Place a Bet on This iGaming Newcomer
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Place a Bet on This iGaming Newcomer

We’ve made it. Football season is back … and so is betting on those games.

It’s impossible to watch a football game without hearing commentators talking about point spreads and betting odds. Sports betting is increasingly becoming part of popular culture.

On Tuesday, executives at DraftKings (Nasdaq: DKNG) announced a $20 billion offer for Entain, the British sports betting behemoth. The interesting part is that Entain currently has a joint venture with MGM Resorts International (NYSE: MGM).

Sports betting is a gold rush, and investors should consider buying shares of the company making the prospecting picks.

Demand for iGaming — classified as any activity involving online sports betting — is surging as technological advancements and political expediency collide.

It’s now possible to run a sports book completely in the cloud. And pushing real-time gambling data to smartphones changes the gaming landscape. Revenue hungry politicians see online sports betting as the answer to their COVID-19-ravaged budgets.

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Sports betting is currently legal in 24 states, although New York could come online sometime this year. Betting legislation is pending in five more states, with even more likely to be included during 2022 and 2023.

The push for legalization couldn’t be more notable.

In Atlanta, team officials from the MLB’s Braves, the NFL’s Falcons and the NBA’s Hawks have petitioned Georgia’s lawmakers to legalize sports betting.

•  Pro sports executives expect to collect billions from licensing fees. In 2018, a study from the American Gaming Association pegged those fees at $4.2 billion, and that was before the popularity of smartphone betting apps.

Savvy companies are constantly making aggressive moves to adapt, and that’s why DraftKings is vying for a piece of the growing smartphone business.

It might seem like the Boston-based company is facing an uphill battle trying to beat established gambling organizations online … but that’s not entirely true. The upstart has better onboarding for new users.

DraftKings also has better technology.

The company acquired SB Tech in 2019 for $3.3 billion. The British software developer was known for its cutting-edge risk management and odds-making tools. DraftKings developers customized the types of algorithms that enabled new non-standard, in-game bets.

It was a marriage made in heaven.

MGM is currently searching for this same kind of winning partnership. The company and Entain currently have a joint venture called BetMGM. The project is growing quickly, with 23% iGaming market share in the U.S., according to David Katz, an analyst at Jefferies.

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MGM made an offer in January to buyout Entain’s interest in BetMGM. That transaction is being held up by United Kingdom regulatory restrictions, yet Katz argues MGM could make another bid for BetMGM in the future.

If MGM doesn’t have the technology that BetMGM could provide, the venture would probably be undercapitalized in terms of technology.

That’s why if MGM were to lose out on Entain … it could be in big trouble.

Enter Rush Street Interactive (NYSE: RSI), a software maker creating tools for the next generation of sports betting. And it could possibly be MGM’s next darling depending on how the DraftKings situation works out.

Rush Street Interactive operates an online casino and sports betting business. Its strength is the software that underpins iGaming. The nine-year-old company went public in January through a special purpose acquisition company (SPAC).

•  Shares have been on the move in September following DraftKings $1.6 billion acquisition of Golden Nugget Online, a similar business. Investors are speculating Rush Street will get gobbled up in the rush by bigger players to gather digital tools.

Rush Street Interactive reported sequential quarterly growth for the past seven quarters. First quarter revenue grew to $112 million, up 218% year over year.

And the business is only getting started.

The company currently operates in 11 states. In 2021, it launched a sportsbook in MI, VA and IA. Monthly active users grew to 115,000, up 166% from a year ago, and average revenues per user grew 21% to $302.

Here’s a look at RSI’s daily chart:


 

Big players are furiously trying to stake their digital claims for the future of gaming. DraftKings going after Entain is part of this process.

Rush Street Interactive is a logical target for a bigger player … yet the core business is strong enough to stand on its own. Investors should consider buying this stock into weakness.

Best wishes,

Jon D. Markman

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