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CNBC’s Jim Cramer said on Monday that he believes investors should stay away from online sports betting stocks, saying it is unattractive to own companies like DraftKings because there are too many competition in the gaming industry.
“Until we see fewer promotional offers and more M&A deals, these online sports betting stocks (…) are booming in early 2021.
“But as we see what reality looks like, there is a lot of competition for market share and little profit. Too bad, because profits are what this market wants right now. That’s why each of these stocks was wiped out, “Cramer said, referring to Penn National Gaming, DraftKings and Flutter Entertainment, parent of FanDuel.
Other players in the space include Caesars Entertainment, which operates an online bookie, and Rush Street Interactive.
Cramer’s comments on Monday come in response to a milestone on Saturday, when mobile sports betting officially became legal in New York City, the most populous US state in which it happened. The first four betting operators to meet regulatory requirements and start accepting betting were DraftKings, Caesars Sportsbook, Rush Street Interactive and FanDuel.
Five other operators are still in the process of meeting all legal requirements, the Associated Press reported. Cramer said this was something investors need to consider when considering the impact of the high-profile New York launch.
“These online gaming companies are throwing money at people in order to gain market share,” Cramer said, referring to the advertising and promotional blitz unfolding in New York City. “If the industry is already so competitive with four players, imagine the deals you get when there are nine.”
Another factor to consider is New York’s “astronomical” income tax rate of 51% to which online sports betting operators will be subject, Cramer said.
“Before you can think of buying the sports gambling stocks, I think we need to see consolidation. We need to see some companies pulling out,” he said.
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