Why US Stocks Could Attract Investors in 2021

Posted by Harry Kane on Monday, March 29, 2021

There’s no doubt that the iGaming market has remained a key focus for investors of late, particularly when you consider the expansion of the US sector.

Make no mistake; the events of 2020 could also prove to be seminal over the following 12 months, with state lawmakers in the US increasingly keen on the prospect of legalising iGaming activity and increasing their total tax revenues.

In this post, we’ll explore the prospects for the US market further, while asking whether this could trigger a rush to market amongst investors as a direct result.

How Individual States are Facing a Credit Crunch

2020 undoubtedly brought a raft of unusual socio-economic challenges for US states, while these were clearly exacerbated by economic stagnation, civil unrest and the increasingly protectionist approach of former President Donald Trump.

Periods of economic inactivity and decline (in most states, at least) have certainly inflicted a significant credit crunch on local finances, with this being borne out by findings published by the Centre on Budget and Policy Priorities in North America.

Overall, it’s thought that states will have endured a 10% cut to their tax revenues in fiscal 2020, with this increasing to 20% by the end of 2021.

For example, the state of New York forecast a $14.5 billion shortfall for 2020, while California (which has seen an exodus of workers and residents) also suffered as a direct results of massive tax revenue declines.

The state of Florida has also taken a significant fiscal hit, with this location forecasting a revenue shortfall of $16 billion over the course of the next three years.

In total, it’s thought that the events and socio-economic challenges of 2020 have created a $54.3 billion problem for the cumulative fund budget in the fiscal year ending 2021, with lawmakers and senators keen to resolve this as quickly and effectively as possible.

Incredibly, this has created a significant opportunity for the burgeoning iGaming space in the states, with many lawmakers looking to respond directly to their financial challenges by pushing the legalisation and legislation of online gambling and creating a significant boost to tax revenues.

This is certainly the case in New York, which has flirted with the ideal of legalising iGaming for years now. However, Senate Bill S17D is currently under review by the Senate Finance Committee, with a larger number of people now thought to be in favour of this measure as a way of alleviating the state’s growing deficit.

California is also expected to make another attempt to legalise online gambling in 2021, even though its recent bill failed to get the requisite support.

However, with online gambling likely to boost the state’s tax coffers by as much as $195 million, it may ultimately pass the Senate sooner rather than later.

Why is This Good News for Investors?

If New York and California were to pass iGaming bills as a way of reducing their tax deficits, they would join New Jersey, Delaware, Pennsylvania, Michigan and West Virginia in lawfully allowing online casino betting within their borders.

Interestingly, Michigan and West Virginia only choose to legalise online gambling over the course of the last 14 months, so there’s clearly some momentum in North America that could encourage other states to follow suit in the near-term.

We should also recognise the impact of the Supreme Court decision to strike down the PAPSA legislation in May 2018, with this law having historically banned sports betting at a federal level.

Since this ruling, close to 20 US states have moved to legalise sports betting in North America, creating an additional stream of tax revenue for some local authorities and facilitating greater demand for betting and wagering sites nationwide.

With these points in mind, there’s no doubt that the online and mobile betting market in the US is beginning to realise its immense potential, with growth rates having caught the attention of investors since 2019.

During that year (which represented the first 12-month period during which sports betting was legal in the US), the American Gaming Association (AGA) reported that a staggering $13 billion was wagered by punters.

This was double the 2018 figure of $6.5 billion, while since this time Pennsylvania, Michigan and West Virigina have all legalised online casino and poker gameplay.

The AGA also found that 15% of Americans (38 million adults) planned to bet on the 2019 NFL season alone at this time, with this number likely to increase markedly as more states legalise betting. To this end, a further 24% of Americans said that they would bet on NFL games if “it was legal and convenient to do so”, creating a total potential market of nearly 100 million for operators to target.

Given these figures and the fact that successful investment relies heavily on timing, it makes perfect sense that investors should now be looking to make their move in the iGaming space.

Certainly, gambling stocks are continuing to soar in the US, while others are likely to come on board as more states legalise various verticals and a larger number of brands enter the marketplace.

However, savvy investors will be able to identify competitively priced and low costs stocks in the current market, particularly small or mid-cap options that have the potential for significant growth in the future.

The Last Word

To understand the full potential of the gambling market in the US, we need to look at the region’s illicit betting markets. This is said to be worth more than $200 billion, while this figure would be boosted by those who want to wager but have previously loath to do so illegally.

What’s more, many stocks are already experiencing huge market growth, including the fantasy sports betting brand DraftKings. This firm commands a 30% market share of US online betting, while it’s poised for further growth as the sports wagering market continues to grow in North America.

Flutter Entertainment is another stock that’s dominating the US space, with the firm reporting pro forma revenue growth of 10% year-on-year and 61% in North America alone.

These shares highlight the growth and potential of the US iGaming market, which could be poised for a bumper 2021 as local authorities move to resolve their growing tax revenue shortfalls.