Goldman sees the online sports betting market worth nearly $40 billion by 2033. How to play it

Published Mon, Mar 22 20212:23 PM EDTUpdated Mon, Mar 22 20214:29 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The outlook for the sports betting and online gaming industry in the United States is growing increasingly bright, according to Goldman Sachs. The firm said in a note to clients that it is raising its projected market size for online gambling in the United States and sees it sustaining a dramatic rate of growth over the next decade. "We expect a combination of favorable legislation and consumer adoption to drive growth in U.S. online sports betting and internet gambling (i-Gaming) from $900mn/$1.5bn markets today to $39bn/$14bn in 2033, equating to 40%/27% CAGRs for over a decade," the note said. The total addressable market for sports betting and online gaming has become a hot topic on Wall Street over the past year as the pace of legalization picks up steam across the country. At $39 billion by 2033, Goldman's projection is near the high end of published estimates. The excitement around the space has been a boon to many of the stocks, including Penn National Gaming , whose shares are up more than 300% since the end of 2019. The stock was added to the S & P 500 on Monday, along with Caesars Entertainment . Goldman has a buy rating on Penn and DraftKings , with 12-month price targets that show 30% and 21% upside, respectively. The firm has neutral ratings on Caesars and Rush Street Interactive , which runs the BetRivers online sportsbook. It raised its price target on all four stocks as part of its reassessment of the industry. Goldman said in the note that it believes that online gaming is set up to enjoy higher margins than the traditional casino business. "Importantly, sports betting and i-Gaming do not have physical distribution centers, so capital requirements are far more limited, particularly when comparing online to off-line equivalents across categories," the note said. "As a result, returns on invested capital have the potential to be significantly higher than other categories with physical products, allowing for more moderate decremental margins." The firm said that key points of competition in the industry include technology, marketing efficiency and being able to convert sports gamblers to iGaming, Goldman said. Currently, iGaming generates higher revenue per player than sports betting, Goldman said. Integrating media content into gambling could also be a differentiator, Goldman said, pointing to Penn National Gaming's partnership with Barstool Sports. Sports betting companies have started to rack up partnerships with sports leagues and media outlets as part of their overall marketing push. Correction: Goldman sees the online sports betting market worth nearly $40 billion by 2033. A previous headline misstated the date of the firm's forecast.

New England Patriots cornerback Stephon Gilmore, #24, stretches during the New England Patriots practice session in Foxborough, Massachusetts, on Oct. 22, 2020.

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The outlook for the sports betting and online gaming industry in the United States is growing increasingly bright, according to Goldman Sachs.

The firm said in a note to clients that it is raising its projected market size for online gambling in the United States and sees it sustaining a dramatic rate of growth over the next decade.