How to Win at March Madness

How an investment in this fledgling trend today could be worth a fortune in the years to come

I could be wrong, but I suspect that you have not filled out the perfect NCAA men’s college basketball tournament bracket.

After all, the odds of that happening are 1 in 9.2 quintillion.

Fun fact about this — if you’re able to pick even the perfect “Sweet 16” bracket, then Warren Buffett will happily pay you $1 million a year for the rest of your life (unfortunately, the caveat is you must be an employee of Berkshire Hathaway).

Let me back up. For all our non-sports-fans-Digest readers, I’ll explain what’s going on …

Last night, the NCAA men’s college basketball tournament tipped off. This is a period affectionately referred to as “March Madness.” It’s a 68-team, single-elimination tournament that will be played over 19 days.

Around 70 million tournament brackets will be filled out as people guess at which teams will advance throughout the rounds. And yes, there will be betting. On average, fans will fill out four different brackets, putting in $30 per bracket.

(I will not fill out a bracket. My alma mater is the University of North Carolina at Chapel Hill. If I fill out a bracket, I jinx the Heels. Case in point, in 2016, I broke my no-bracket-rule and the Heels lost to Villanova in the Championship game. In related news, I’m still in therapy … )

According to Reuters, about 47 million people — that’s about one in five U.S. adults — are going to bet $8.5 billion on March Madness. The American Gaming Association puts that number even higher at $10.4 billion.

In today’s Digest, we’re going to talk about the investing implications of legal sports betting.

You see, for the first time in college basketball NCAA Tournament history, legal sports betting is now available beyond Nevada. That’s due to a groundbreaking Supreme Court decision last spring. The outcome of that case is the opening of a multi-billion-dollar investment market, and you and I can get in on at the ground floor. In this Digest, we’ll talk about how.

Before we dive in, one quick disclaimer: As mentioned a moment ago, I graduated from the University of North Carolina. Given this, I would appreciate it if all of you loathsome Duke fans would stop reading at this point. I simply couldn’t live with myself if I helped you all make any money …

***Billions of dollars are about to change hands as fans bet on March Madness

This is the first year the tournament will be held since the landmark U.S. Supreme Court ruling last May that allowed states to legalize and tax sports betting.

Matt McCall is our analyst who tracks the major trends that are re-shaping our world, and by extension, generating huge amounts of investment wealth in the process. Legalized sports betting is one of those trends which he believes has major investment implications.

From Matt’s July issue of Investment Opportunities:

On May 14, 2018 … the Supreme Court ruled by a 6-to-3 margin to eliminate the 1992 federal law prohibiting nearly every state from allowing sports betting. The decision is now up to each individual state.

In 2017, the only state that allowed true legal sports gambling was Nevada, where a total of $4.87 billion was wagered. An estimated $150 billion bet illegally across the country in 2017 — about 30 times more.

If you can grasp the significance of those numbers, you’re well on your way to making a fortune in the great American sports betting boom.

***So far, eight states have fully legalized sports betting

They are Delaware, Mississippi, Nevada, New Jersey, New Mexico, Pennsylvania, Rhode Island and West Virginia (click here for a rundown on where you can place bets in each state).

But if projections are right, we’ll be seeing many more states added to this list soon. Back to Matt as to why:

The reason all these states want on board is simple: money. The potential tax revenue is too big and too important to ignore. Think about it: If Nebraska decides it will not offer sports gambling but the surrounding states do, you can bet (pun intended) that Nebraska will lose millions in tax dollars.

According to the American Sports Betting Association, states stand to generate $4.8-$5.3 billion annually through taxes related to sports gambling. This is not a huge number considering the massive budgets for most states, but it is more than enough incentive to push for the legalization in most cases.

***It’s at this point that Matt begins building the case for just how big of a market legal sports gambling could be

It’s difficult to know for sure how much money is illegally wagered on sports in the United States each year. As I mentioned, the estimate comes in around $150 billion. And remember, with only $4.87 billion wagered legally in Nevada in 2017, that means approximately 97% of all sports gambling is through illegal channels.

There is no doubt that a large percentage of those illegal bets will soon move over to legal channels. The questions are how quickly that will occur and what the revenue numbers will be.

Matt then uses Nevada as his case study. In 2017, the state generated gross revenues of nearly $250 million through legal sports betting. That means the state made 5.1% of the total amount wagered. Back to Matt:

Now, let’s apply that same 5.1% to the $150 billion that was bet illegally. The result? $7.66 billion in gross revenue — or a whopping 31 times what was generated in Nevada last year!

Matt isn’t the only one projecting big numbers from legalized sports betting. An article from Reuters on Monday points toward the potential size of the market:

A report from Eilers & Krejcik gaming analysts on Friday estimated that if all 50 U.S. states had legal online sports betting, sportsbooks would handle $15.2 billion of total wagers just for March Madness alone, grossing about $1.2 billion of revenue.

By March of 2023, as many as 39 states could have legal sports betting, Eilers & Krejcik found.

A different report from the group Gambling Compliance estimates we’ll see revenues of $648 million in 2019. Yet that number will grow to between $3.1 and $5.2 billion by 2023. On the high end, that’s over 700% growth in just four years.

***So, with this much potential, what’s the right way to play this investment trend?

Let’s return to Matt’s issue for his take on this:

There are a number of players in the industry that can all succeed and take a big piece of the growing sports gambling pie. The most obvious would be the casinos that can easily add a sportsbook and attract gamblers who are already on their properties. They also have another advantage because in most states you must have a physical property, such as a casino or racetrack, to obtain a sports gambling license.

Plus, technology is needed to power the gambling experience on land and on mobile. In the coming years, the majority of wagers will be placed via apps, and we want to own companies that are at the forefront of this technology.

Then there are the bookmakers that have been around for years overseas, predominantly in the UK. Paddy Power Betfair is already making a big move into the United States … And then there are the leagues and the teams themselves.

Given all these options for investing in legalized sports gambling, Matt suggests a basket approach. In other words, rather than limit yourself to one niche or sector, invest in multiple areas, picking the best company in each. He likens this to building your own sports gambling ETF — yet without having to pay fees and buy certain stocks you don’t like. This approach also offers the benefit of diversification.

To learn more from Matt and get his specific recommendations, click here.

“This is just the tip of the iceberg,” Matt told me, when I reached out to him about today’s Digest. “This is the first year of legalized sports gambling here in the U.S. In a couple years, you’re going to see massive growth and that’s why we’re investing today.”

If this isn’t an investment area you’ve considered before, it’s worth your time to give it more attention.

Have a good evening, and Go Heels! (Booooo Duke!)

Jeff Remsburg

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