Most of 2020 felt like a roll of the dice.
Going out to the store became a roll of the pandemic dice: Will I be able to buy hand sanitizer or find any toilet paper? Am I going to catch Covid-19? What do I do with 4,000 masks once the disease is no longer a threat? Every day feels like a gamble.
Speaking of gambling, it's been front and center on many trader's radars. Stocks like Penn National Gaming (PENN) - Get Report and DraftKings (DKNG) - Get Report have been some of the most active and best-performing trading names. I don't expect that to change for either stock in 2021, but those are the obvious names. What about a few other names to consider owning in the space for 2021?
Bet on the Basics
If you're unfamiliar with the sector, it would be best to start with the basics. Roundhill offers the Roundhill Sports Betting and iGaming exchange-traded fund (BETZ) . For an investor, this is going to get you broad exposure to the entire sector at a very reasonable 0.75% expense ratio. You'll get PENN and DKNG exposure here, as those two names are the ETF's largest holdings, but what I find most appealing is the reach into foreign-listed names. Many investors aren't comfortable venturing beyond the big exchanges in the U.S. to get exposure.
BETZ's U.S. exposure sits around 34.5%. Investors are going to get good-sized exposure to Britain, Australia, Malta, Sweden, and the Isle of Man. Honestly, this holding is probably my only exposure to the Isle of Man. Additionally, the fund touches sportsbooks, technology, casinos, and iGaming with a mix of small-, mid-, and large-cap names. Admittedly, a few of the names will come up below, but this should be the go-to starter for anyone wanting exposure in the space.
While we talk about DraftKings non-stop, it's important to note FanDuel is a serious player in the daily fantasy sports (DFS) and sportsbook arena. Investors can get exposure via Flutter Entertainment (PDYPY) , which also gets them PokerStars. FanDuel defines itself as an innovative sports-tech entertainment company that is changing the way consumers engage with their favorite sports, teams, and leagues. In addition to FanDuel, it also has Betfair US and TVG.
The company recently expanded its reach to South America and the Caribbean via a deal with CAGE Companies. FanDuel will operate over-the-counter sportsbook at retail locations for CAGE, as well as online. Given the huge competition in the U.S., getting international exposure is a huge plus. In terms of the U.S., FanDuel already has a big reach with retail sportsbooks in 11 states and online better in eight states. That will expand soon as they add Michigan and Virginia. Once that is complete, FanDuel will have exposure to about one-fourth of the U.S. population.
Recently, FanDuel dropped an investment into an Illinois racetrack it will rebrand as the FanDuel Sportsbook and Horse Racing track. This is their first foray into racetracks, so investors should watch to see if the company continues this expansion approach. They also hold relationships with Twin River Worldwide Holdings and Boyd Gaming (BYD) - Get Report for casino access in Colorado and New Jersey. Investors could also consider BYD as it has a 5% stake in FanDuel.
Think Far From Home
Staying outside the U.S., Score Media and Gaming (TSCRF) is a small name that should be considered for 2021. The company holds partnerships with Penn and Twin River Worldwide (BALY) - Get Report. Similar to BYD, BALY is another name with lots of ties to iGaming and sportsbooks, so it should be included in the watch list, but both are far from pure plays.
TheScore's media app delivers fans highly personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. But this company is more than just media, it is also a sportsbook and iGaming company via its sports betting app, theScore Bet. It's biggest exposure lies in Canada, which has folks excited. Legislation to legalize single sports betting at a federal level is on the table. That could add billions in annual wagers.
PENN a Deal
The attention-getter for most is theScore's deal with PENN. The two-year agreement with market access for online and mobile sports betting and iGaming in 11 states via Penn is no doubt huge. Not only did Penn make a $10 million investment into theScore, but that number should increase. Rather than paying Penn in cash for additional market access fees, theScore can require Penn to purchase more of its shares with that payment. That could pave the way for Penn to eventually acquire theScore.
FuboTV ( FUBO) - Get Report is another name I like, but not at these levels. The stock is up some 267% during the fourth quarter. While a big run isn't always a stay-away sign, the valuation is getting rich here. At the start of the month, FuboTV acquired Balto Sports. This moved the sports-first streaming platform into the online sports wagering market. Since then, the shares have been on a tear.
A little bit about the core portion of the company -- FUBO's platform offers subscribers access to 50,000-plus live sporting events annually, including college football, soccer, NHL, NBA, MLB, and NFL coverage. Subscribers get a mix of over 100 channels, including 43 of the top 50 Nielson-ranked networks. The company also recently entered a multi-year agreement with Disney (DIS) - Get Report for distribution of all ESPN channels as well as DisneyTV.
Despite a lack of live sports, FUBO's monthly active users are clocking 140 hours per month with a total of 98.6 million hours in the second quarter. That represented growth of 83% year over year. The company also has proprietary technology to offer multi-view streaming. In 2021, the company plans to add cloud DVR storage. This is definitely a name to buy on pullbacks, but I'm much more comfortable with it in the $20s than the $30s.
D.Y.I. With DMYD
Next is DMY Technology Group (DMYD), which will be merging with Genius Sports Group in another special purpose acquisition company (SPAC) take-down of a private company in the space.
Genius Sports sits at the center of the sports data ecosystem. The company is the official data, technology and commercial partner that powers the global ecosystem connecting sports, betting and media. You'll find it as a partner of the NBA, Premier League, AFA, FIBA, NCAA, NASCAR, and PGA Tour, and in over 150 countries. It also includes Sportzcast, a real-time scoreboard data integration platform. This standardized distribution of real-time game data allows data to be shared on scoreboard systems around the world.
Currently, 11% of revenue comes from sports, 74% from data and streaming, and 15% from media. In 2021, Genius projects revenue of $190 million and $35 million of adjusted EBITDA. The data monetization comes from 240,000-plus sporting events with 170,000-plus events under rights and 110,000-plus under exclusive rights. To add to the attractiveness, 60% of the company's revenue is recurring and its top 10 customers only make up 30% of the revenue. As gambling increases, the need for data will come with it. DMYD is poised to capitalize on that.
Also in the Cards ...
Two other names that should be considered are DMYD's sister company, dMY Technology Group (DMYT), with its purchase of Rush Street Interactive; and Landcadia Holdings (LCA) - Get Report, with its purchase of Golden Nugget Online Gaming (GNOG). Both DMYT and LCA have run a bit beyond my comfort level to buy them right here, right now, but even a pullback of 10% to 15% should put them on your radar.
Currently, I have DMYT on my list above LCA, so if you're looking to add only one of the two, that would be my choice. They are similar names in the iGaming/iCasino space. Both trade at a fraction of the revenue multiple to DKNG. Rush Street will be growing revenue at about twice the rate of DKNG and GNOG, with about half the revenue of DKNG and more than twice that of GNOG. In terms of revenue to enterprise value, GNOG and Rush Street even out. Lastly, both Rush Street and Golden Nugget Online Gaming will have positive cash flow.
Tim Collins is a regular contributor to Real Money, TheStreet’s premium site and provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.
At the time of publication, Collins had no positions in any security mentioned.