Goldman Sachs Sees iGaming, Sports Betting Growth Outpacing E-Commerce

Posted on: March 23, 2021, 08:07h. 

Last updated on: June 23, 2021, 01:06h.

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

The domestic online casinos and sports wagering markets are two of the biggest consumer-related stories, and are poised to notch enviable compound annual growth (CAGR) for over a decade, according to Goldman Sachs.

Goldman sports betting
The Goldman Sachs building in New York. The bank sees big growth ahead for iGaming and sports betting. (Image: NY Post)

Citing the familiar catalysts of a positive legislative environment and rising consumer interest, the investment bank reveals one of the more optimistic total addressable market estimates for iGaming and sports wagering seen to date.

We expect a combination of favorable legislation and consumer adoption to drive growth in US online sports betting and internet gambling (i-Gaming) from $900 million/$1.5 billion markets today to $39 billion/$14 billion in 2033, equating to 40 percent/27 percent CAGRs for over a decade,” said Goldman in a note to clients.

That sports wagering market forecast is not only in the higher echelon relative to other research firms’ projections, it’s beyond what some operators are estimating. For example, at its recent investor day, DraftKings (NASDAQ:DKNG) said it believes the US online sports betting market could be worth $22 billion in a few years, assuming 100 percent legalization.

Putting Growth Into Context

Traditionally, gaming companies are classified in the consumer discretionary sector, making a point raised by Goldman all the more eye-catching for investors and operators alike.

The bank says the aforementioned 40 percent and 27 percent CAGR estimates assigned to online sports wagering and internet casinos are well in excess of the 18 percent CAGR forecast for e-commerce — excluding online travel bookings — over the next decade. Further putting those projections for the gaming segments into perspective, the bank says no online retail niche will sport a CAGR north of 22 percent over that period.

In fact, the internet is one of the primary reasons Wall Street is broadly enthusiastic about sports wagering companies. Brick-and-mortar sportsbooks are low-margin enterprises, while online operators face lower fixed 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,” according to Goldman. “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.”

Specific Names Goldman Likes

The universe of iGaming and sports wagering equities is increasingly expansive, but Goldman raised price targets on four of those stocks today: Caesars Entertainment (NASDAQ:CZR), DraftKings (NASDAQ:DKNG), Penn National Gaming (NASDAQ:PENN) and Rush Street Interactive (NYSE:RSI).

The bank’s bullish call arrives a day after Caesars and Penn were added to the S&P 500, becoming the fourth and fifth gaming names in the benchmark.

Goldman also highlighted sports betting’s social aspects, which bolster network effects, noting the value of media integration in the space. Analysts are increasingly keen on gaming stocks with media exposure — a strategy Penn is lauded for via its stake in Barstool Sports. Goldman boosted its estimate on that stock to $153 from $139.