Cathie Wood’s ARK Investment Management is bullish on the growth trajectories of the esports, fantasy sports, and online sports wagering industries.
For operators and investors alike, ARK’s call is meaningful, because the New York-based asset manager and exchange traded funds (ETFs) issuer is renowned for not only identifying disruptive companies before share prices significantly appreciate, but also making growth forecasts — many of which are ultimately validated — that are well beyond Wall Street consensus.
A prime example of the firm’s foresight is Wood’s now famous 2018 call that Tesla (NASDAQ:TSLA) would ascend to $4,000 amid increasing adoption of electric vehicles. At the time, the forecast was controversial and drew derision. But it was ultimately proven accurate, as Elon Musk’s recently hit that level on a split-adjusted basis.
Now the firm is projecting massive growth for esports and online sports betting.
Augmenting fantasy sports and e-sports, legalized online sports betting is giving companies — and the leagues themselves — an opportunity to offer exciting interactive experiences and generate new sources of revenues,” said ARK analyst Nicholas Grous in a research report.
The enthusiasm jibes with what’s been seen on Wall Street for a year now, with analysts lauding the sports betting opportunity set and investors bidding the related equities higher in the process.
Projections for domestic sports wagering are rooted in the expectations that more states will legalize the activity as a means of increasing revenue. While that’s a singular, oft-cited catalysts, estimates regarding outcomes vary wildly.
On the more reserved side of the spectrum, some analysts say the US sports betting market could be worth $15 billion to $20 billion over the next several years. Others believe the figure will be at least $30 billion, and perhaps flirt with or top $40 billion by 2025, assuming broad-based legalization. Projecting robust yearly growth, ARK’s forecast is at the high end.
“We believe revenues in the three sports betting categories combined could grow 31 percent at a compound annual rate from $9.5 billion last year to $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 roughly $18 billion to $180 billion,” said Grous.
ARK Sports Exposure
ARK’s ETF lineup consists of five actively managed funds and two index-based products. But only two stand as plausible homes for sports betting equities.
The ARK Innovation ETF (NYSE:ARKK), famed for its large weight to Tesla, currently doesn’t own shares of sportsbook operators. However, the fund does hold stakes in several companies with direct esports exposure.
Given its allocations to streaming entertainment names, among others, the ARK Next Generation Internet ETF (NYSE:ARKW) could eventually make room for sports wagering stocks, particularly those with next-generation media partnerships. That fund also has esports exposure and some mobile gaming positioning via a modest stake in Skillz Inc. (NYSE:SKLZ).
In non-gaming names, ARK is also known for big calls on the likes of bitcoin, Roku (NASDAQ:ROKU) and Square (NYSE:SQ), in addition to Tesla.
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