Since the return of live sports, gambling revenues have been historically strong. Events such as the National Football League draft enjoyed record gambling marks. This points to pent-up demand and bodes well for companies trying to carve success in the field.

With legalization decisions delegated to states, 22 have approved legislation to allow the activity since 2018. COVID-19 destroyed tax revenue streams which could incentivize more states to follow suit. Regardless, sports gambling is set to enjoy long-term growth. DraftKings is a popular pick within the space, but Penn National Gaming (NASDAQ:PENN) is best positioned to thrive.

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Penn National Gaming is a regional casino company operating in 19 states. COVID-19 has certainly been tough for the entire industry, but Penn's credit and equity market activity hasboosted its cash position to $1.4 billion. This is vital to continue investing aggressively in sports gambling.

While Penn does have physical sports books at its casinos, its main initiative is establishing a dominant presence in digital sports gambling. How?

Earlier this year, CEO Jay Snowden announced a 36% stake in Barstool Sports, with warrants to acquire another 14%. Together, the two companies plan to release a digital sports betting app this year called Barstool Sports Book. Online gambling alone is set to grow to $103 billion by 2025, powered by an 11.5% annual growth rate. Furthermore, there is a black-market industry worth $150 billion for legal competition to convert. Penn and Barstool together are positioned to thrive in this promising growth area.

Today, Barstool Sports attracts 66 million monthly active users (MAUs). By comparison, the average team in the NFL -- the largest sports league in the world -- averages roughly the same number of monthly viewers. Engagement among Barstool MAUs is equally impressive. One-third of Barstool's audience is made up of daily users. For comparison: BuzzFeed's daily audience checks in at a relatively high (but still inferior) 23%.

Before the merger, Penn's customer base was older than the typical sports gambler. Barstool quickly fixed that problem. The sports media platform reels in 27% of Gen-Z Americans monthly. Additionally, the Barstool community consumes more entertainment and is more tech savvy than the average American. Perhaps most importantly, Barstool users gamble on sports abundantly with nearly half doing so weekly. The gigantic following Barstool Sports enjoys is nothing short of ideal for growing Penn's piece of this growing field. The two companies seem to be a match made in heaven.

Importantly, gambling does not rely on fans in the stands as a prerequisite for occurring. This means Penn should recover more quickly than sports alternatives, such as The Madison Square Garden Company,which relies on fans for revenue. The NFL, Professional Golfers' Association, Major League Baseball, and several college football teamsalready have confirmed cases. This will likely delay spectators at events, but regardless, the events are continuing and gambling can as well.

Today, 90% of Penn's physical properties are open once more with occupancy restrictions. Its properties cater to drive-in gamblers and not fliers, which is ideal in the current pandemic environment. No single state represents more than 15% of Penn's total revenue. This geographic diversity is enviable as new COVID flare ups force some states to close. While long-term growth for Snowden's organization will come from sports gambling, these casinos are still important cash-flow generators for the company.

Sports gambling will surely be a growth story for years to come. Together, Penn National Gaming and Barstool Sports are uniquely positioned to make a large mark. With a new sports gambling app debuting later this year and Penn casinos quickly opening, this is my favorite gambling play. For investors wanting exposure to the space, give this one a look.

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This Gambling Stock Is Poised for a Bull Run -- and It's Not DraftKings - The Motley Fool