Posted on: Jan 19, 2021, 9:54 am.
Last update on: January 19, 2021, 09:54.
Cathie Wood's ARK Investment Management is optimistic about the growth paths of the esports, fantasy sports and online sports betting industries.
The founder of ARK Invest, Cathie Wood. Your company has some great estimates of sports betting growth. (Image: MarketWatch)
For operators and investors, ARK's claim is significant as the New York-based issuer is known by asset managers and exchange traded funds (ETFs) for not only identifying disruptive companies before share prices rise significantly, but also making growth forecasts – many of which ultimately validated – that goes well beyond Wall Street consensus.
A prime example of the company's foresight is Wood's now famous call from 2018 that Tesla (NASDAQ: TSLA) would rise to $ 4,000 as electric vehicle adoption increased. At the time, the prediction was controversial and ridiculed, but it ultimately turned out to be accurate when Elon Musk recently hit that level on a split-adjusted basis.
Now the company is forecasting massive growth for esports and online sports betting.
By legalizing fantasy sports and esports, legalized online sports betting enables companies – and the leagues themselves – to offer exciting interactive experiences and generate new revenue streams, "said ARK analyst Nicholas Grous in a research report.
The excitement matches what has been seen on Wall Street for a year. Analysts praise the sports betting on offer and investors are offering the corresponding shares higher.
Forecasts for domestic sports betting are based on expectations that more states will legalize the activity in order to increase revenue. While this is a unique, often cited catalyst, estimates of results vary widely.
On the more cautious side of the spectrum, some analysts say the U.S. sports betting market could be worth $ 15 billion to $ 20 billion over the next few years. Others believe the number will be at least $ 30 billion, and maybe flirt with or exceed $ 40 billion by 2025, provided legalization is broadly based. ARK predicts robust annual growth and is at the high end.
"We believe that revenues in the three sports betting categories combined could increase by 31 percent at an average annual rate of US $ 9.5 billion last year to US $ 37 billion in 2025," writes Grous.
ARK's estimate for the total sports betting handle is staggering.
"We believe the handle for online sports betting could scale 10x from approximately $ 18 billion to $ 180 billion," said Grous.
ARK Sports Exposure
ARK's ETF offering consists of five actively managed funds and two index-based products, but only two of which are considered plausible homes for sports betting stocks.
The ARK Innovation ETF (NYSE: ARKK), known for its weight at Tesla, does not currently own any stakes in sports betting operators. However, the fund has stakes in several companies with direct exposure to esports.
Given its association with streaming entertainment names, including the The ARK Next Generation Internet ETF (NYSE: ARKW) could eventually make room for sports betting, especially stocks with next-generation media partnerships. This fund has a modest stake in Skillz Inc. (NYSE: SKLZ) also has exposure to sports and some positioning in mobile games..
For non-gaming names, in addition to Tesla, ARK is also known for big calls to Bitcoin, Roku (NASDAQ: ROKU), and Square (NYSE: SQ).