The biggest game in town?

01/30/20
  • PENN jumped yesterday on sports-betting acquisition
  • Legal sports betting has expanded since Supreme Court decision
  • Some gaming stocks hit by coronavirus fears: Potential for rebound?

The Super Bowl is just a few days away, which means beverages are being purchased, dip recipes are being finalized, and many of your coworkers (not you!) are deciding whether to call in sick on Monday or just come in late.

And—get ready to be shocked—a few people may be placing bets on the game.

This isn’t just about buying a few squares in a points pool. The Supreme Court’s May 2018 decision to allow states to legalize sports betting ushered in a new era for the gaming industry—and for their stocks. There are currently 14 states with legalized sports betting, seven that have recently passed laws legalizing it, and a whole bunch more looking to do the same.1

Some analysts forecast US sports-betting revenues will approach $7 billion by 2025.

The American Gaming Association (AGA)—perhaps not a disinterested observer, but still—estimates a record 26 million Americans will legally wager roughly $6.8 billion on Sunday’s game.2 In late 2019 Morgan Stanley analysts estimated US sports-betting revenues would approach $7 billion by 2025, compared to $833 million last year.3

With that in mind, yesterday’s move in casino operator Penn National Gaming (PENN) makes a lot more sense. The stock leaped more than 16% intraday—with 44 times more call options volume than average—when news broke that it had acquired 36% of sports-entertainment site Barstool Sports. Through the deal, PENN gains exclusive rights to the Barstool brand (not to mention access to its 66 million unique monthly visitors) for use in its online and retail sportsbooks.4

Chart 1: Penn National Gaming (PENN), 10/2/19–1/29/20. Penn National Gaming (PENN) price chart. Soared on sports-betting deal.

Source: Power E*TRADE


While stocks often drop immediately after announcing acquisitions, yesterday’s rally may have indicated traders were enthusiastic, at least for a day, about the deal’s ability to beef up PENN’s presence in one of the key growth areas of the gaming industry.

But given the stock was up around 43% from its October lows before yesterday’s spike, experienced traders—even those expecting the stock to challenge its all-time high of $36.47—would likely wait for some post-deal-euphoria cooling before attempting to play the long side. (By midday the stock had pared its intraday gain to around 12%.)

PENN wasn’t the only gaming stock hitting the trader radar yesterday. Eldorado Resorts (ERI), which has been on a run of its own in recent weeks, jumped more than 3% intraday, approaching the top of its recent trading range (and record high) just two days after testing the range low:

Chart 2: Eldorado Resorts (ERI), 10/7/19–1/29/20. Eldorado Resorts (ERI) price chart. Near top of range.

Source: Power E*TRADE


In addition to scooping up Caesar’s last year, Eldorado finalized a deal to make online sportsbook company William Hill its sports-betting operator for the next 25 years.

Like many other resort and gaming stocks, ERI took a hit earlier in the week because of the coronavirus story. If those worries subside, breakout traders may wonder whether the stock’s path of least resistance will be to the upside.

Now, about that seven-layer dip…

Today’s numbers (all times ET): GDP (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Amazon.com (AMZN), Biogen (BIIB), Celgene (CELG), Visa (V), Altria (MO), Electronic Arts (EA), Eli Lilly (LLY), Hershey (HSY), Northrop Grumman (NOC), Quest Diagnostics (DGX), Raytheon (RTN), Verizon (VZ), United Parcel Service (UPS), US Steel (X).

 

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1 ESPN.com. United States of sports betting: An updated map of where every state stands. 12/30/19.

2 FloridaToday.com. Super Bowl 2020: Billions expected to be gambled when Chiefs, 49ers meet — but not legally in Florida. 1/28/20.

3 MarketWatch. Sports betting market expected to reach $8 billion by 2025. 11/4/19.

4 American City Business Journals. Local casino operator buys 36% stake in Barstool Sports. 1/29/30.

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