The sports betting sector has become incredibly competitive, with many operators competing for market share in the legalized states. A portfolio manager for Ark Invest told Benzinga why DraftKings DKNG stood out for years and could be the long-term winner.
What Happened: Since going public via SPAC merger, DraftKings has been a pure play investment options for those looking for exposure to online sports betting. Ark Invest and its CEO Cathie Wood have been fans of DraftKings for years, with the stock a key holding in the firm's ETFs.
The newly released Ark Invest Big Ideas 2023 highlighted the belief that sports betting will grow at 27% annually over the next five years, which could make sports betting stocks good long-term picks.
Ark Invest Associate Portfolio Manager Nick Grous said Ark looks at a legalization schedule and the weighted odds of those states' timeline along with adoption rates by state.
“It’s a two-pronged approach,” Grous told Benzinga.
When looking at adoption rates for states, Grous called New Jersey the “north star” used to see the total addressable market size (TAM) for states in year one, year two and so on.
One trend New Jersey showed in the shift to mobile betting is what can happen overnight when states that have physical casinos legalize online/mobile sports betting.
“Any state that has allowed sports betting at physical, a change goes from 100% (physical) to 20% (physical), 80% (mobile) almost overnight. We use this to understand what is the online opportunity,” Grous said.
Ark Invest also looks at tax implications and the opportunity for sports betting operators. Grous used New York as an example of a state with an enormous TAM, but not as many opportunities for profits for operators due to higher taxes.
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Why DraftKings Stands Out: Grous said Ark Invest looked at a number of sports betting operators when it explored investments in the space. DraftKings won out due to its back-end technology, which allowed for vertical integration, he said.
“It allows you to be more nimble than other competitors,” Grous said.
Grous added that vertical integration allows a company to move faster than competitors.
“That was one of the main reasons we were interested in DraftKings and continue to be today.”
Another reason for investment in DraftKings by Ark Invest is the long-term path of sports betting companies.
“We don’t look at sportsbooks maintaining the narrow path. We look at long term as entertainment companies.”
Grous said DraftKings showed it is willing to go into new spaces that are connected to the sports market.
“That’s really the long-term opportunity and the moat.”
DraftKings expanded into new areas such as media and content creation and non-fungible tokens in the past two years.
Grous said he sees the potential for consolidation in the sports betting sector.
“The market can only handle a number of these operators over time and you’re starting to see that.”
DraftKings is held in the Ark Innovation ETF ARKK, the flagship fund from Ark Invest. The stock is the 14th-largest position, representing $268.1 million in assets and a 3.5% weighting in the fund.
The Ark Next Generation Internet ETF ARKW also holds DraftKings shares. The stock is the seventh-largest holding in the fund at $64.8 million in assets and a 5.2% weighting in the fund.
DKNG Price Action: On Friday morning, DraftKings shares traded at $15.75, up 43% year-to-date. Over the last 52 weeks, shares have traded between $9.77 and $25.01.
Photo: Lori Butcher via Shutterstock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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