The Nasdaq Next Generation 100 Index recently rebalanced with Caesars Entertainment, DraftKings, the daily fantasy sports website, and Penn National Gaming adding to the gauge’s roster. The three big names in gaming join Wynn Resorts, which was added to the NDX index after being dropped from the Nasdaq-100 last year.
Inclusion in the NDX is prestigious and potentially beneficial to any company for a number of reasons, including the index’s reputation as home to some of the world’s best-loved brands, including Microsoft, Apple, and Amazon.
Brand research, equity, and development can be as important as the balance sheet in some ways, and have sometimes significantly contributed to the performance of the NDX and its component companies.
The Nasdaq-100 is composed of the 100 biggest non-financial Nasdaq-listed companies, and the next generation label is a collection of the companies ranked 101 to 200 by market capitalization.
DraftKings and Caesars Making Gains
Among the three gaming brands, DraftKings accounts for 1.35% of the Next Generation 100 Index, which is the largest among the three, due to its market value of $21.62 billion.
Based on current market caps, the online sportsbook operator would be the first to join the NDX, assuming it’s not superseded by one of its rivals. DraftKings still has to do some work to join the Nasdaq-100, since there are 15 other companies on the next generation gauge from other business sectors with larger market caps.
Caesars places at number six among the benchmark’s consumer discretionary components, with a weight of 1.01% in the smaller index. Over the past month, Penn National, which is on a fast pace lately, gained 37% checking in at 0.92%, while Wynn Resorts comes in with 0.80% of the NDX training ground.
In December of every year, the Nasdaq-100 rebalances, so there’s still plenty of time for any of these stocks to get a better position for NDX inclusion.
Why Inclusion in the NDX Matters
The relevance of DraftKings, Caesars, Penn National and Wynn Resorts making it into the Nasdaq-100 is easy to explain.
Assuming that the gaming stocks make it to the index, both passive and active fund managers tracking the NDX must buy the new additions to align with the benchmark, sending those share prices higher.
Two exchange-traded funds in the US that follow the Nasdaq-100 have close to $150 billion in combined assets under management. That number doesn’t include active mutual funds and index funds following the gauge, and it does not include funds listed in other nations benchmarking to the index.
Gaming Stocks are Hot
Online gaming revenues have shot up an astonishing 105% from February 2020, just before the coronavirus lockdowns, through September 2020, and it keeps ongoing. The shift to online gaming in 2020 is permanent, accelerating into the future.
Currently, online casinos are only legal in four states, New Jersey, Pennsylvania, Delaware, and West Virginia. But three more states, Maryland, Louisiana, and South Dakota, recently voted to legalize sports betting in 2020, and legislation to approve other forms of online gambling could be coming soon.
Sports betting market leader DraftKings, has leveraged its network to dominate sports betting and Daily Fantasy Sports, and has recently added a standalone casino app.
Golden Nugget Online Gaming, a spin-off of the land-based Golden Nugget casino, is already dominating the online gaming market in New Jersey.
- The global gambling market is expected to reach $648 billion by 2027
- Lotteries are projected to post nearly a 10% compound annual growth rate and total $210 billion by 2027.
- Citing the pandemic lockdowns, the casino segment’s CAGR was revised to 2%.
With post-COVID economic recovery and an increase in consumer spending coming into view, both online and land-based gambling companies could perform well into next year.