Sports betting.
A ton has been written about it since the Supreme Court ruling, but how should investors play the coming phenomenon?
First, some observations.
Sports betting will not revolutionize the U.S. gaming industry. It will benefit many companies to some small degree, some companies significantly, and will be a boon to a few. Ironically, among those who will benefit the most will be the owners of major league sports teams who fought sports betting for so long.
We will not know for certain who will benefit or by how much until legislation is enacted and regulations adopted. For example, will Congress develop a national framework as the Supreme Court said it could do and the gaming industry would like to see? Or will there be a crazy-quilt patchwork of laws enacted by various states?
Congress coming to a consensus on sports betting seems unlikely, and so many states are eager to jump in that they may speed past any chance for a federal solution. Remember, once a number of states enact laws, their congressional delegations become defenders of their status quo. And with big states like New York and Pennsylvania joining in, that’s a lot of congressmen.
So, a state-by-state progression appears most likely, and that could create problems. For example, how will Pennsylvania develop with a 34 percent revenue tax? Or what happens in states that implement a 1 percent so-called integrity fee (equivalent to a 20 percent revenue tax) on top of a revenue tax?
Then there are lots of unanswered questions. Will sports betting be allowed online? Will Indian tribes be allowed to offer sports betting off their reservations if online is permitted? Will states that have compacts that give Indian tribes gaming exclusivity find themselves boxed out of allowing sports betting to non-tribal entities?
In states that limit sports betting to casino properties, the result will be a nice, but not revolutionary, addition to casinos. Using Nevada as the example, less that 2.6 percent of gaming revenue comes from sports betting.
In states that allow online betting with reasonable taxes and regulations, the results should be far more significant.
So, who benefits?
- • Regional casinos, especially in states that allow online betting. For public companies, that means Caesars, Boyd, Penn National, Eldorado and Churchill Downs.
- • Bookmakers, especially those experienced in online wagering: William Hill, Paddy Power Betfair, and any others that can land American contracts.
- • Providers of betting platforms and services, such as Scientific Games.
- • Companies with advanced deposit wagering businesses that have existing customer bases: Churchill Downs, Paddy Power Betfair and privately held Stronach Group.
- • Companies with extensive experience. IGT might not be a name that first comes to mind, but the company has considerable related experience in Europe.
Assuming sports betting legalization is accompanied by legalization of online gaming, winners will include companies offering those services such as 888 and GAN, Scientific Games, Gamesys, and GVC.
There has already been a rush of companies doing or contemplating deals.
Paddy Power Betfair wants to buy daily fantasy sports giant FanDuel, expanding its U.S. customer base.
Rush Street Gaming’s Rush Street Interactive has signed a deal with Stockholm-listed Kambi Group for its sports betting platform.
Churchill Downs has signed on to use SBTech’s platform.
Playtech is a leader in the online platform business.
So, how do investors play this fast-changing phenomenon, especially with so many companies listed in different countries?
In this era of ETFs there might soon be some sports betting funds to select. In the meantime, a basket approach may be wiser than trying to pick winners. Pick some regional casino operators, some bookmakers, some platform providers and some online operators. Then watch events unfold.
