J.P. Morgan analyst Daniel Politzer provided gambling sector investment guidance, noting while the U.S. has strong, resilient consumers, there are plenty of economic headwinds.
These include the uncertainty caused by tariffs, interest rate policy, and geopolitical tensions.
Key takeaways
- A leading J.P. Morgan analyst sees high risk but substantial potential reward in gaming sector investments.
- Offshore sportsbooks like Bovada still outpace legal U.S. operators in total betting volume.
- Bans in certain states fuel demand for offshore betting, hindering regulated market expansion efforts.
In his report, Politzer covered 11 game stocks and gave seven an Overweight rating and four a Neutral rating. He identified the sector's risks but characterized the potential upside as significant.
While macroeconomic uncertainty may weigh on land-based gaming, he indicated online gaming has its concerns, including regulatory uncertainty and increased worry over tax implications. The China problem also reduces investors' appetite for Macau-related assets, owing to its economic weakness and geopolitical risk exposure.
Among subsectors, Politzer expressed a "relative preference" for regional casinos, which are stable and locally-driven. Digital gambling sites come next, followed by Macau assets and the Las Vegas Strip.
Despite Las Vegas's strong brand and unique experiential appeal, the cost of maintaining its competitive position in terms of ongoing capital investment implies long-term strain.
Politzer also mentioned oversaturation and shifting consumer tastes as key dangers. He spoke of the growing proliferation of alternative gaming offerings, such as gray-market skill games and historic horse racing terminals, that would divert demand from traditional casino products.
Other internet-based alternatives, like prediction markets, were also seen as disruptive factors that would further exacerbate the industry's existing supply-demand imbalance.
Offshore sportsbooks retain market dominance
In a recent report, cybersecurity and sports betting analytics firm Blask determined offshore sports betting still dominates its U.S. legal counterparts. The report said offshore websites like Bovada capture nearly twice the market share of licensed sportsbooks like DraftKings and FanDuel.
The report estimates nearly 300 offshore brands now offer betting lines to U.S. gamblers.
Researchers considered online traffic, search patterns, and consumer usage to gauge the market's size. While exact figures are impossible, the study estimates Americans spend nearly $300 billion annually on foreign sites.
On the other hand, licensed American sportsbooks handled around $150 billion in bets during 2024. The disparity indicates the tenuous grip regulators maintain in steering users out of the gray market and into the legal betting sector.
One of the strongest deterrents is the ongoing absence of legalized sports betting in certain states. The prohibition in the more populated states drives bettors to seek other options, most often from unregulated operators. For example, while New York online books are legal, you can’t play legally in California or Texas.
Another nuance the report illuminates is brand recognition imbalance. Five of the 10 most recognized sportsbook brands in the United States remain unlicensed.
