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3 Stocks to Buy in Sports Betting

By Travis Hoium – Oct 12, 2019 at 5:09PM

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The business is growing nationwide, and these are the companies built to dominate the market.

Since the Supreme Court opened the door for states to legalizing sports betting in mid-2018, the casino industry's biggest players have been elbowing for the best strategic positions. Some companies are acquiring others, some are building high-profile partnerships, and others are trying to go it almost alone. 

Here's a look at how the industry is shaping up and where investors should look for the best bets in sports-wagering stocks. 

Sports betting app on a mobile phone.

Image source: Getty Images.

How sports betting will work

The sports betting industry will work a lot like casinos today. There are the companies that take the bets (casinos) and are the front-facing view consumers get. And then there are the infrastructure companies behind the scenes, such as slot-machine and table-game makers. Both groups are regulated in each state, and they can leverage their position to serve as wide an audience as possible. While regulations vary by state, this is a good start for understanding the industry. 

As we look at partnerships in sport betting, this backdrop will be important. Infrastructure companies are trying to offer as many services as possible to those with sports betting licenses, which has led to a lot of consolidation, and the bet takers are trying to raise their profile with partnerships. 

The infrastructure layer

There are three major companies that provide the infrastructure for sports betting. International Game Technology (IGT 1.61%), Scientific Games (LNW -2.41%), and The Stars Group (TSG) -- which recently agreed to merge with Flutter Entertainment -- are the three to watch. They are extending into sports betting after dominating slot machines, table games, and online poker, respectively. 

I mentioned above that these companies are trying to spread their services to as many operators as possible, and they've all announced major partnerships in sports betting. Scientific Games has deals with Wynn Resorts (WYNN -2.05%) and Caesars Entertainment (CZR) in the U.S. and recently won a joint-venture bid in Turkey. 

IGT has deals with FanDuel and DraftKings along with smaller agreements with Boyd Gaming (BYD -0.69%) and some tribal casinos across the country. But its biggest deal is an agreement to provide a sports betting platform for MGM Resorts in Las Vegas and New Jersey.  

The Stars Group has partnered with Penn National (PENN 0.77%), tribal casinos, and even Fox Sports through both free and real-money wagering. 

These are the companies that make the betting happen. But for investors, they may not be where the most money is in sports gambling. 

Casinos' role in sports gambling

In many states, the casino itself needs to take wagers and will ultimately be the interface with customers. That means that a physical presence is required in many markets, which favors large, regional operators. 

Caesars Entertaintment and MGM Resorts (MGM -0.90%) are the two biggest based on revenue in the U.S. Caesars is already operating sportsbooks in seven states at 30 venues and has partnered with Disney's ESPN and AT&T's Turner Sports to provide TV programming for sports betting. Its proposed combination with Eldorado Resorts (ERI) will increase that reach regionally, and that's what Caesars is hoping will be its differentiator. 

MGM Resorts is betting that being involved with sports leagues themselves will be the best way to market. It has deals with the major basketball, hockey, and baseball leagues to be their official partner and even get proprietary data from leagues to offer more betting options. The company also signed a deal to be the sports betting partner of Buffalo Wild Wings, which will expand its presence to markets where it doesn't have casinos. 

Smaller casino companies like Penn National and Boyd Gaming are building whatever partnerships they can, leveraging some of the suppliers I mentioned like The Stars Group and DraftKings, but they'll have a much smaller business in sports betting. They just don't have the scale or media reach of Caesars and MGM, which I think are the best bets on the casino side of the business. 

Where to wager on sports betting

I think the biggest winner in sports betting as it expands will be MGM Resorts. The company has the partnerships necessary to build a big audience; that will improve the betting data it gets, which could be a feedback loop for the gambling market. 

On the supplier side, Scientific Games has built partnerships that could leverage scale with betting outlets outside of MGM. The company is also going international, which could open up many new markets. 

If you're looking to wager on the sports betting business, MGM and Scientific Games have great odds, and that's why they're my top picks today. 

Travis Hoium owns shares of AT&T, Walt Disney, and Wynn Resorts. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has the following options: short December 2019 $26 puts on Boyd Gaming, long January 2021 $60 calls on Walt Disney, and short October 2019 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

MGM Resorts International Stock Quote
MGM Resorts International
$29.72 (-0.90%) $0.27
Light & Wonder, Inc. Stock Quote
Light & Wonder, Inc.
$42.88 (-2.41%) $-1.06
Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
$63.03 (-2.05%) $-1.32
International Game Technology Stock Quote
International Game Technology
$15.80 (1.61%) $0.25
Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
$27.51 (0.77%) $0.21
Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation
Boyd Gaming Corporation Stock Quote
Boyd Gaming Corporation
$47.65 (-0.69%) $0.33
The Stars Group Inc. Stock Quote
The Stars Group Inc.
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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