- AdvisorShares’ $ 15 million GK ETF invests in “things that were previously illegal”.
- Its founder Ross Gerber spoke to Insider about investing in sports betting.
- Gerber said the industry is about to skyrocket and explained why he is buying BetMGM but avoiding DraftKings.
When Ross Gerber was only 22, he almost lost all of his money investing in the gaming industry.
“It was in 1989, and I decided to bet on Mirage,” he told Insider, referring to the hotel and casino construction company that merged with MGM in 2000. “They’re doing it. had problems building the Bellagio and I lost almost everything, but luckily MGM saved me by bailing them out. “
Now, Gerber’s company is offering retail investors a slice of the US gaming industry through AdvisorShares’ Gerber Kawasaki (GK) ETF. An ETF, or exchange-traded fund, follows a particular industry or theme; Gerber’s $ 15 billion ETF, launched in July this year, focuses on “things that were previously illegal,” including cannabis and gambling.
One of the growth driving trends in the gambling industry has been the legalization of sports betting in the United States. Sports fans in 19 states can bet on matches through apps such as BetMGM, DraftKings, and FanDuel.
“Americans have always loved betting, but they had to go to Nevada to do it,” Gerber said. “Legalization and these sports betting apps have changed everything.”
Gerber spoke to Insider about the boom in the sports betting industry, a major part of his “sin stocks” ETF.
Invest in sports betting
The U.S. sports betting industry is currently valued at $ 67 billion, according to data provider Statista, and could grow by nearly half to $ 93 billion by 2023 as more states vote for the legalization of gambling.
In 2018, the Supreme Court passed the legalization of sports betting in states outside of Nevada. The three largest companies in the industry, by market capitalization, are BetMGM, DraftKings and FanDuel.
“I don’t think you could ask for anything more profitable to separate people from their money than an app that allows people to bet on sports,” said Gerber. “FanDuel and DraftKings are still leading the market, then BetMGM became the third player.”
All three companies are publicly traded, with DraftKings (DKNG) listed via a 2020
merger that valued the company at $ 3.3 billion, and BetMGM owned by MGM Resorts International (MGM). FanDuel is owned by Irish company Paddy Power (PDYPY), which means Gerber’s US ETF cannot invest.
“I’m sad that I can’t own Paddy Power – it’s a European company I’ve been watching for a while, and it’s super interesting,” Gerber told Insider. “I think in the future they will actually look to part ways with FanDuel – they can achieve a much higher valuation if they do.”
“But right now, FanDuel is number one – they’re absolutely killing him,” he added.
Another way for retail investors to buy in the sports betting industry is by using ETFs such as Gerber Kawasaki or the Roundhill Sports Betting & iGaming ETF (BETZ). Roundhill’s BETZ ETF manages $ 393 million and provides exposure to leading betting companies in Europe and the United States.
DraftKings and BetMGM
Gerber has differing views on the other two major players in the industry, DraftKings and BetMGM. While MGM represents 2.88% of Gerber Kawasaki ETF’s portfolio, Gerber does not own any DraftKings shares, despite the company’s recent $ 22.4 billion offer for UK gaming giant Entain.
“If DraftKings buys Entain, you’ll have a $ 40 billion global gaming monster,” Gerber told Insider. “But I consider DraftKings to be a very high risk, and I don’t own it.”
Gerber said his main problem with DraftKings is the company’s business model, which he considers unsustainable in the long run. DraftKings stock has been volatile in 2021, dropping from $ 45 at the start of the year to just over $ 70, before falling back to the $ 50 level.
“They are spending an insane amount – around $ 500 – to acquire every new customer,” he said. “And they’re also paying too much for Entain – MGM had previously only offered $ 11 billion.”
“DraftKings stocks are just overpriced, and that’s why they’re bidding on Entain right now,” Gerber added.
The sports betting game Gerber chose is the same company that bailed him out of Mirage over 30 years ago – MGM. The sports betting application of the gaming giant, BetMGM, is managed in a joint venture with Entain. MGM’s stock price has risen steadily this year, from almost half of $ 30 to just under $ 45.
As with DraftKings, Gerber based its bullish stance on analysis of MGM’s overall business model.
“All players lose over time, so compensation becomes important,” he said. “When you lose with MGM, you get free food and rooms in Vegas, because they have physical casinos, unlike DraftKings.”
Gerber said his own gaming instinct had encouraged him to invest in MGM at the start of the coronavirus pandemic – despite the dire state of the hospitality industry.
“I’ve been an investor in casinos for so long, and I knew how much money they all had,” he said. “The stock went down from six to eight dollars and I decided to move all-in on MGM and bought a ton.”
“Our position is now quite large and incredibly profitable,” added Gerber. “It’s ultimately one of my best jobs.”