We are nearing a month away from the U.S. Supreme Court decision striking down the federal ban on sports betting and interest in the topic still appears to be growing.
Almost every company, it seems, figures it has a unique approach, platform or service that will allow it to take advantage of this new opportunity. And we’ve filled this space with a sampling of the most frequently mentioned names—William Hill and Paddy Power Betfair among bookmakers, regional casino companies who operate in states likely to legalize sports betting, Scientific Games and IGT among those with technology and experience, account wagering operators like Churchill Downs, and many others.
In addition, there are companies filling niches not often considered by the casual observer, such as those providing data like Sportradar, or those that set odds like DonBestSports, as well as payment processors, and so on.
As always, the question for investors is how to profit from this. As mentioned in this space previously, one way is to take a basket approach. That is, rather than trying to pick individual winners and losers now, pick a variety of prominent companies operating in different areas of sports betting knowing that some will hit home runs, some won’t, but that you’re likely to have some home run hitters in your basket and finish ahead of the game.
One problem with trying to pick individual winners now is that so much is unknown.
For example, will online sports betting be allowed? Digital wagering provides more than half of sports betting revenues in the UK, as an example. And UK bookmakers have literally hundreds of neighborhood betting shops.
In the U.S., the model might be more like limiting sports betting to already licensed casinos. If that is the case, and if online sports betting is not allowed, sports betting is likely to be more an amenity for casinos than a huge revenue source. Remember, sports betting provides just about 2.6 percent of revenue to Nevada casinos.
Then there is the question of whether state lotteries participate and, if so, whether that means sports bets can be made wherever lottery tickets are sold, like your corner newsstand or nearby liquor store.
Then there are questions of integrity fees, revenue taxes and any financial participation the sports leagues can wrangle from state legislatures. If terms for this low-margin business are onerous enough, legalized sports betting might not put your local bookie out of business, after all.
Even in many states that want to legalize sports betting, questions will arise whether Indian tribes given gaming exclusivity will block out sports betting elsewhere.
Finally, how many states will legalize and when?
As you can see, there are lots of questions to be answered before a clear picture can be painted.
Not Your Father’s MGM
The announcement that MGM Resorts is buying Empire City casino outside of New York City is the latest example of diversification for the company.
MGM has been the most Las Vegas-centric of the major casino companies, but that is growing less true. Within two years, MGM has opened a second and potentially much more profitable casino in Macau, opened MGM at National Harbor outside of Washington, D.C., will have opened a casino in western Massachusetts, has spun off a REIT, and now is entering New York City.
And in Las Vegas, MGM has been broadening its business with the construction of more convention and meeting space, building a major arena, and transforming Monte Carlo casino into a more upscale property.
MGM has also monetized assets by selling them, such as joint venture properties—Mandarin Oriental hotel and Crystals shopping center at City Center in Las Vegas and Grand Victoria Casino in suburban Chicago.
And while all of this has been happening, MGM has put efforts into becoming more profitable, improving its balance sheet and starting the process of returning capital to shareholders.
The result is a company that appears to have evolved a holistic strategy for growth and rewarding shareholders.
