U.S. sports betting operators such as DraftKings and FanDuel are banking on a much-needed surge in demand next month when top leagues return to play during the coronavirus pandemic.

Months of rapid growth and investment in the legal sports betting market came to an abrupt halt in March, when the NBA, MLB and other sports leagues were forced to suspend their seasons due to the risk to public health. With casinos closed nationwide and no games available for wagers, U.S. sportsbooks' business plunged.

While casinos have begun to reopen, the growing number of online sportsbooks and betting apps are poised to benefit from pent-up demand and a consumer base that became more reliant on digital platforms during the pandemic. The expected return of NBA and MLB games in late July provides operators to recoup some of their recent financial losses in a tough market – with DraftKings as an early frontrunner to capitalize.

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“We expect that post-COVID, the engagement with digital leisure, the pent-up appetite for sports and political realities should position DKNG to [accelerate],” Jefferies equity research analyst David Katz said in a June 22 note to investors. “What’s more, our proprietary survey supports the view that sports betting is a highly social endeavor more so under current circumstances.”

As of this month, a total of seven states -- Nevada, New Jersey, Pennsylvania, Rhode Island, West Virginia, Indiana and Iowa -- have legal online sports betting. FanDuel and DraftKings have emerged as leaders in the fledgling legal market for online gambling.

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New Jersey’s handle, or overall money wagered, dropped 65 percent to $181.9 million in March, the month in which sports leagues were forced to suspend play. The negative trend continued in April, when the handle fell 82 percent year-over-year to $54.6 million with nearly all sporting events on hold.

The market showed signs of recovery in May, when the UFC, NASCAR, golf and other sports returned to play with strict safety measures in place. New Jersey’s betting last month was $117.8 million, which is a decline compared to the previous year, but a significant improvement.

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COVID-19’s impact on growth in the legal sports betting market is likely to be “severe but temporary,” Canaccord Genuity analyst Michael Graham said in a recent note to investors. Financial difficulties and budgetary shortfalls could push some states to approve sports betting faster than expected.

“We think that the COVID-19 pandemic could act as a catalyst to speed up the legislative process in order to legalize sports betting and increase tax revenue,” Graham added.

DraftKings shares have surged since the company began public trading in April. Another potential player, Barstool Sports, is set to launch its sportsbook app in partnership with key investor Penn National Gaming, the largest U.S. operator of retail casinos, in the fall.

Recent surges in betting volume on sports considered niche attractions under normal circumstances, such as international soccer matches, golf tournaments and NASCAR, have stoked optimism about the legal market’s short-term outlook. For example, operator BetMGM reported a 3,982 percent increase in betting handle on the PGA Tour’s RBC Heritage tournament last week compared to the same event one year before.

But spikes in betting activity on lesser-known events during a slow time in sports aren’t a great indicator of overall demand, according to Chris Grove, an analyst at Eilers and Krejcik, a gambling research and consulting firm. Even with the return of the NBA and MLB, many operators will be hard-pressed to make up for their recent losses in the short term.

"I think you'll see some pent-up demand when – and if – major sports return," Grove said. "But that will likely be a temporary surge that is unlikely to fully make up for the lost demand of the last few months."

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