Looking back in 2018, we might recall when the U.S. Supreme Court freed companies from an online gambling ban and allowed states to legalize sports betting. More than 30 states, including Washington, D.C., have since implemented some form of online gambling. Thus far, DraftKings (NASDAQ:DKNG) remains the dominant player in this sector, with a market capitalization that dwarfs its competition.

That said, competition is picking up. The online sports betting market is expected to grow at an incredible rate. In the first quarter of 2023, sports betting companies reached $2.8 billion in revenue, a 70% bump year-over-year (YoY). That growth rate will slow as the number of states legalizing online betting increases toward the limit. But for now, this is a sector allowing early movers an advantage. The question is, which companies can effectively challenge DraftKings for market share?

Here are three alternatives I think are worth considering right now. The first two are direct competitors, and I’ve included a passive income option for investors as well.

Let’s dive in!

Caesars Entertainment (CZR)

Finding its first steps in 1937 on the sprawling Reno, Nevada landscape, Caesars Entertainment (NASDAQ:CZR) has grown to become a worldwide company in the hospitality and gaming industry. With operations in 13 states and 5 countries, the company’s impressive portfolio of properties is certainly the key attraction for investors. That said, Ceasars also has a growing footprint in online gaming, something many investors are pointing to as an important growth factor to consider.

The U.S. casino gaming market is forecasted to grow by $13.26 billion (4.5% CAGR) between 2022 and 2027, in line with global trends. If policymakers reduce borrowing costs, America-focused Caesars could be a top-tier entertainment option. Analysts rate CZR as a Strong Buy, with a target price of $61.50, hinting at a 40% upside potential.

Currently trading around 13 times trailing earnings, CZR stock looks very attractive at current levels. This is a company providing investors with exposure to not only the high-growth core casino business, but also an emerging online gambling operation that could drive outsized performance over time.

Penn Entertainment (PENN)

In December 2023, PENN Entertainment (NASDAQ:PENN) held a groundbreaking ceremony for the upcoming Hollywood Casino Joliet. The new land-based facility will replace the company’s existing riverboat casino, a thrilling milestone for the company and the local community.

The company began construction on the new Hollywood Casino Joliet, a hefty $185 million facility at the RockRun Collection in Joliet near the I-80 and I-55 interchange. The innovative casino will have 850 slots, 44 table games, sportsbooks, bars, restaurants and an event center. The project is expected to create jobs and increase PENN’s presence in the Chicagoland market.

PENN is not just expanding its portfolio of regional casinos; it also brings wisdom to the table. The company’s decade-long partnership with ESPN serves to fuse the adrenaline-inducing world of sports betting with ESPN apps. This is the key factor that makes PENN stock interesting to most investors — its online exposure in specific states. If the company can grab market share from the incumbents, a return to profitability could be in the cards, and this stock could take off.

Now, Penn Entertainment has fallen off a cliff since its 2021 peak. But, like many high-growth stocks that caught a bid during the last hype-driven cycle, I think this stock may have been beaten down too hard by the market. The company’s financials are improving, and if Penn can show sustainable profits, this is a stock with a valuation that looks attractive right now.

Roundhill Sports Betting iGaming ETF (BETZ)

For passive investors looking for exposure to a broader trend without company-specific risk, exchange-traded funds (ETFs) can be a better choice. One top ETF in this space I think is worth considering is the Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ).

Like the entire gaming sector, the BETZ ETF has had a rough go in recent years. The stock’s chart isn’t as bad as many individual names (such as Penn), providing investors with the benefit of diversification. And during previous bull market rallies, this fund has seen impressive market-beating growth, allowing for exposure to strong rallies to the upside.

With an expense ratio of 0.75%, the BETZ ETF certainly isn’t cheap by any stretch. However, the company’s exposure to more than 30 sports betting and iGaming companies provides unique exposure to this high-growth space.

I’m of the view that investors who don’t want to spend hours researching each individual company within this sector may be better off buying the whole group. While this ETF’s fee is high, it’s also expensive to build such a portfolio from scratch. Thus, even active investors can benefit from adding some exposure to such ETFs as a base and playing around the edges.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.