The PointsBet Holdings Ltd (ASX: PBH) share price was faced with heavy selling pressure in March, driven by concerns over the upcoming vote to legalise online sports betting in New York.
A note from Deutsche Bank sparked the concerns, citing:
Comments from NY politicians, as reported by affiliate media, appear far more pessimistic than those of several weeks ago around the prospects of NY legalising online sports betting in this session.
On Tuesday, it was announced that New York had officially approved legal online sports betting, but with a twist.
Image source: Getty Images
New York legalises online sports betting
New York announced that it had approved its budget for its fiscal year 2022. This includes allowing legal online wagering in the state for the first time.
However, New York Governor Andrew Cuomo said he wanted to run the state's sports betting industry through the New York Lottery, which is run by the government.
Cuomo's model aims to bring back as much revenue to the state as possible. This compares to many other states where revenues and profits sit with the bookmakers and casinos.
Under Cuomo's proposal, the New York Lottery will select two companies through a competitive bidding process to operate online betting. The winning platform providers can then associate with at least four additional brand partners, or what the industry refers to as 'skins'.
This has raised concerns by lawmakers for a potential lack of competition. States such as Pennsylvania and New Jersey allow for several casinos to legally operate to force higher competition for customers.
What does this mean for the PointsBet share price?
While the broader idea of legalising online sports betting in New York is good for PointsBet. Its adopted model could possibly block PointsBet from operating in the largest gambling state in the United States.
The two largest sportsbook operators in the US, DraftKings and FanDuel are currently viewed to have an advantage in winning the licenses given its sheer size and revenues.
New York aside, Goldman Sachs has taken a bullish view on the PointsBet share price. Its research note from 30 March comments:
We see PBH as well-placed to carve out a niche share of the burgeoning US sports betting market, which we forecast to reach US$39 bn at maturity, implying a robust 40% CAGR out to 2033
The broker believes PointsBet's growth will be underpinned by its 20-year partnership with Penn National Gaming for market access into a greater number of states and its five-year exclusive media partnership with broadcaster, NBCUniversal.
It rated PointsBet as a buy with a $17.50 target price. With PointsBet shares currently fetching $13.98, this represents an upside of more than 25%.
