iGaming 2025 Legislative Outlook Dim, Analyst Says

Posted on: January 6, 2025, 06:00h. 

Last updated on: January 7, 2025, 09:27h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The new year is just a week old, but prospects for new states approving iGaming in 2025 already appear dim, according to one analyst.

iGaming study online casino gambling
A billboard advertising DraftKings’ online casino operations in Pennsylvania is seen along a highway near Pittsburgh. An analyst said iGaming expansion is likely to be modest this year. (Image: The Wall Street Journal)

In a new report on DraftKings (NASDAQ: DKNG) — one of the gaming stocks that would benefit from more states embracing online casinos — Deutsche Bank analyst Carlo Santarelli said the operator’s ability to meet and/or exceed 2025 earnings and revenue guidance is paramount because there’s likely to be little in the way of legislative action to spark the shares.

Given current valuation, as well as the hiccups in 2024 with respect to guidance, we see the achievability of the 2025 target as the single biggest driver of shares,” noted Santarelli. “Further, we believe an inability to deliver 2025 guidance will cast significant doubt on longer-term adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) targets of $1.4 billion in 2026, which could be further exacerbated by the current valuation dynamic.”

On the sports betting legislative front, Texas looms large because if that state doesn’t approve that form of wagering this year, it will likely get kicked down the road into 2027. Santarelli also pointed out that for commercial operators such as DraftKings to enter California and Florida, partnerships with tribal gaming entities will be required and those arrangements “are likely to be unattractive, thereby removing both states from the potential blue-sky opportunity set and putting them in a bucket with New York, where the total-area market is significant and profit is challenged.”

iGaming Outlook Dour

Currently, just seven states — Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia — allow internet casinos, and none joined that group in 2024.

Santarelli said six states could consider iGaming legislation this year, but he added just two are likely to approve that form of betting. The two largest of those six states are unlikely to do so, he said.

“Of the subset of New York, Ohio, Illinois, Indiana, Maine, and Maryland, we believe Ohio and Maryland have the best prospects for near-term (2025) success, though we believe the most likely scenario is 2025 being void of newly legalized states,” Santarelli said. “We see New York and Illinois, the two largest states in the discussion, as having the slimmest odds of success.”

His list doesn’t include Wyoming where iGaming legislation was filed last month. Owing to Wyoming being the smallest state by population, even if it approved online casinos, it would likely be a nonevent for shares of DraftKings and competitors.

DraftKings Could Be Acquisitive

Santarelli also said that DraftKings has a strong cash position and isn’t heavily indebted, meaning it could use mergers and acquisitions to drive topline growth, particularly if it appears as though near-term targets could be missed.

Acquisitions are likely “to remain a key cog in the strategy for DraftKings, especially in the event achieving guidance targets in 2025 or 2026 appears fleeting,” said Santarelli.

Last year, DraftKings acquired Simplebet Inc., a provider of microbetting services, and online lottery provider Jackpocket.