Online Gambling Booms Amid COVID-19 Lockdown

Analysts at Morgan Stanley predict the impact of the Covid-19 pandemic, which has shut down casinos across the country, could prompt more states to legalize online casinos and sports betting. With casinos closed across every state and sports betting temporarily shelved, online casino-style gaming is a bright light for the hard-hit industry.

With the exception of sports betting, internet gambling revenues in New Jersey rose by 66%, to $65 million in March alone, the state recently reported. Online gaming includes virtual slots as well as table games such as roulette and blackjack. As it stands, New Jersey is the leader in internet gaming.

Currently, only a few states allow online casino-style gaming, including Pennsylvania, New Jersey, and Nevada. However, more than fifteen states have legalized online sports betting, with more to come.

The Market Analysts are Optimistic

Morgan Stanley analyst Thomas Allen recently wrote that online gambling revenues in New Jersey, excluding sports betting, are expected to exceed $700 million in 2020, up from just $483 million in 2019. While the COVID-19 shutdowns have devastated the Atlantic City casino industry, it did transition gamblers away from traditional casinos to online gambling.

Sports betting, meanwhile, face continued hardship, as long as major league sports continue the shutdown. On the bright side, there was horse racing on a number of tracks around the country, including Gulfstream Park in Florida. Other sports to bet on included Russian ping-pong tournaments, darts, and pro-basketball from Taiwan.

The Diamond Eagle Acquisition of DraftKings

In spite of the temporary collapse in online sports betting, investors are enthusiastic about the Diamond Eagle Acquisition (DEAC), which is a special purpose acquisition company. Diamond Eagle has a merger deal with leading online sports betting provider, DraftKings.

As a result, Diamond Eagle shares recently gained 49 cents, to $16.58, up around 50% this year. Diamond Eagle stock had traded at about $10 prior to its DraftKings merger announcement in late 2019. In contrast, many casino stocks are down by 40% or more this year. Diamond Eagle shareholders will vote on the merger soon. Once it’s approved, Diamond Eagle will change its name to DraftKings.

Diamond Eagle has a big market value of $5.8 billion. That’s based on a fully diluted share count of about 347 million shares. That’s quite a bit more than the market values of Eldorado Resorts (ERI) and Penn National Gaming (PENN) in the $1 billion to $2 billion range. It also exceeds that of Caesars Entertainment (CZR) at around $5 billion.

Diamond Eagle’s robust stock price demonstrates investor confidence in what has been the fast-growing online sports gambling niche led by DraftKings and FanDuel; FanDuel is operated by Flutter Entertainment (PDYPY).

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Online Gambling is the Way of the Future

Online sports betting is mostly done on cellphones, and once professional sports resume, many gamblers could feel more confident betting on sports from their phones rather than going to a sportsbook inside of a casino. Which makes it incredibly convenient for any players in states where sports gambling is legal.

In fact, Barron’s presented a cover story earlier this year highlighting the booming online sports betting industry. Writing about the probability of more states legalizing online sports betting and casino games, Allen said:

“Covid-19 shutdowns will likely have a negative impact on state budgets, forcing them to look for new sources of tax income. In addition, the legalization and roll-out of online forms of gambling is much quicker than building bricks-and-mortar casinos. Massachusetts is a good example of this. Finally, online gambling can at least slightly offset the lost revenues during phases of social distancing as we are seeing today.”

As the shutdown restrictions relax, and life returns to normal, casino stocks should also bounce back. Casino stocks offer high risk, but potentially high returns.

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