Many countries in the world today have legalized online sports betting which has brought forth many changes to the gambling industry and associated financial markets.
Legalization affects stock prices and encourages a shift in market behaviour. Therefore, as an investor, you need to pay close attention to companies involved in internet-based sports betting. Read on as we break down the stock market shifts caused by legalizing sports betting.
It makes stock prices to increase
When a state legalizes sports betting, the impact on publicly traded gambling companies is almost immediate, leading to an increase in stock price. Why? It simply increases investor optimism about revenue growth and market expansion.
Penn Entertainment (PENN) and DraftKings (DKNG), for example, saw a high stock price increase after the announcement of new state legalization. On the other hand, Flutter Entertainment, the parent company of FanDuel, benefited from the US market expansion, which led to higher valuations.
Therefore, one can deduce that the legalization of sports betting increases investor confidence and leads to high earnings because of increased betting activities.
It leads to long-term growth and market expansion
In addition to the short-term increase in stock prices, the legalization of sports betting also has long-term effects. For instance, it ensures that casinos such as irish casino online are credible, and it comes with customer trust.
And what’s the benefit? Market expansion, which encourages a positive stock performance.
In addition, firms that invest in mobile betting platforms see higher engagement, which translates into better stock performance.
It has a positive impact on related industries
When sports betting industries are legalized, stocks in related sectors, such as media, technology, and payment processing, enjoy positive benefits. Payment processors, such as PayPal, benefit from increased transaction volumes, which drives investor interest.
These ripple effects that related industries feel eventually broaden the market opportunities beyond the betting platform.
It comes with volatility
Even though sports betting companies’ stock has the potential to grow, its market can be volatile due to the following reasons:
- The sudden shifts in state or federal policies can negatively impact stock prices.
- Legalization ensures that many companies can enter the sports betting industry, increasing competition.
- Consumer economic shifts in betting habits can lead to lower revenues. In 2022, for example, DraftKing’s stock dropped because of concerns over the cost of customer acquisition.
All these reasons cause profit margins to shrink, affecting valuations.
It is prone to investor speculation
In most cases, sports betting companies’ stocks often trade on speculation instead of fundamentals. That means when there is positive news, such as legislation, the prices of stocks increase. Alternatively, when the news is negative such as regulatory crackdowns, stock prices reduce.
Bottom Line
The legalization of sports betting has a major positive impact on stock prices since it also creates opportunities for gambling companies, media firms, and financial service providers. However, stock price increases are often short-term, so as a stock market investor, it’s best to stay alert whenever changes in legalization happen and make a move as early as possible.
