This coming Sunday’s Super Bowl will likely set new records for the size of legal betting. Why investors should take note …
Super Bowl LIV, featuring the 49ers and the Chiefs, takes place this Sunday.
With that in mind, how much would you put on the following bet:
Will either team score in the final 3 1/2 minutes of the game?
It’s a juicy wager, as it’s paid out in five straight Super Bowls … and in 21 of the past 26.
But if that one isn’t to your fancy, you could also bet on whether the 49ers will convert their first third-down attempt … or whether Patrick Mahomes (quarterback for the Chiefs) will throw an interception … or how many quarterback sacks the 49ers defense will have.
You could even go with a non-football bet — what will be the length of the national anthem sung just prior to kick-off?
The singer this year will be pop star, Demi Lovato. Oddsmakers have studied her singing style and past performances, and as of a few days ago, they’ve set the line at exactly two minutes. So, you’d bet on whether she’ll finish the anthem in under, or over, 120 seconds, exactly.
The point is, a lot of betting is about to go down this coming Sunday.
How much exactly?
Well, last year, gamblers placed roughly $6 billion in legal bets on the Super Bowl. That was up 26% from 2018.
And in the past 12 months, the number of legal-wagering states has nearly doubled, so while we don’t know exactly what the total bet size will be this year, “far more” is the safe answer.
Focusing on “just Vegas,” expectations are this year’s betting tally will crush the prior record of $158.6 million, set in 2018, when the Eagles upset the Patriots in that year’s Super Bowl.
Pulling back, if you’re unaware, legalized gambling is starting to become big business … and by extension, a huge investment opportunity.
In fact, the potential is so great, that two of our InvestorPlace analysts — Matt McCall and Eric Fry — have taken notice independently, and have established related positions in their newsletter portfolios. They both agree — there’s a lot of money to be made in legalized sports gambling.
So, in today’s Digest, as we prepare for Super Bowl LIV, let’s make sure you’re aware of how this once-illegal industry is becoming a major investment story.
***How we got here, and where sports gambling is going
It was back in 1992 when the Professional and Amateur Sports Protection Act became law. This banned sports betting in the U.S., except in Nevada.
All of this changed on May 14, 2018, when the U.S. Supreme Court overturned the law by a 6-to-3 vote.
Now, the Supreme Court decision didn’t legalize sports gambling — rather, the decision made it not illegal. This means it’s up to each state to decide if, how, and when sports betting operates within its borders.
But states are already deciding … and they’re saying “yes” to legalization.
Eric provided this update to The Speculator subscribers last year:
… New Jersey became the very first state to legalize sports betting. Since then, 12 more states have gone live with sports betting platforms. And within the next three years, more than half the states in the union will approve sports betting in some form, according to Eilers & Krejcik Gaming.
The adoption rate could easily exceed this estimate. In fact, American Gaming Association President Bill Miller predicts a total of 40 states will legalize sports betting within the next five years.
As we covered here in the Digest this past November, Colorado became the most recent state to take the step into legalized betting, when Colorado residents voted in favor of Referendum Proposition DD, which legalize sports gambling in Colorado’s casinos.
Here’s the most recent snapshot of how the various states are addressing gambling:
***Given how many states are legalizing now, what sort of growth projects do experts anticipate?
Here’s where we begin to see the investment implications.
For revenue projections, Matt pointed his Investment Opportunities subscribers toward a research report predicting legal annual gaming revenue of $6 billion in the U.S. by 2023. That’s based on 32 states legalizing sports gambling.
The firm’s research report goes on to say that if all 50 states legalize sports gambling, annual revenue could reach $15.8 billion on a total of $245 billion wagered in just five years …
Let’s look at the most exciting number of all. If revenue climbs from $248.8 million in 2017 to $15.8 billion in 2022, we’re talking about a 63-bagger!
That kind of growth opportunity is rare, especially outside of world-changing technology.
***The current challenges when it comes to investing in sports gambling
In a moment, we’ll look at how you might play this growth. But first, let’s be clear about some of the complexity when it comes to investing in sports gambling.
As mentioned earlier, the landmark Supreme Court decision in 2018 didn’t legalize sports gambling. Instead, it simply made it not illegal. This means it’s up to the individual states to enact their own laws and rules.
That means, at present, there’s no one, simplifying law. So, some states will restrict gambling to casinos. Others will allow both casino-based betting and online platforms (New Jersey and Pennsylvania have already done this). Other states will choose to run things through their lottery systems, similar to Rhode Island.
The complexity doesn’t end there. Here’s Eric for more:
Many tribal casinos are eager to introduce sports betting … and these operators will impose their own sets of rules and processes. Gaming companies that hope to gain a piece of the sports betting pie must forge deals state-by-state, tribe-by-tribe, casino-by-casino.
That’s a lot of heavy lifting, and very few companies are up to the task. But those that are up to it can capitalize on an enormous — if somewhat tedious — opportunity.
***So how can we invest in legalized sports gambling?
A few days ago, Barron’s ran a feature article on the rise of sports gambling stocks. Here’s the headline if you missed it …
The article points toward Diamond Eagle Acquisition (DEAC). It’s a special purpose acquisition company, (SPAC), that reached a deal this past December to buy DraftKings. You might have heard of DraftKings — it’s a big name in online sports betting. Of course, you need to be careful here, as DraftKings is currently unprofitable.
As another way to play the theme, Barron’s goes on to point toward the casinos, included MMG Resorts, Wynn Resorts, and Las Vegas Sands. This overlaps with how Matt sees the various investment opportunities.
There are a number of players that can take a big piece of the growing sports gambling pie. The most obvious are the casinos that can easily add a sportsbook and attract gamblers who are already on their properties …
By the way, the timing here is interesting. As you know, fear of the coronavirus hit markets hard yesterday, and casino stocks in particular sold off sharply. Wynn, LV Sands, and MGM were all down — Wynn dropped as much as 8%.
While we don’t know whether the coronavirus-related selling is done yet, these discounted prices are certainly making a long-term play on the casinos look more interesting.
Back to Matt for other investment ideas:
There are the bookmakers that have been around for years, many of these overseas. Several are making big moves into the United States as they struggle on their home turf, including one I recommend in Investment Opportunities.
Then, 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, so there are opportunities in companies at the forefront of this technology.
This “tech” angle is what’s driving Eric’s preferred ways to play it.
His pick operates the “guts” of sports betting processes for casino companies and online betting sites. On behalf of its clients, this company sets, or resets, odds on sports bets 480 million times every month, or 100 times per second. To sign up for Eric’s newsletter and learn more, click here.
As wrap up, one of the big things to watch in 2020 will be what happens with California, Florida, Texas, and New York. Together, these states account for one-third of the U.S. population. So, if we see meaningful legislative reform from any of them, expect gambling profits to start coming much faster … and bigger.
If legalized gambling hasn’t been on your investment radar, give it a look.
By the way, I’m taking the “over” on Demi Lovato and the 2-minute mark. The last time she sang it was in Las Vegas at the Mayweather/McGregor fight in 2017.
Have a good evening,