Record Super Bowl bets up the ante for online gambling stocks

Roughly 68 million Americans are expected to gamble a record $23.1 billion, setting up the championship showdown in Las Vegas to be the most bet-upon sporting event in US history. Nearly 30 million people are expected to make those bets online and legally using a US sportsbook, according to an American Gaming Association survey.

Casino operators that expanded into mobile betting, including MGM Resorts International and Caesars Entertainment Inc., are poised to get a boon from the bets as well as a surge in visitors to Las Vegas. The growing popularity of online wagers led DraftKings Inc.’s stock to triple last year, while FanDuel-owner Flutter Entertainment PLC rose more than 23%, outperforming local benchmarks.

“The strip operators are the real winners,” said Chad Beynon, a Macquarie analyst. He’s most excited about the menu of options for sports betting. “Bets will be available on everything from the number of times the cameras show Taylor Swift, to the color of Usher’s shoes.”

With tickets to attend the Super Bowl the most expensive they’ve ever been as consumers continue to splurge on experiences, that should support record pricing at high-end stays like Wynn Resorts Ltd, Beynon added.

The Las Vegas Convention and Visitors Authority projects 330,000 patrons will descend upon Sin City for the big game, generating more than $600 million for the surrounding economy. MGM Resorts International and Caesars Entertainment Inc. also stand out out as prominent beneficiaries of the added foot traffic as they operate about two dozen properties along the Las Vegas Strip, collectively.

Earnings show that casino operators were already seeing strong momentum in Las Vegas. Wynn reported a sizable fourth-quarter beat earlier this week, with the Feb. 11 matchup and Lunar New Year igniting more optimism. Red Rock Resorts Inc. also gave a quarterly update, buoyed by the successful opening of its off-Strip Durango property. Investors will hear from MGM, Penn Entertainment Inc. and DraftKings next week.

Those looking for returns outside of tech would be wise to consider the travel sector, according to Sylvia Jablonski, chief executive officer at Defiance ETFs and overseer of the firm’s Hotel Airline and Cruise exchange-traded fund.

“It’s like the travel trade is hiding under a rock,” said Jablonski, whose $36 million fund is up roughly 10% in the past year, but hasn’t taken in any meaningful flows since last July. “Most people are still trying to diversify and particularly get away from the Mag Seven and the semiconductors.”

Clearly, casinos haven’t hit the jackpot just yet. An S&P benchmark of gaming firms — which counts MGM, Caesars and Wynn among its top holdings — is down about 7% from July’s 52-week closing high, and costs stemming from new labor contracts are expected to eat into margins.

The last major sporting event to come to town ended up falling well short of investors’ high expectations. Formula One, the prestigious international racing competition, was thought to help position Las Vegas as a global sports hub but was instead met with low ratings and soft ticket sales.

Unlike F1, the Super Bowl is already fueling demand across the income spectrum. Bank of America Corp. calculates rooms at Caesars and MGM are each up more than 70% from F1 levels, while Wynn has been sold out since December.

And despite the casinos lagging the market for the past year, analysts expect a further rebound with a return potential of 18% over the next 12 months, according to data compiled by Bloomberg. Leading up to this weekend’s event, the 10-member gauge is trading at its highest level since September, extending its streak of gains to the longest since October.

-With assistance from Angel Adegbesan.

(Updates with commentary from BofA and adds casinos trading in final two paragraphs.)

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