The digital currency upheaval is arriving – Finance – iGB
As the betting stock surge fades, the former main disruptors of Wall Street are now facing a wave of disruption themselves. By: Julian Buhagiar.
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The digital currency upheaval is arriving
There was a revealing moment last week during a call with a major US player who wished to remain anonymous.
“We’re happy to be the last one in the market,” they said, referring to the US sports betting market. “Let them destroy each other over unrealistic CPAs for the next few years. We have a large amount of cash on hand, and we’ll come in when the market adjusts.”
Of course, this appears to be playing out, at least for the past six months. To comprehend why this is happening, and why the direction of travel will reverse in the short term, we need to figure out why tech companies have recently lost interest in the market.
Most gambling stocks have a private equity ratio (typically 60:100) that is higher than the corresponding ratio for FAANG (the “Big Five” tech giants Facebook, Apple, Amazon, Netflix, and Google) (20:50). As a result, a large portion of them (reasonably) were overvalued in the second half of 2021 and so far in 2022.
However, a pullback is coming in the short term, and it’s essential to understand that it will happen soon.
Reviewing the trajectory of growth for most gambling equities over the last half-year, you’ll observe that a majority are currently displaying a classic head-and-shoulders top reversal pattern.
**Legislative Fear of Missing Out**
This suggests that robust expansion might occur in the upcoming quarter as investors aim to benefit from state legislative FOMO.
Regrettably, this rebound will be fleeting. While positive growth is anticipated in the next few quarters, later this year, gambling enterprises could release unexpected profit warnings. This will signal that the projected return on investment in (US sports wagering) will be more extended than initially predicted, likely pushing it into 2024 based on present trends.
At this juncture, most investment funds will promptly secure profits, causing US gambling stocks to plummet once more. Nevertheless, an intriguing dynamic worth observing here is the initial wave of consolidation among gambling operators.
Anticipate some prominent media corporations to make daring moves, eager to acquire a low-cost, fully integrated operator with connections to numerous prospective states, potentially including some European assets. Fast forward a few quarters, and media companies have already entered the sports betting arena, now offering completely integrated solutions alongside their programming.
Thus far, it’s all been very Barron’s Weekly. However, what has become apparent recently is that this isn’t the ultimate objective in the US.
**You Only Live Once Spirit**
To grasp the current situation, we must examine the flow of funds over the past decade. Prior to the 2020s, particularly before regulatory measures, a significant portion of capital in the United States originated from large private equity companies such as CVC and Apollo.
These firms facilitated the acquisition of online gambling enterprises by casinos, consolidating them under a single umbrella. This strategy thrived during favorable market conditions, but when the market experienced a downturn, the distinction between robust and weak companies became evident.
This brings us to that American entity. Recall their presence?
In recent years, ordinary investors in the United States have exhibited increasing participation. Their popularity surged due to the influence of WallStreetBets, further amplified by companies like Robinhood and Lawnmower. The “Yolo!” mentality has persisted for an extended period, fueled by the American market’s enthusiasm for day trading.
These markets recognize the ease with which recreational gamblers can transition into serious bettors.
Although investment platforms may still encounter challenges in encouraging heightened gambling activity, another group holds a contrasting perspective.
Web3 awaits.
Prepare for the rise of Web3 operators, a fully authorized digital currency exchange, a haven for meme coins, non-fungible tokens, and all the significant digital assets, one of which could transform into the next Bitcoin, Ethereum, or Solana. This is especially true with the imminent launch of the sports wagering exchange, particularly the next generation of crypto casinos.
Believe this is inconceivable? Then you haven’t been paying attention. Why are digital currency exchanges dominating the Super Bowl, Formula One, and now even FIFA?
Consider this: It’s not about persuading sports enthusiasts to swap digital assets during commercial breaks. These emerging markets recognize that the upcoming generation of gamblers will differ from the previous wave, who relied on sportsbooks for odds.
They’re actively strategizing Web3-powered exchanges: Discord-driven marketplaces where the tokens users earn are the true battleground for gambling, creating a novel approach to generating odds among peers and even speculators. These genuinely crypto-powered betting platforms are mostly veiled now, but we occasionally catch glimpses from companies like Topspin, Axie, and Nitro.
But before that, their initial step will likely be to acquire an existing (online-only) operator, ideally one with Web3 inclinations, and begin preparing for this revolution.
Portfolio managers, relax; it’s still a few years away. So you can continue purchasing “oversold” betting stocks next year.
But wait until the actual cost of acquisitions (and state taxes) begins to impact, then observe the significant crash unfold.
The U.S. sports wagering sector is on the verge of a significant transformation. A fresh wave of enterprises is poised to dominate, and they’ll be utilizing digital currencies to achieve their goals. You won’t witness this on television, but it’s going to be a massive shift. Subscribe to the iGaming newsletter to remain informed.
