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With major sports on hold, online bettors in New Jersey have gravitated to casino games, fueling a 124% rise in May internet gambling revenues in the state, to $85.9 million, relative to May 2019.
New Jersey is one of only a handful of states that permit online casino games like blackjack and roulette, and its market is the largest and most developed.
We view the May result as bullish for the market, wrote Morgan Stanley analyst Thomas Allen in a client note Friday. He noted that New Jersey iGaming revenues are running at a $1 billion annual rate, above his 2020 estimate of $813 million. Last years online gambling revenue in the state totaled $483 million.
We continue to believe the economic impact of Covid-19 coupled with strong recent iGaming results (in both N.J. and Pa.) should spur more states to legalize, though not as much as sports betting, Allen wrote.
DraftKings (ticker: DKNG), one of the two leaders in the New Jersey online sports betting market, has estimated that online gambling could ultimately become a $21 billion annual market in the U.S. based on the New Jersey experience, with about 30% of the U.S. getting access to online gambling.
The company projects that the online sports betting market may reach $18 billion annually in revenues based on the assumption that states with 65% of the U.S. population legalize it. FanDuel, which is controlled by the U.K.s Flutter Entertainment (PDYPY), is the other dominant company in online sports betting in New Jersey.
DraftKings stock was up $2.23, or 6%, at $39.11, in trading on Monday. The company has seen its shares more than double since it went public through a merger with Diamond Eagle Acquisitiona special purpose acquisition company -- in April. The company is valued at about $13 billion, making it the highest-valued U.S. gambling company after Las Vegas Sands (LVS).
DraftKings has been lifted by expectations that online sports betting will explode as more states legalize itencouraged in part by budget woesand as younger bettors continue to favor it. It has also been bolstered by optimism about the growth in online gambling.
New Jersey reported that the total amount of online sports betsor handle -- placed in May was $118 million, down 63% from May 2019. That decline was better than an 83% drop in April. June and July are expected to show some improvement, with PGA golf events having begun and Formula One racing set to resume in July.
FanDuel and DraftKings continue to dominate the online sports betting market in New Jersey. Their results are released through their physical gambling partners in the state, somewhat muddying the results. FanDuel and its partners had a 43% online sports gambling market share in May, while DraftKings and its partners had a 38% share, Allen wrote.
The share of the DraftKings group increased from its year-to-date share of around 31% and reflected in part its sponsorship of the popular televised charity golf match last month involving Tiger Woods and Peyton Manning against Phil Mickelson and Tom Brady.
DraftKings market share in online gambling is estimated to be about half its share in online sports betting at a high teens percentage.
The firm has been leveraging its leadership position in online sports betting to boost its position in online gambling. About half of its sports betting customers have used its iGaming platform. DraftKings has estimated that it is No. 2 in the New Jersey online gambling market despite having to compete with established on-the-ground casino operators.
Write to Andrew Bary at andrew.bary@barrons.com
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Online Gambling Booms in N.J., Lifting DraftKings Stock - Barron's
