After a volatile last few weeks of trading in an inflated market that has departed from all rationality, there is one opportunity that seems as if it has gone completely overlooked. A pandemic opportunity that is here to stay whereby all fundamentals and growth is showing no sign of slowing down.
No matter what your market outlook is there is an industry that time and memorial has shown an ability to remain recession-proof — vice. If you’re a believer in the mantra that stocks only go up this will also fit your investment thesis. We’re not here to tell you about Jesus, or how to manage your portfolio, we’re here to ask the questions you’re not. We’ve moved away from the bull run of the last three years. Markets are now reeling in the face of economic uncertainty, a new course being charted by Washington from tapering, interest rate hikes, to policymakers hell-bent on juicing the economy with stimulus.
In the wake of a global pandemic, American’s took to betting the farm on day-trading. Equities such as. AMC, GameStop, and Nokia soared to unimaginable highs. However, equities weren’t the only thing Americans were making irrational wild bets on. Online sports gambling saw record betting volume at an over 20-fold increase of 2,158% up from a monthly volume of $310 million in June 2018 to a monthly volume of $7 billion in October of this year with 84% of the volume happening on mobile devices. The winners of this gold rush, Penn National’s Barstool Sports, DraftKings, and Flutter Entertainment’s FanDuel. The looming question other than disappointing Q3 earnings across the board is why these stocks are down respectively 39%, 40%, and 27% YTD in an industry with a current average CAGR north of 11% and expected to reach $230 billion annually by 2026. The answer might be in valuation metrics as all these companies should be measured as tech stocks. Silicon Valley style innovation will eat the traditional methodologies of online sports gambling and ultimately reach near-perfect algorithmic spread efficiency.
By the year 2025, we may see online sports gambling legal in all 50 states. Currently, 14 states are active with fully legalized online gambling, 6 states and Washington DC have authorized sports gambling, 17 states are actively weighing legalization including Florida and California, leaving 13 states with sports gambling bans still in place.
With secular market trends continuing to follow in a future that is uncertain, three things now might be certain, death, taxes, and humanity’s proclivity to gamble. The losers might miss their gameday predictions, the winners however will have bought into the infrastructure that facilitates the basic human need for irrational exuberance.