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Sports stocks experienced a volatile end of May as sports betting stocks were hammered one day by fears of increasing state taxes on wagers and then buoyed the next on hopes investors could force betting companies to create value for shareholders. The whipsawing action resulted in the Sportico Sports Stock Index closing the month up 6%.

The index, which tracks the stocks of 40 companies dependent on sports for growth, enjoyed its best monthly performance since December, closing at 1,158, up 63 points from April and into positive territory for the year.

What had been a quiet month for most shares in the index was roiled last week when Illinois officials reached an agreement on a new framework for casino and mobile betting, raising the tax rate on the latter. The result is that the two market share leaders, DraftKings and FanDuel, will likely see wagers taxed at 40%, the highest rate under a tiered program that also raises the minimum tax for low volume sports books to 20%. Previously, Illinois had taxed mobile bets at a flat 15%.

While some change in Illinois taxation was expected, the market still reacted poorly to the reality, hammering DraftKings (DKNG) shares down 14% last week and 16% for the month. FanDuel parent Flutter Entertainment (FLUT) saw its shares lose the lion’s share of their early May gains to close the month up 3%.

The effect on DraftKings and FanDuel, which control about 90% of Illinois sports betting, isn’t completely clear, because neither company breaks out specific figures for the state. Though one estimate says it will cost DraftKings $44 million in the last six months of 2024.

Of more concern to Wall Street is that states see sports betting as an easy path to increase tax revenue, a “contagion risk,” as termed by UBS betting stocks analyst Benjamin Shelley. The industry had been hoping instead that tax-hungry states would move toward opening up more opportunities for mobile casino games, which are more profitable for operators and less prone to unpredictability, like when sports books reported big losses on NFL games last autumn.

“DraftKings and its peers still face heightened regulatory uncertainty, with Massachusetts recently rejecting a potential sport tax lift to 51% from 20% and Ohio approving an increase to 20% from 10% last year; this is likely to create near-term share volatility,” Morningstar analyst Dan Wasiolek said in a May 28 note on DraftKings.

The recent tax fears mean that the market has spent much of the past three years worrying about the cost structure of U.S. sports betting to the detriment of focusing on its potential. Bellwether DraftKings shares peaked in March 2021 at $74.38 and have fallen 53% since, while BETZ, the Roundhill sports betting ETF (which isn’t a part of the Sportico index), is down about half from its peak about the same time in 2021.

Sports betting concerns also mean the sports index has been largely missing out on the bull market. While the S&P 500 is up 10% for 2024 and 37% since the start of 2023, the Sportico index is up about half a percent this year and up just 8% since the end of 2022.

Still, the month ended with a sharp rally in many shares, with indications investors will agitate for sports betting companies to focus on creating shareholder value. ESPN Bet operator Penn Entertainment, which has fallen sharply on the Illinois taxation news, leapt 20% Friday when an activist investor lambasted Penn’s focus on sports and called for the business to be sold. Caesars Entertainment (CZR), which, like Penn, operates physical casinos and mobile sports wagering, gained 11% Friday to close May down 1% on separate news that Carl Icahn has built a large position in that business.

Another sports betting player, Rush Street Interactive (RSI), was the best performer of the month in the Sportico index, rallying 40% in May. Rush Street opened the month with a blockbuster earnings report, showing mobile sports betting and its mobile casino business generated 35% more revenue in the first quarter. The gains were then reinforced by Illinois’ new tax structure, which will actually lower the levy on in-person wagers inside its suburban Chicago casino. Rush Street also benefited from strong performance in Latin America, where its revenue rose 84% year over year in part due to gains in its sportsbook. Overall, Rush Street is benefiting from cross selling between sports betting and mobile casino games, a key to future growth, according to Jefferies & Co.

All told, 29 of the index’s components posted gains in May, including 10 that rose double-digits, including On Holding (ONON, up 34%), the athletic shoe maker with investment and marketing backing from Roger Federer, which crushed expectations in its latest earnings report. Among the company’s highlights was Hellen Obiri winning the Boston Marathon for the second year in a row “running in On head to toe, including groundbreaking new footwear technology, which On will reveal in Paris this summer,” On co-founder and co-executive chairman Caspar Coppetti said in a recent call with analysts. The company indicated its big marketing push for the year will be around the Paris Games this summer.

Betway parent Super Group (SGHC, up 15%) was another top performer, also exceeding Wall Street expectation in its first quarter reported in the month, despite a widening loss in the U.S. Tellingly, CEO Neal Menashe didn’t rule out exiting the U.S. sports betting market altogether in response to an analyst question floating the possibility.

“This is a waiting game, a game over time different states can regulate,” said Menashe, referring to the potential for more profitable mobile casino wagering to open up. “You got to be in place to have a chance of success and we fully understand that. But there’s a cost for being in play and we just got to make sure what that cost is and weigh it to up.”

The Sportico Sports Stock Index is a basket of 40 stocks that reflect the state of the sports business. The index includes publicly trade sports teams, like the ‘not for sale’ Atlanta Braves (BATRA, up 4%) as well as broadcasters, sporting goods makers, arena and venue operators, ticket brokers and specialized sports-focused businesses such as scoreboard maker Daktronics (DAKT, up 18%). The index was formed in August 2020 at 1,000—it is up 15% since—and is equal weighted, meaning it is periodically rebalanced with each stock comprising 2.5% of the index value. The index opens June freshly rebalanced with no new stocks added or dropped.

To be a part of the index, companies must be traded in the U.S. in sufficient volume and with a market capitalization of at least $50 million and be reliant on sports for a significant portion of their business or future growth expectations. Stocks are added and dropped from the index quarterly, as needed.