Sports Betting Monthly Report | January

21 January 2022

Sports Betting ETF Monthly Report: Key Takeaways

The global Sports Betting and iGaming industry had a very exciting and productive year with a lot of the attention the US market. As expected, many states moved to legalised, which stimulated strong growth rates, most of which, was ahead of analyst expectations. On the negative side, up front marketing investments was also greater than expected, which has put pressure on short term profitability. This partly explains the industry sell off during the second half of the year. Fairly aggressive insider (eg management) selling also contributed to the sell off. As the industry is relatively immature, there have been some question marks around the quality of various management teams and execution track record. [1]

One of the challenges of the digital gaming industry is that sports betting legalisation is happening at a much faster rate than iGaming (online casino) and typically the sports betting vertical is low margin due to high promotional spend and used as a customer acquisition tool for cross marketing into the iGaming vertical, which has higher average spend and margins. Sports betting is legal in 31 states v 7 for iGaming. Some industry commentators have a preference for online gaming focused companies such as Rush Street Interactive and Golden Nugget. DraftKings has been an offer to acquire Golden Nugget and the merge is expected to complete in early 2022. [2]

New York launched sports betting on January 9th with 4 of the 9 operators accepting wagers, according to a Bank of America report. 5.8m transactions were processed from 9am-9pm, which implies total state annualised gaming revenues of $400-700m, which is 40-120% above the BoA estimate of $309m. The better than numbers also gives Morgan Stanley analysts comfort with their 2025 revenue estimate of $1b which is 20% higher than the next largest state. Marketing promotions over the first days were aggressive. [3]

As a result of the sector sell off in the second half of the year, the EV/Sales FY 02, has fallen from a peak of 14x in Jan 21 to 4x now. [4]

 

Macro Outlook

The US Sports Betting and iGaming market is expected to expand 23x from $2.3 billion in 2020 to $53 billion in 2033, according to Goldman Sachs. Europe and Asia are also expected to be high growth markets. [5]

Regulatory changes giving US states the right to legalise Sports Betting and iGaming is the major growth catalyst. Similarly, an easing regulatory landscape in markets such as Macau and Singapore fuelled massive growth in a short period of time. [6]

Other growth drivers include spending conversion from illegal to legal platforms, wider social acceptance of sports betting as an entertainment activity, technological improvements and expansion of product offering including in-play betting. [6]

Unlike other high growth industries, digital gaming can deliver high margins for leading operators in the near term, with expected EBITDA margins of 25-35% according to Morgan Stanley, DraftKings and MGM. Relatively moderate capex also drives strong Free Cash Flow and ROI metrics. [7]

 

Sports Betting ETF Performance

As of 31.12.2021


1M

3M

6M

YTD

12M

SI

Fischer Sports Betting & iGaming UCITS ETF (Acc)

4.63%

-15.69%

-16.99%

-19.90%

NA

-19.90%

Solactive Fischer Sports Betting and iGaming Index

4.73%

-15.56%

-16.72%

-19.58%

4.29%

-19.58%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31.12.2021

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. 

 

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