Investing in Sports Betting Stocks

The U.S. Supreme Court struck down the federal ban on sports betting in a 2018 decision, opening the doors for states to legalize it if they wish. Since then, 38 states and the District of Columbia have legalized sports betting in some form, many allowing online bets. Missouri is set to become the 39th state in December.

DraftKings (DKNG -4.90%) operates the second-largest online sportsbook in the U.S., accounting for about 25% of the market, according to its internal estimates. It currently operates in 25 states and Washington, D.C., and its online casino is available in five states.

DraftKings is solely an online operator in the U.S. and Canada. It doesn't have any brick-and-mortar casinos, so it's a pure play on the growth of online sports betting in North America. Given the expected expansion of online sports betting in the U.S. and Canada, its online-only presence gives the company great growth potential.

DraftKings is executing well and growing its market share quickly. It added 3 million active customers in 2024 despite strong competition from new entries into the market.

As a result, net revenue is growing quickly, and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth is strong. In 2025, the company plans to introduce a tax surcharge in states with high taxes on sportsbooks, a move that could boost profits but may come at the cost of market share.

MGM Resorts (MGM -0.79%) is one of the biggest casino operators in the U.S. and Macau. It also jointly owns BetMGM's U.S. operations with Britain's Entain, and in 2022, it acquired LeoVegas, a leading sports betting and igaming operator in 10 European countries. MGM uses LeoVegas to offer BetMGM-branded services outside the U.S.

BetMGM has seen its market share in U.S. online sports betting fall below 15% as FanDuel and DraftKings continue to grow, but it's stabilized around that level. It also lost its lead in igaming, with its market share falling below 25%.

MGM's brick-and-mortar operations will expand to Japan next decade as it's set to open the country's first legal casino in Osaka in 2030. That could be a big opportunity in the long run. In the meantime, operations in the U.S. and Macau have recovered and are moving past pre-pandemic levels.