Since going public in 2020, DraftKings (DKNG 1.05%) has been a market-beating investment. It officially merged with a special purpose acquisition company in April 2020 and since then has risen around 150% vs the 68% increase for the S&P 500. This performance is attributable in large part to the expansion of gambling legalization in the U.S.

In this video from Motley Fool Backstage Pass, recorded on Oct. 25, Fool analyst Clay Bruning talks about gambling legalization and the size of the market. Spoiler alert: It's big and getting much bigger.

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Clay Bruning: Then you might be wondering, OK, we've had this massive momentum in terms of legalization. What is this market worth?

I have a couple of different estimates from various different operators and analysts teams and there is a wide distribution of outcomes based on these estimates. For example, ARK Funds expects that the U.S. sports betting market is about $9 billion dollars in 2021, which I think is grossly undervalued, is expected to grow to $37 billion by 2025.

MGM (MGM 0.18%), which operates a joint venture with U.K.-based Entain (GMVH.F 0.04%) and BetMGM. In April, at their investor presentation, they expected the market, including iGaming and sports betting, to be $32 billion, which would account for $14 billion coming from sports, about $14 billion coming from iGaming, and about $4.5 billion dollars coming from Canada, which recently just went live as well.

DraftKings, another operator in the space, believes iGaming and sports betting could be closer to $70 billion at steady-state and this was over a 50% increase from their previous estimate. Their previous estimate was $40 billion. Again, they've increased that the $67 billion with $22 billion coming from online sports betting, $40 billion coming from iGaming or again that online casino. Then $5 billion dollars in addressable market coming from Canada.

You might have noticed that a couple of these estimates include iGaming. iGaming again is online casino games where you can play poker, you can play blackjack, you can play online plus whatever it is online. iGaming is often the hidden gem in the industry. Because typically a lot of avid sports watchers or fans will start with sports betting. They're going to an event, maybe they don't really care about the event. They want to have some type of way to get some skin in the game and to be engaged. They put a $5, $20 bet on something to be more invested in the game and the whole idea is that iGaming is the upsell. That once you've won some money in sports betting, maybe on a Tuesday night during the summer, there's no NFL, there's no NBA, there's MLB. Or maybe the MLB is on also break that iGaming provides us opportunities to be engaged, to be entertained.

On the operator side of things, this is a far less volatile business because every single game you have a specified distribution of outcomes. Fifty-two percent of the time the book is going to win. Maybe think about roulette for example. It's found that on red, it's probably 49.25%, black is going to be 49.25%, and then maybe you have 0.5% going on the green or whatever that color is. It's much easier to forecast and predict what your margins and your profitability will be over the long term. Which is why this iGaming is the hidden gem that isn't being talked about a lot from the consumer side of things. But when you dive into some of these companies earnings reports or their forecasts, it's the more sought after asset. Because sports are crazy. You can have an upset on any given day. You can have massive liabilities on one game. Or for example, if a ton of people say, "Before the NFL season starts, we think the Buccaneers are going to win the Super Bowl." If the Buccaneers win the Super Bowl, that sportsbook lose hundreds of million dollars potentially. So they can have a lot of liabilities if the public is pretty accurate in terms of their bets.