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Why It’s Hard to Bet on MGM Resorts

If you’re a contrarian investor, there is one part of MGM Resorts (NYSE:MGM) franchise that makes MGM stock intriguing. The company has created BetMGM, a mobile betting app that allows the company to play an active role in the emerging legal sports betting market.

MGM Stock: Why It’s Hard to Bet on MGM Resorts

Source: Jason Patrick Ross / Shutterstock.com

People have engaged in illegal sports betting for years. However, in 2018 the world of sports betting became a whole new ballgame. The U.S. Supreme Court issued a decision that struck down the Professional and Amateur Sports Protection Act. And just like that, betting on sports was legal.

But, it’s not available in all 50 states yet; only 16 states allow full-scale sports betting. However, with visions of massive tax revenue dancing in their heads, state legislatures in 31 additional states are taking steps to legalize sports gambling.

Sports Betting Was Supposed to Be a Catalyst for MGM

According to Morgan Stanley analyst Thomas Allen, legal sports betting revenue was less than $1 billion in 2019, but is expected to grow to $7 billion by 2025. The total size of the current illegal sports betting market, according to Allen, is $150 billion.

Enter BetMGM. MGM Resorts created the app through a joint venture called Roar Digital. Its partner was gambling operator GVC Holdings. BetMGM allows users to be on pro and college football, as well as other sporting events such as Major League Baseball, the National Basketball Association and the National Hockey League.

And MGM is moving fast to seed BetMGM into every state where sports betting is legal. They have notable partnerships with Yahoo! Sports and Buffalo Wild Wings restaurants.

But for the moment, none of that matters.

The Coronavirus Called a Timeout on Live Sports

I can’t say sports is the only thing I miss during this time of social isolation, but it’s in my top five. I miss the competition and the story lines. I miss that sense of community that live sports bring to our nation. I don’t wager on sports, but there are many Americans that are missing that “action” more than the action on the field.

Cancelling March Madness – the NCAA college basketball tournaments – already removed one of the most popular activities for wagering on the sports calendar. Many sports fans miss baseball, basketball, and even golf. And there’s a collective sadness at the postponement of the scheduled Summer Olympics.

But there’s one target that is being closely watched. Football is the sport that every company with a stake in the sports betting industry is watching. Because when it comes to sports betting, there is football and there is everything else.

If football is postponed or outright cancelled this year, it will be a blow to BetMGM. However, even if it opens on time (perhaps without fans), there is still an obstacle for MGM stock.

In all of the partnerships listed above, there was one sport that was notably missing, the National Football League. And that’s where the story gets a little interesting. As it turns out, Eldorado Resorts (NASDAQ:ERI), the company that bought some MGM properties in 2015, is in the process of buying out Caesars Entertainment (NASDAQ:CZR). Caesar’s is the official partner of the NFL. And when the buyout is complete, Eldorado will have access to Caesar’s nationwide network of sports books.

We Live In a Different World

By now, there’s almost nothing left to say about the novel coronavirus that hasn’t already been said. My colleague Josh Enomoto wrote about the likelihood that it will be well into May before the number of new cases begins to abate in the United States. And even with the economy opening in fits and starts, it’s unlikely that Las Vegas will be anything resembling business as usual until the fall at earliest.

The reality is that MGM has a nice balance sheet. With $3.9 billion in the bank, MGM has opted to turn down money from the federal government, at least for now. The company should be able to weather the lack of revenue from its casinos. Because human nature being what it is, I suspect Las Vegas will not be hurting for customers for very long.

BetMGM would be an interesting way to see the company generate some revenue in these lean times. However, the coronavirus seems to have other ideas. Right now the only thing people may be betting on is when they can start betting on sports again. And that’s not a reason to bet on MGM stock.

As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/why-its-hard-to-bet-on-mgm-resorts/.

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