Cramer says wait for industry consolidation before buying online sports gambling stocks

CNBC’s Jim Cramer said Monday he believes investors should stay clear of online sports betting stocks, contending it’s unattractive to own companies such as DraftKings because there’s too much competition in the gaming industry.

“Until we see fewer promotional deals and more M&A deals, these online sports gambling stocks … are very difficult to own,” the “Mad Money” host said, noting that this view stands in stark contrast to some of the optimism surrounding the burgeoning cohort in early 2021.

“But as we see what the reality looks like, there’s tons of competition for market share and little in the way of profits. Too bad, because profits are what this market wants right now. That’s why every single one of these stocks has been obliterated,” Cramer said, referring to the likes of Penn National Gaming, DraftKings and FanDuel-parent Flutter Entertainment.

Other players in the space include Caesars Entertainment, which operates an online sportsbook, and Rush Street Interactive.

Cramer’s comments Monday come in response to a major milestone Saturday, when mobile sports betting officially became legal in New York, the most-populous U.S. state in which that’s occurred. The first four waging operators to meet regulatory requirements and begin accepting bets were DraftKings, Caesars Sportsbook, Rush Street Interactive and FanDuel.

An additional five operators are still in the process of meeting all the legal requirements, the Associated Press reported. Cramer said that’s something investors need to consider when examining the impact of New York’s high-profile launch.

“These online gambling companies are throwing money at people in order to win market share,” Cramer said, referring to the advertising and promotional blitz that’s happening in New York. “If the industry’s already this competitive with four players, imagine the deals you’ll get when there are nine.”

Another factor to consider is New York’s “astronomical” 51% tax rate on revenue to which the the online sportsbook operators will be subject, Cramer said.

“Before you can think about buying the sports gambling stocks, I think we do need to see consolidation. We need to see some companies taken out,” he said.

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