Market Overview

Great Expectations Bolster This Sports Betting ETF's Case

Great Expectations Bolster This Sports Betting ETF's Case

The still nascent domestic sports betting industry is heavily rooted in estimates and expectations, most of which are eye-catching and those forecasts, should they prove anywhere close to accurate, underpin the thesis for related equities and the Roundhill Sports Betting & iGaming ETF (NYSE: BETZ).

What Happened: Up almost 35% since its June debut, BETZ is easily one of the best success stories among 2020's rookie ETFs. Buoyed by its first mover advantage and the aforementioned expectations, BETZ is just four months old and already has $133 million in assets under management. Speaking of expectations...

The U.S. sports wagering industry is “an opportunity we size between $42 and $58 billion annually longer-term. We expect the regulatory tailwind to persist and believe online providers' access to data creates a structurally better user experience vs. brick & mortar,” Needham analyst Brad Erickson wrote in a note last week.

See Also: Needham Sets $70 Price Target On DraftKings: 'This Is No Time To Get Hung Up On Valuation'

Why It's Important: Split the difference in Erickson's forecast and it's $50 billion, which is well in excess of the $20 billion to $25 billion projection frequently bandied about on Wall Street. Even those numbers are well beyond the $1 billion in revenue the industry generated last year.

“We continue to see a wide range of estimates for the ultimate size of the sports betting and iGaming opportunity in the U.S.,” said Roundhill Investments co-founder Tim Maloney in a recent note. “While we’re partial (perhaps obviously) to the higher-end estimates, what this really highlights is how challenging it is to project the size of an industry that was illegal at a federal level until two years ago and is at varying stages of legalization across the 50 states.”

Obviously, grand revenue forecasts for the sports betting business are attached to increased legalization. One of the higher-end estimates is that in 2030, 96% of the U.S. population will have access to legal, regulated online sports betting.

What's Next: What long-term investors should evaluate is human behavior, meaning will increased legalization leads to more sports wagering in the U.S.

“What makes this so challenging is the behavioral element - when something goes from illegal and culturally frowned upon to legal and more widely accepted, more people are likely to get involved. Measuring this impact is hard, but we’ll take the over,” said Maloney.

Investors appear comfortable making these bets because BETZ is higher by 7.45% over the past month and up almost 38% over the prior 90 days.


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