Small Pure-Play Gambling Companies to Keep on Your Radar Screen
In this final segment of a comprehensive overview of casino operators, sports betting, and the gambling industry in 2019, Motley Fool Industry Focus host Nick Sciple and contributor Asit Sharma discuss small, pure-play gambling companies investors should be aware of. Want to get up to speed on potential investments in this space?
A full transcript follows the video.
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This video was recorded on Jan. 15, 2019.
Nick Sciple: I do want to call out before we go away that there are a few businesses that you can invest in that are more of the pure play on the gambling software, online sports betting side of the business. Scientific Games is a partner with Caesars, they have Caesars partnered with them to help do their app and run their online sports betting platform. Paddy Power Betfair acquired FanDuel. We mentioned FanDuel a bunch today. They acquired that back in May, right before or right after the Supreme Court decision, for $1 billion. They're a major betting operator in the U.K. That gives them some U.S. presence. DraftKings is still private. The analogy I would say is, you can invest in FanDuel on the market, but you can't invest in DraftKings, it's like if Lyft were publicly available and Uber wasn't.
What are your thoughts on this, Asit? Do you think any of these major casino operators are going to come hunting for DraftKings anytime soon to get that extra juice they've seen in New Jersey so far? Is anybody going to come after these guys, and what might that look like?
Asit Sharma: Paddy Power Betfair picking up FanDuel, they snatched that at a good time. The question for major operators is going to be, what is the valuation for DraftKings? It's a pretty profitable company already. It has access to capital if it wants to stay private. I think we may see someone try to snap it up within the next one to two years while it's still something that's within reason to purchase.
If you're looking at this sort of direct play, you brought up Paddy Power Betfair. Not as well known here in the States. They're from the U.K. and have a really solid European presence. I think they're in the Australian market, as well. Seasoned operators, opportunistic. PDYPY is a symbol to look into if you're interested in the direct plays.
Going back to your question, it is possible that DraftKings could at some point have their own IPO if they feel that there's not too much of a regulatory burden for them. But, because they have a first-mover advantage, along with FanDuel, they've been able to scale across the industry, have great margins, very little infrastructure. So why would they want to be acquired? If I were running the company, I'd probably want to keep it private for as long as possible. What do you think, Nick?
Sciple: I agree with you, Asit. I feel like if DraftKings wanted to sell, they would. If you remember, a couple of years ago, every ad you saw on ESPN was a DraftKings ad. It doesn't look like they're hurting for cash, if they were able to pay for that much in advertising. I think they have a good opportunity here when it comes to the online betting market. Again, it's going to depend on what regulations come down the line.
Given the liquidity situation, the balance sheet situation of the potential acquirers that we might be talking about, I don't know how they would come up with the cash. It's definitely an interesting thing to think about.
I want to mention one other pure-play that I think is interesting to keep an eye on. It's The Stars Group. The Stars Group is really diversified. Probably the most common thing you'll know them for is the PokerStars brand. They're really heavy in online poker in Europe. They also have some online betting operations in Australia as well. What's interesting about them is they acquired Sky Betting back in April. It was a $4.7 billion acquisition, a very large acquisition. That gave them some exposure to the sports betting market. They're also partnered with the Resorts Casino Hotel, which DraftKings is partnered with. Dipping a toe in the U.S., but they have that legacy business over there with poker that gives them some cash.
I think there's some growth opportunities there. Definitely one to wait and see what happens. I mentioned the question marks around the latest guidance the DOJ gave on the Wire Act yesterday. We'll have to wait and see how that plays out. I imagine that's going to be in some litigation. I wouldn't go so far as to say any of these pure plays -- Stars Group, Paddy Power, Scientific Games -- is something I'd be throwing cash into today. There's a lot of variables up in the air on what's going to happen. But I think the opportunity there is significant. We'll just have to see how the regulatory things fall and how everything plays out.
Asit Sharma has no position in any of the stocks mentioned. Nick Sciple owns shares of Caesars Entertainment. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
