Sports

DraftKings And Penn Stock Prices Soar As Sports Betting Remains Illegal In Most States

However, both companies are still not turning profits for their shareholders.

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(Photo illustration by Scott Olson/Getty Images)

DraftKings’ stock (NASDAQ: DKNG) opened the day on September 14 trading at $41.97 and closed at $48.62, providing existing shareholders with a 17.27% gain for the single day. The stock price experienced such a significant move largely due to the company entering into an agreement with ESPN to become an exclusive provider of daily fantasy sports as well as a co-exclusive partner for gambling link-outs.

DraftKings is not the only sports betting-related stock to enjoy new heights in the market. Penn National Gaming (NASDAQ: PENN) opened at $65.54 on September 14 and closed at $65.54, for a 10.73% gain on the day. The stock was trading at only $4.50 on March 18. Penn has largely surged based on its partial purchase of Barstool Sports and, more recently, on the soft launch of a long-awaited Barstool Sportsbook today in Pennsylvania.

While share prices of DraftKings and Penn National Gaming are soaring, both companies are still not turning profits for their shareholders. Yet, new investors continue to pour their money into these companies and others connected to the sports betting space, with the hope that enhanced revenues combined with lower costs will eventually allow these corporate entities to show meaningful profits.

A big catalyst for potential future profit will be turning states that currently bar sports betting into open ecosystems that allow not only sports wagering at retail casinos, but also through mobile phones.

Twenty-three states have legalized sports betting within their borders, but states like California, Texas, and Florida have yet to make sports betting legal. The twenty-three states that have passed laws allowing for legalized sports wagering, including New York, New Jersey, and Illinois, make up roughly 41% of the adult U.S. population. Thus, there is a large market in the United States that the likes of DraftKings have not yet even had the capacity to capture.

Eilers & Krejcik Gaming, a boutique research and consulting firm focused on sports betting sectors, projects that there will be approximately $19 billion in total annual sports betting revenue if all 50 states allowed for such wagering. Compare that to 2019, when the total U.S. sports betting revenue was $920 million. The company’s realistic projection for 2023, without all 50 states having legalized sports betting, is $5.8 billion, which would still be a strong multiple gain in only four years from 2019.

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Another promising sign for the sports betting industry is that, even though many sporting events have been postponed or canceled in 2020 due to the COVID-19 pandemic, total U.S. sports betting revenue has increased by 18% from 2019. New Jersey has been breaking records despite a decrease in events to bet on and recently posted a historical $668 million of sports wagers in August, which is a figure that accounts for over $100 million more than New Jersey’s previous best month.

Yet, the staying power of this surging sports betting stocks will likely be based on whether expectations for close to all 50 states allowing for sports wagering to take place within their borders are ultimately met, and how long it takes for massive states like Florida, Texas, and California to put passed legislation in front of their respective governors for execution. Therein lies at least some of the risk with putting money into these companies that are still anxious to start turning a profit.

Darren Heitner is the founder of Heitner Legal. He is the author of How to Play the Game: What Every Sports Attorney Needs to Know, published by the American Bar Association, and is an adjunct professor at the University of Florida Levin College of Law. You can reach him by email at heitner@gmail.com and follow him on Twitter at @DarrenHeitner.

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