One investing thesis that has performed very well in 2020 has been U.S. online and sports gambling. On Tuesday, Bank of America analyst Shaun Kelley took a close look at the type of margins sports gambling investors can expect from the business in the long-term.

The Numbers: At this point, early market movers are reporting large losses as they fight for initial market share on a state-by-state basis. However, Kelleybelieves these businesses will eventually be able to achieve 30% EBITDA margins at scale.

Between sports and iGaming, we expect iGaming will be the higher-margin business owing to lower platform, content and ongoing promotional costs but current gaps should narrow as marketing spend for sports betting rationalizes, Kelley wrote in a note.

Kelley said DraftKings Inc (NASDAQ: DKNG), FanDuel and MGM Resorts International (NYSE: MGM) have each already spent more than $100 million in 2020 on sports betting and iGaming marketing.

At the same time, Penn National Gaming, Inc (NASDAQ: PENN) and its Barstool app have achieved 15% market share in Pennsylvania with virtually zero external marketing spend, but Kelley said that's only one state in a very short period of time.

Finally, Kelley said Caesars Entertainment Inc (NASDAQ: CZR) could choose to take a more conservative, profit first approach to its marketing efforts.

Related Link: Fox Is An Under-The-Radar Play On US Sports Gambling

How To Play It: Bank of America has the following ratings and price targets for the sports betting and iGaming stocks mentioned:

Benzingas Take: Theres no question U.S. iGaming and sports betting will be a huge market as it expands throughout the country on a state-by-state basis. However, stocks like Penn and DraftKings have already priced in a significant amount of growth after gaining 159% and 300% year-to-date, respectively.

2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Link:

A Look At The Type Of Margins Sports Gambling Investors Can Expect From The Business - Benzinga