US iGaming, Sports Betting Could Hit $40B if 50 States Join Party

Posted on: September 17, 2021, 11:07h. 

Last updated on: September 17, 2021, 05:22h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In one of the biggest forecasts to date on internet casino and sports betting revenue, Eilers & Krejcik Gaming estimates that figure could ascend to $40 billion if all 50 states join the live and legal fray.

Sports betting revenue
A group of men watch baseball at a sportsbook, above. Sports betting and iGaming revenue is expected to soar. Eilers & Krejcik sees it rising to $40 billion if all states come aboard. (Image: KTNV)

As of the end of July, domestic sports betting revenue is up 435 percent year-over-year to $2.12 billion, with New Jersey accounting for $423 million through the first seven months of the year. That surge is expected to continue to year-end, thanks to the arrival of football season and more signs approving regulated sports betting. Currently, sports wagering is live and legal in 26 states and Washington, DC.

Eilers & Krejcik Gaming estimates sports betting revenue could reach $5.8 billion in 2023 and jump to $19 billion if all 50 states join the party. For iGaming, the research firm sees that revenue tally increasing to $3.7 billion next year and $20.8 billion if all states sign off on it.

FanDuel, DraftKings, and BetMGM are the leaders in terms of domestic online casino and sports betting market share, according to Eilers & Krejcik. By some estimates, FanDuel, a unit of Flutter Entertainment (OTC:PDYPY), controlled 45 percent of the US online sports betting market as of the end of the second quarter.

Big Growth Expected for iGaming

The reasons operators are widely embracing internet casinos and online sports wagering are clear: Higher margins and lower costs.

“Importantly, sports betting and i-Gaming do not have physical distribution centers, so capital requirements are far more limited, particularly when comparing online to off-line equivalents across categories,” said Goldman Sachs in a note out earlier this year. “As a result, returns on invested capital have the potential to be significantly higher than other categories with physical products, allowing for more moderate decremental margins.”

Analysts, executives, and industry observers widely expect iGaming to be the real growth engine going forward, not sports wagering. Internet casinos offer superior margins relative to sports betting, require fewer promotions and incentives to lure customers, and those clients are usually stickier than sportsbook patrons.

Goldman Sachs forecasts iGaming could balloon to $14 billion in revenue in 2033 from $1.5 billion today, good for a compound annual growth rate (CAGR) of 27 percent for more than a decade.

Earlier this year, MGM Resorts CEO Bill Hornbuckle said online casinos are “the secret to this business,” and that it will eventually be two-thirds of the bottom line in the space.

Applause for DraftKings Stock

While Eilers & Krejcik revealed a positive forecast for the broader online gaming and sports betting industries, some analysts remain enthusiastic on individual names.

In a note to clients today, Macquarie analyst Chad Beynon reiterated an “outperform” and $75 price target on DraftKings (NASDAQ:DKNG) stock, highlighting some positive customer acquisition cost (CAC) trends.

“DKNG adheres to a disciplined marketing approach based on ‘permissible CAC’ and continues to acquire users at levels below the 2-3 year payback period that the company has talked about,” said Beynon. “Over time, marketing costs should naturally subside as states mature, given the cost of promos for existing users is significantly lower than for new sign-ups.”

Vital to the DraftKings investment thesis, Beynon notes the company believes it hasn’t even scratched the surface of its total addressable market (TAM).

“DKNG believes its sports/iGaming TAM estimates are conservative, and notes it is nowhere near penetrated, even in its most mature states. DKNG continues to look for new verticals to expand the overall TAM that meeting the following criteria: 1) feed the core gaming engine; 2) are standalone profitable; 3) consistent with DKNG’s mobile tech DNA,” according to the analyst.