Sports stocks outpaced the broad stock market for the fourth month running as investors continued to wager that sports betting will expand in North America and that fans will return to live events as COVID-19 vaccinations gain traction.
The JohnWallStreet Sports Stock Index posted a 9.1% gain in the month, besting the S&P 500, which notched a 2.6% advance in February. Much of the stock market action was driven by sports betting. Potential expansion of the online wagering in Canada took center stage as it appears the federal government is going to allow provinces to expand sports betting. Right now, the country only allows parley bets run by the government in most cases, which pushes much of the sports betting into the gray market. Ontario, Canada’s most populated province, is at the same time pushing for single game betting and privatization of the market.
“We think Ontario is a $1.6 billion [online sports betting] and iGaming market, with an incremental $2-3 billion from the other provinces should they adopt similar protocols to what is being suggested in Ontario,” Credit Suisse equity analyst Benjamin Chaiken wrote in a research note. “Further, we think there will be a preference towards those operators who are already licensed in regulated successful markets in the U.S., such as New Jersey.”
Such sentiment boosted the fortunes of most of the sports betting related stocks in the Sportico Index. Caesars Entertainment, which has a sports book through William Hill – and a pending deal to buy the British bookie – gained 32.8% in February. Scientific Games, which makes betting and gambling technology, posted a 19.4% rise, Penn National Gaming, which owns casinos as well as a stake in Barstool Sports, added 11.3% while DraftKings advanced 13.7%. “Canada is going to be a really exciting opportunity, should it open up,” DraftKings CEO Jason Robins told analysts on a call Friday.
The promise of gambling even offset a decline in live sporting events in the case of Churchill Downs. The Kentucky Derby owner rallied 23% in February even as it has decided to list its Chicago-area Arlington Racetrack for sale. The company has a profitable online sports wagering platform TwinSpires and runs a Kentucky riverboat casino in conjunction with Rush Street Interactive.
The other major theme this month in sports stock is fans getting back in seats. Friday, Manchester United shares surged on news that the U.K. may allow fans to games in May and perhaps lift all restrictions in June. Shares of the Red Devils added 40% overall in February, finishing at their highest price in 53 weeks. In New York and Massachusetts, fans have been approved to start attending games in person, albeit at far reduced rates of 10% capacity in New York and 12% in Massachusetts. Madison Square Garden Sports, owner of the Knicks and hockey’s Rangers, rose 18.8% in February, while sister company Madison Square Garden Entertainment, which owns the arena and other performance spaces, added 21.4%.
The JohnWallStreet Sports Index is a 40-stock index meant to reflect the state of professional sports. The index was launched at a level of 1,000 starting Aug. 1 as an equal-weighted benchmark, meaning each component begins as 2.5% of the index’s value. Sportico’s index posted a 46% gain from August through the end of 2020. With the start of January, the index had the first of its periodic, quarterly rebalances, where each component is reset to 2.5% of the index. So far in 2021, the sports index is up 15.6%. The S&P 500 Index has churned to a 1.5% gain over the same period.