As the sports betting industry is booming, fancy a Flutter?

It is impossible to ignore the global rise in sports betting if you want to support a rapidly expanding sector with untapped potential. The race to capture a larger share of the purchasing power of younger consumers who like to watch sports and place a bet (or multiple bets) at the same time is on.

In the United States, the main contenders in this battle are Draft Kings and Fan Duel, owned by Flutter Entertainment, the Dublin-based owner of Betfair and Paddy Power.

Flutter is number one in the league, thanks in part to its special competition in what is known as a ‘parlay’, where several bets are combined into one.

Flutter and Draft Kings may be the dominant names, but other US players on the list include Caesars Entertainment, PENN Entertainment and Bet MGM, a joint venture between MGM Resorts and Entain, which owns Coral and Ladbrokes.

However, such are the opportunities apparently that even Walt Disney has overcome his previous staunch moral objections to gambling in any form to make his debut in this controversial field with his ESPN Bet app.

The UK sports betting market is worth £3.5bn and is expanding at 4.5 per cent annually, but the US is the main focus. Because, as Barclays analyst Brandt Montour observes, sports betting appears to have “staying power” in the lives of American sports viewers.

In fact, some observers even consider sports betting one of the fastest growing industries in the United States.

This assessment, which will excite some investors and dismay others, is based on surprising data.

In the United States, about half of those watching a baseball or football game can already use an app to bet on the outcome or almost any other aspect of the action, such as the margin of victory.

But this figure is forecast to rise to around four-fifths of viewers, driving a 60 per cent increase in gaming revenue in the US to $18 billion by 2027.

By 2030, roughly what Flutter predicts, sports betting and online casinos could be worth $63 billion, up 50 percent from the 2022 estimate. This rise will be driven by sports betting, including betting in “fantasy” sports, where players devise imaginary teams.

As much as $1.3 billion was spent on this year’s Super Bowl, the climax of the American football season. This was up 20 percent in one year. Around 1.8 million fans downloaded sports betting apps in the weeks leading up to the event.

The United States’ status as a major sports betting country was highlighted by Flutter’s decision in January this year to move its primary stock market listing from London to New York, although it retains a secondary listing here.

Shares in Flutter, which was formed from the merger of Betfair, Paddy Power and The Stars Group, subsequently soared 33 per cent to $236, boosted by optimism about the outlook. The stock is now 147 percent higher than it was five years ago.

Draft Kings stock also benefited from its rival’s move, rising 11 percent since January.

Flutter forecast last month that its profits would rise to $5bn (£3.7bn) by 2027. Analysts expect $2.51bn by 2024. The 2027 figure could be higher if more Americans could adopt sports betting.

This was legalized in that country in 2018, the year Flutter acquired Fan Duel, although individual states can still ban the practice.

California and Texas resist, but other states have been conquered, mainly by the possibility of collecting taxes, but also by the desire to take drastic measures against crime. Wealth manager Oppenheimer and other analysts, who follow Flutter and Draft Kings, point out that before the arrival of licensed operators, many billions were wagered through illegal gambling networks, often based abroad.

Oppenheimer estimates that up to $150 billion a year is risked through this black market route, rife with corruption and violence. This is a point to remember for investors who may find gambling companies unpalatable, although it is legitimate to wonder why the United States does not have an overarching regulator, similar to the UK Gambling Commission.

To date, the size of the illegal gambling market and taxes have not been enough reason for California – the most populous state with nearly 40 million residents – to change its mind about sports betting.

But Amy Howe, Fan Duel’s chief executive, said last month that she was “optimistic that at some point it will happen.” Texas may prove more stubborn, despite the efforts of billionaire Texas businessman and television personality Mark Cuban, who last year sold a majority stake in his Dallas Mavericks basketball team to the Adelson casino dynasty.

Florida may have legalized sports betting, but with restrictions. Flutter is not allowed to operate there. However, Flutter boss Peter Jackson is looking beyond the US to countries where sports betting is developing rapidly. Last month it bought the Brazilian group NSX whose main brand is BetNacional. Brazilians mainly bet on soccer, but are turning to other sports.

Football is also Italians’ favorite sport to bet on, which is why Flutter paid £1.9bn for Playtech’s Italian subsidiary Snaitech last month. Jackson described the deal as “strategically and financially compelling.”

Snaitech, usually called Snai, ranks second in the sports betting sector in Italy and has 2,000 points of sale where Italians like to place their bets.

Online games are less popular. Only 21 percent of Italians choose this option. But one suspects that Flutter will seek to change this.

Last month, a busy period for Flutter, Jackson promised that the company would carry out $5 billion worth of share buybacks over the next three to four years. These programs, which could begin as early as next month, should provide a long-term boost to the stock.

Montour predicts the stock will rise to $275. Oppenheimer is even more enthusiastic and sets a price target of $300. The highest price target is $355, and ten of the 18 analyst teams that follow Flutter rate the stock a “buy,” although it’s trading at a very expensive 40 times earnings.

Draft Kings is also considered a buy, although analysts are less confident in the share price gains.

The average price target is $49, up from $37 currently, although one analyst expects a jump to $89.

Entain is considered another purchase. The average price target is 935p, up from 770p currently, following recent results showing “accelerating momentum” in the company.

While all of this may sound appealing, there is considerable risk for anyone contemplating a flutter into Flutter or any other venture in the sports betting line. In the United States, there is growing concern about the “gambling” of sports and the lack of a regulator to insist on more checks on customers’ circumstances, including affordability checks.

All games of chance are addictive, but it is argued that sports betting can be especially so, as it can combine betting with an undying loyalty to a favorite team, which persists through thick and thin.

These questions will strengthen the resolve of anyone who, for ethical reasons, avoids participating in gambling or tobacco companies. But they should give everyone else pause, if only because states may try to raise more taxes on this industry. Illinois already imposed a tax on operators.

But if you care about betting on this growing industry, Flutter represents that it may be worth the risk.

If you’re already an investor, stay on board to enjoy the excitement.