Please ensure Javascript is enabled for purposes of website accessibility

Stock Markets Rise; Time to Bet on Sports Betting Stocks?

By Dan Caplinger – Sep 25, 2020 at 12:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Major indexes gained ground but didn't make huge progress in clawing back ground during a tough September.

The stock market has whipsawed investors lately, with up days often following down days, and vice versa. Market participants remain stymied by all the factors they have to consider right now, including the November elections, the coronavirus pandemic, the economic recession, and the ever-changing views on fiscal and monetary policy.

All of those issues are creating uncertainty, but investors set those concerns aside early Friday. Just before 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.20%) was up 70 points to 26,885. The S&P 500 (^GSPC -0.25%) had gained 12 points to 3,259, and the Nasdaq Composite (^IXIC -0.72%) was higher by 91 points to 10.764.

Sports betting stocks found themselves in the spotlight on Friday. One company has become an acquisition target, and the potential for a bidding war has helped to send stocks across the industry higher. Below, we'll look more closely at whether now's the time to bet on sports betting's future.

Smartphone with screen saying Your Bet Wins next to computer showing soccer game.

Image source: Getty Images.

William Hill gets interest

The immediate cause for investors to pay attention to sports betting stocks came from U.K. bookmaker William Hill (WIMHY). The company confirmed that it has gotten at least two written proposals concerning a possible takeover. Apollo Global Management (APO) was the first to make its bid, coming toward the end of August. After that, William Hill got an updated proposal from Apollo as well as a separate offer from Caesars Palace operator Caesars Entertainment (CZR).

The three companies have histories that are intertwined. Apollo was part of the group of private equity players that participated in the late 2000s leveraged buyout of Harrah's, the predecessor name of Caesars Entertainment. Caesars and William Hill have already been partners on the online side, with suggestions that combining William Hill's U.S. operations with Caesars could create a big player in the gambling industry.

The fact that William Hill became a supplier of betting odds information for Disney's (NYSE: DIS) sports network ESPN was also a big win for the U.K. company. That made William Hill an even more attractive prize for investors.

Gains across the industry

The news about William Hill has the entire gambling sector doing well. Global giants Wynn Resorts and Las Vegas Sands were up only 1% to 2% Friday morning, but more U.S.-centric companies outperformed. MGM Resorts gained almost 3%, while Penn National Gaming, Boyd Gaming, and DraftKings all rose 4% to 6%. Horse racing venue Churchill Downs enjoyed even sharper gains of more than 9%.

Investors see a lot of tailwinds for the industry. Reopening markets in the U.S. looks like more of a certainty, because state governments have had their normal sources of tax revenue dry up as a result of the pandemic and massive unemployment; meanwhile, their expenses have risen to fight the coronavirus. Tapping online gambling as a new source of revenue is an obvious answer.

One M&A deal isn't necessarily going to change the landscape of sports betting across the industry. But it does highlight just how important the fast-growing niche has become. With stock investors always on the lookout for promising growth opportunities, what happens to William Hill could foreshadow a whole lot more activity in sports betting in the months and years to come.

Dan Caplinger owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Boyd Gaming and Churchill Downs and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.