Sports Bettors Turn To Retail Investing During Sports Hiatus
It's been well documented that sports bettors seeking action during the sports hiatus have turned to horse racing and online casino games. A recent DataTrek Research report indicates that a portion is also testing their luck in the stock market. The firm's co-founder, Nicholas Colas, pointed out that between March 1st and April 29th “data from [the] online broker Robinhood shows a 40% to 120% increase in accounts holding Ford (+99%), Disney (+122%) and other names" (including: GE (+99), GoPro (+51%) or Aurora Cannabis (+43%); the top 5 positions among platform's users). Google Trends data, which shows search volume for term ‘buy stock’ was 4x higher in March than it was in October 2008 (when the last recession began), supports the conclusion that “the rush of retail investors into U.S. equities is at least partly a function of a world with no casinos, no sports betting to speak of (horses and ping pong aside).”
Our Take: On the surface it does seem curious that retail investors would be “[rushing] into stocks” at a time when the greater U.S. economy was at a standstill. As Colas noted “retail tends to sell sudden shocks that cause incremental unemployment because, well, fear is a powerful motivator to action and many investors want liquidity in case they lose their jobs.” But sports bettors have historically wagered at ‘normal levels’ during times of economic uncertainty and with no games to bet on - and casinos closed (many states do not offer mobile gambling) - it’s certainly reasonable to believe some have taken to the public markets to scratch their gambling itch. Remember, sports books nationwide experienced “elevated player account withdrawals” in the wake of black Thursday (giving them the liquidity needed to buy up shares).
The increase in the number of Robinhood buying Ford, Disney, GE, GoPro, and Aurora Cannabis in the midst of a global pandemic reflects the platform's growing pool of retail investors with a risk tolerance more akin to gambling than traditional investing. Four of the five equities cited are “volatile low priced stocks.” Colas described them as “the sort of names that can move +10% in a few days.”
It’s fair to question if the influx of risk-taking investors on Robinhood’s platform over the last two months is indicative of activity across the U.S. markets at large. As Jessica Rabe noted the company has “a mostly millennial user base.” But DataTrek Research’s other co-founder says the inclusion of Delta Airlines and Carnival Cruise Lines “within the top ten positions among the online broker’s users aligns with Google search volume data for ‘buy stock’ over the last 90 days (the most commonly related queries refer to the airline/cruise sectors)” and thus the assumptions made based on Robinhood data can extrapolated out (see: sports bettors having turned to retail investing while the games were on hold).
Google searches for the terms ‘buy stock’ and ‘etrade’ spiked four times between mid-March and the end of April, each on the heels of a “big prior day decline.” Rabe believes the trend of retail investors buying the dip shows there is confidence in the U.S. economy bouncing back. However, that doesn’t mean those taking advantage of the heightened market volatility caused by the COVID outbreak are in it for the long-haul. In fact, it’s more than possible that a sell-off could be on the near horizon. Searches for the term ‘casino’ have begun to pick up again in May and as states begin to re-open their economies and the games return it’s not difficult to envision the gambler turned investor taking their profits and dumping those funds back into a sports betting account.
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