Shares of DraftKings (DKNG) and other gambling stocks are on the rise on Wednesday after New York Governor Andrew Cuomo announced legislation to authorize mobile sports wagering as part of the 2021 State of the State. Oppenheimer analyst Jed Kelly believes the development would enable DraftKings to execute a national advertising strategy around sports betting that could allow it to gain customer acquisition efficiencies relative to competitors. He also believes Flutter Entertainment's (PDYPY) Fanduel is the only other competitor that can currently enact a similar strategy. Meanwhile, his peer at Morgan Stanley noted that Cuomo's comments seem to hint at a higher tax rate.
MOBILE BETTING IN NY: New York Governor Andrew Cuomo has announced legislation to authorize mobile sports wagering as part of the 2021 State of the State. During the press conference announcing support to legalize mobile sports betting, Governor Cuomo said, "We want to do sports betting the way the state runs the lottery where the state gets the revenues. Many states have done sports betting but they basically allow casinos to run their own gambling operations. That makes a lot of money for casinos but it makes minimal money for the state. And I'm not here to make casinos a lot of money. I'm here to raise funds for the state. So we have a different model for sports betting."
Under Governor Cuomo's proposal, the New York State Gaming Commission will issue a request for proposals to select and license a sports operator or platform to offer mobile sports wagering in New York. "This operator or platform must have a partnership with one of the existing licensed commercial casinos. The Commission will also require any entity operating mobile wagering apps include safeguards against abuses and addiction." An industry study found that nearly 20% of New Jersey's sports wagering revenue comes from New York residents, costing New York millions of dollars in lost tax revenue, Cuomo noted.
NATIONAL ADVERTISING STRATEGY: In a research note earlier that followed a news report by the NY Daily News ahead of Cuomo's announcement, Oppenheimer analyst Jed Kelly told investors that he believes "a live NY" offers two immediate industry catalysts. First, New York would be the most populous state with legalized OSB and Kelly estimates the first full year industry revenue opportunity at $400M-$500M. Second, the analyst would expect neighboring states to follow, providing the majority of the Northeast Megalopolis with access to mobile sports betting by late 2021. He sees this development enabling DraftKings to execute a national advertising strategy around sports betting that would allow it to gain customer acquisition efficiencies relative to competitors. He also believes Flutter Entertainment's Fanduel is the only other competitor that can currently enact a similar strategy. Kelly has an Outperform rating on DraftKings shares.
COMMENTS HINT AT HIGHER TAX RATE: Also commenting on the news, Morgan Stanley analyst Thomas Allen highlighted that the New York Governor is planning to open up sports betting in the state in "a way that would maximize tax revenue to the state," citing the model in New Jersey specifically as one it would not like to emulate. His sources suggest that New York may look to Rhode Island - where sports betting is operated by the lottery in partnership with IGT (IGT) and William Hill (WIMHY) and revenue is taxed at 51% - but noted that a lack of competition in that state has led to minimal revenue there. Allen added that Cuomo's comments appear to diminish what had appeared to be a trend toward lower tax rates in other states.
PRICE ACTION: In afternoon trading, shares of DraftKings have gained over 3% to $49.15. Also higher are Flutter Entertainment, Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), Gan Limited (GAN), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn National (PENN), and Wynn Resorts (WYNN).
