Investment Case for Sports Betting and iGaming

02 July 2021

Learn more about our Sports Betting ETF 


The global gaming industry has generally been fast growing over the last decade, pre-COVID, due to exceptional growth in Asia, notably in Macau and Singapore. New casino projects globally have also fuelled growth, given strong untapped demand in most markets. Looking forward, Fischer Gaming, our partners for the Sports Betting ETF, believe that growth is likely to come from Asia and online wagering on a global basis. On the other hand, the bricks and mortar market in the US is relatively mature. The convention and group travel market is also expected to take time to recover which impacts locations such as Las Vegas.

The online gaming market generated around $63b in revenues in 2019, according to H2 Capital. This is expected to grow by around 11% CAGR to 2025. The US is expected to grow at 21% CAGR. Despite changing regulations in some markets, Europe and Asia are also expected to record solid growth.

Source: H2 Capital


Goldman Sachs have even more aggressive estimates. They expect the US market to expand 23x from $2b in 2020 to $53b in 2033, representing a 27% CAGR.

Source: Goldman Sachs. Future projections for illustrative purposes only.


Some of the leading companies in the industry are equally optimistic, with Draftkings and MGM both expecting medium term industry revenues of around $28b.


It is important to appreciate the differences between sports betting and iGaming given differences in market size, growth rates and profitability.

Sports betting is defined as betting on event connected to sports activities such as the winner of a match of the game’s high scorer. The variations of wagers are endless. People have been betting on sports since the dawn of time with horse racing being a favourite time in many different cultures going back centuries.

In some countries, like the US, sports betting had been illegal over fear that the sports could become compromised.

However, social acceptance shifted. Sports teams, leagues and the media are also supporting the change as betting dramatically increases fan engagement and therefore the value of the product.

iGaming customers are more lucrative than sports bettors with average spend per adult expected to be around $105 v $45 for sports, according to Morgan Stanley.

Profit margins are also lower for sports betting, given the higher customer acquisition and other marketing costs.

Bet MGM believe the payback period for sports betting customers is 3 years vs 2 years for iGaming.

Source(s): Morgan Stanley estimates, report dated 1/20/21.  New Jersey Division of Gaming Enforcement. BetMGM Investor Day, April 2021.


Demand for sports betting and iGaming in the US. Some key statistics:

  • The Gaming Industry in the US is already $125b in revenues with commercial casinos including Native American casinos at $75b. Lottery, card rooms and other gaming add an additional $50b.
  • It is estimated by the American Gaming Association that around $150b is wagered every year illegally.
  • The gaming markets in countries that share some cultural similarities, are meaningful with the sports betting and horse racing market in the UK at $4.7b and Australia at $3.3b.
  • Sports viewership in the US is one of biggest globally with 100m tuning in to watch the Super Bowl every year.

Given this underlying demand, regulatory change has been the key catalyst for growth.


How has it happened?

  • On May 14, 2018, the US Supreme Court struck down the Professional & Amateur Sports Protection Act (PASPA), the 1992 federal law than until then limited fully fledged sports betting to Nevada (grandfathered in).
  • States now have the right to legalise sports betting through legalisation or constitutional amendments.


In what form?

  • Most states have awarded licenses to operate sports betting to the existing casinos, then allowed them to partner with online operators, with each website/app referred to as a “skin”.
  • Lotteries are the primary authorised providers of sports betting in some states.


In a short period of time, sports betting has rapidly legal in 24 states and on the way to 39 states by 2023. And iGaming is legal in 6 states and on the way to 11 states by 2023, according to Morgan Stanley.

Source: Morgan Stanley.  Future projections for illustrative purposes only.


Technology is also spurring growth. Globally, people are spending more time on electronic devices and 77% of the US population have their own smartphone.

Other technological improvements are also enhancing the gaming experience such as: improved user interface including design, navigation, speed; and greater personalized marketing.

Morgan Stanley expects 82% of sports betting to be online with 18% at retail.


Source: Morgan Stanley


Technological advances also support proposition bets becoming more widely available. Prop bets are typically bets on any event during the game that does not usually impact the outcome of the game. This can include the first person or team to score. While many of these can be considered “gimmicky”, they can also be a lot of fun for casual bettors.

Given the huge size of the illegal gaming market, we expect meaningful conversion from illegal betting to legal betting.

The relatively low growth in the “bricks and mortar” segment of the US gaming industry is also fuelling greater investment into “online or digital” gaming for many of the larger companies like MGM Resorts, Caesars and Penn. This accelerated investment will drive more rapid revenue growth in the shorter term.

US sports are well suited for betting. There are more discrete plays in sports like American Football, Baseball and Basketball, which encourages various “prop” bets. Some examples include:

Next player to score a touchdown (NFL), a home run (baseball) or 3 points (basketball).


Long-term prospects

Sports Betting and iGaming is still in its infancy and going through an investment phase, resulting in short term losses for the B2C companies. However, the leading companies such as Draftkings and Bet MGM are expecting high EBITDA margins in the range of 30-35%. Morgan Stanley expect 25% margins. 

EBITDA margin long-term prospects

Source: Draftkings Investor Day, March 2021; Bet MGM Investor Day, April. Morgan Stanley.


Bet MGM believe they have structural cost advantages to drive higher margins due to:

  • Omni-channel reduces marketing spend, increases retention and increases player value
  • In-House tech significantly cheaper
  • Revenue share lower due to MGM market access
  • Scale supports national advertising


Goldman Sachs also expected that capex as a % of online gaming revenues, will be relatively low at 1.8% compared to Bricks and Mortar Casino at 7% and also compared to online Retail at 2.2% of revenues.

Source: Goldman Sachs


Bricks and mortar casinos are very capital intensive with 3,000 room hotel resorts costing around $3-6b depending on the location and investments in non-Gaming amenities.

Yet, by adding online gaming to an existing brick and mortgage portfolio can expand the companywide ROI through cross fertilization of customer both ways. 

Relatively low capex requirements may also drive the Return On Investment and create long term value for shareholders.


To learn more about our Sports Betting ETF, please visit our fund page here.

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