a tailwind to sports betting companies. However, there are a couple of factors that could temper growth.
First, the U.S. reduced the amount of tax-deductible gambling losses allowed, which could curb engagement. Second, prediction markets have been created that use futures contracts to get around the need for state-by-state legalization. The development presents a competitive threat and a loophole that reduces the barrier to entry.
