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Finding The Profits In Legal Sports Gambling

By Zacks Investment ResearchStock MarketsJun 28, 2019 04:12AM ET
www.investing.com/analysis/finding-the-profits-in-legal-sports-gambling-200435766
Finding The Profits In Legal Sports Gambling
By Zacks Investment Research   |  Jun 28, 2019 04:12AM ET
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Now that the US Supreme Court has given states the power to make their own rules regulating sports gambling, sports fans across the country will have the opportunity to legally place a wager on their favorite team.

This has been the norm in Europe for half a century. The United Kingdom legalized sports betting in 1961 and has thousands of betting shops. It’s very common for the average fan there to “have a few quid” on the outcome of any given soccer match or golf tournament.

The U.K. now also has the world’s largest regulated online betting market, grossing in excess of $7 billion a year. Gambling naturally lends itself to internet transactions and the largest British bookmakers report that between 80 and 90% of transactions now happen via mobile devices.

There’s no reason for gamblers to walk to a storefront betting shop to place their wagers when they can do the same thing quickly and easily from their smartphones.

In the U.S., the action so far has been limited mostly to in-person bets at casinos and racetracks. The Federal Wire Act of 1961 prohibits making wagers over state lines. Then Attorney General Robert F. Kennedy intended the legislation as a tool for the Justice Department to fight organized crime – which was largely in control of illegal sports betting and most commonly made use of the telephone to take bets.

In the current era of legal sports gambling, the Wire Act presents some interesting challenges as well as opportunities for bookmaking businesses.

New Jersey was the first new state to allow and regulate sports gambling and much of the action comes from online bets. In May of 2019, New Jersey sportsbooks took in $319 million in bets, putting it close to Nevada, which averages just a bit over $400 million per month.

And all of the online bets in New Jersey came from within the state. Complying with federal regulations requires that all of the servers and network equipment for gaming operations be physically located inside the state and also that the software automatically verifies that bets are coming from people who are also physically in New Jersey.

Currently there’s no momentum to amend or overturn the Federal Wire Act, so as investors, we’re going to have to assume that all the coming gaming operations in the U.S. will be self-contained inside the states where they are located. We can also use the mature U.K. gaming markets as a guide to show us what the landscape will look like here in the America as our own industry matures.

More . . .


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It’s Illegal in Most States, But Investors Could Make Billions Legally

Be one of the early investors in the newly-legalized sports gambling industry. Betting on sports is a “habit” that Americans spend $150 billion per year to satisfy – twice as much as they spend on marijuana.

As this industry expands, select few stocks will take the lion’s share of the profits. Investors could see huge gains. Zacks’ just-released Special Report reveals 5 stocks to watch. But it’s only available until Sunday, June 30.

See 5 stocks now >>

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Let’s take a look at some of the types of companies who are well positioned to profit from the coming boom in legal sports gambling:

Casinos

Existing casinos, especially in Las Vegas, were not initially pleased with the ruling that opened up the possibility of competition for sports betting springing up all around the country. Big sporting events like the Superbowl and the NCAA basketball tournaments have traditionally drawn big crowds to Las Vegas to bet on sports, but who also spend big money on lodging, entertainment, food, beverages and gambling on things besides sports.

If those same fans can stay home in their own states and make the same sports bets, it will put a dent in Vegas revenues, but forward-thinking casinos realize that they can profit from the expansion of sports gambling rather than suffer.

Multi-state operators will be able to offer sportsbooks in many more states soon and their experience in Las Vegas will give them a big head start against upstart competition. These companies are already skilled at regulation compliance as well as providing an enjoyable customer experience.

So far, the total amounts bet in Nevada haven’t declined at all, but that could change as more states adopt rules that allow sports betting. Overall, the “handle” (total amount bet) on legal sports betting is going to increase nationwide and the casino operators who see that expansion as an opportunity rather than a threat are going to be rewarded.

Racetracks

Much like casinos, horseracing tracks can view the expansion of sports gambling as either a threat or an opportunity. Customers who gamble on horse races are very likely to also want to gamble on other sporting events as well.

Racetracks that provide an environment in which those customers can satisfy all of their gaming desires at once will almost certainly see an increase in total dollars wagered.

The world’s most famous horseracing track has been aggressively acquiring other tracks and casino properties across the country as well as the world’s most popular internet site for wagering on horses. They are well-positioned to add sports gambling to their offerings as it becomes legal in more states.

Technology Providers

A big portion of future sports bets are going to happen over electronic communications networks rather than in-person. The companies who provide the hardware and software technology to sports betting operations are likely to see significantly increased demand for their wares in the coming years.

Fantasy Sports

The two biggest fantasy sports internet sites - FanDuel and DraftKings – did an interesting end-run around the gambling laws even prior to the SCOTUS decision by offering fantasy games (which were already legal in most states) with very short timeframes that could be used to very closely replicate straight wagers on sports.

They also both operate online sportsbooks in New Jersey. It’s difficult to imagine that they won’t both expand to other states as individual laws change.

FanDuel and DraftKings are both privately held with private equity valuations of over a billion dollars each. An attempt to merge the two companies was scrapped after the FTC indicated they would object to the transaction on anti-trust grounds.

It’s not out of the realm of possibility that we’ll see an IPO from one or both of them if they decide to seek capital for further expansion in the public equity markets.

Professional Sports Teams

Finally, after opposing the expansion of legal sports betting for decades, some forward-thinking operations have not only gotten used to the idea, they’re embracing it.

The company that owns two of the most iconic sports arenas in the world as well as two of the most marketable professional sports teams recently applied for a trademark for a sports betting mobile app.

Trademark law generally does not allow a party to just “sit on” a trademark and the application includes a sworn statement that the company has a bona fide interest in using it commercially.

A company spokesman commented, “We have said we’re very interested in the opportunities legalized sports gaming could bring, and recognize that we have a brand…that is recognizable around the world for its iconic connection to sports.”

Slow and Steady Progress

Government prohibition of activities for which there remains public demand generally results in odd inefficiencies. In the case of sports betting, a huge black market emerged and thrived for decades.

Sensible regulation by state governments will bring that activity out of the shadows, providing safety and convenience for customers, profits for operators and taxes for state and local government, while simultaneously depriving organized crime of a profit center.

Ingrained opinions take a while to change so it won’t happen overnight, but eventually, most sports wagering in the US will happen in a legal setting just like in the UK. Companies in many related industries will prosper. An understanding of the landscape will allow investors to profit as well.

Profiting from The Shifting Landscape

According to the best estimates we have, Americans wager approximately $150 billion per year on sporting events. As an increasing number of states legalize sports gambling within their borders, the industry is likely to grow even larger. Well-positioned companies could see an explosive growth in revenue – and their stocks could soar as a result.

In our brand new Special Report, Billion-Dollar Bets: Investing in Legal Sports Gambling, Zacks is revealing 5 stocks poised to make the greatest gains in the months ahead.

When marijuana started being legalized from state to state, pot stocks shot through the roof. We could see a similar surge as sports betting becomes legal in a greater number of states.

Don't wait to check it out. Your chance to download the report ends midnight Sunday, June 30.

Click here to see the 5 stocks >>

Good Investing,

David Borun
Stock Strategist

David Borun is a Zacks Stock Strategist who puts over 20 years of trading and investing experience to work analyzing investment opportunities for our readers and subscribers. He is the editor of our Black Box Trader, Short List and Marijuana Innovators services.



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Finding The Profits In Legal Sports Gambling
 

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Finding The Profits In Legal Sports Gambling

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