Election Day 2020 was significant in many ways, but to keep the political discourse to a minimum, let’s talk financial market implications. With the exception of cannabis, few industries won at the ballot box on par with gambling. Just look at special purpose acquisition company (SPAC) Landcadia Holdings II (NASDAQ:LCA). For the week ending Nov. 5, LCA stock jumped 10%.
If you don’t live in the following states or were simply paying attention to bigger Election Night issues, Louisiana, Maryland and South Dakota joined the roster of states where sports wagering is now legal. That brings the tally to 25 states and Washington, D.C. – 19 of which are “live and legal.”
For those not familiar with LCA stock, the above is important because the SPAC is serving as a gateway for Golden Nugget Online Gaming (GNOG) to go public. GNOG’s business is, you guessed it, online sports betting and internet casinos.
Investors have seen politically driven moves like this before with sin stocks. Such gyrations occurred in elections prior to this year with cannabis stocks, eventually chastening investors in the process. However, Landcadia’s recent move isn’t all that exaggerated. Larger rivals DraftKings (NASDAQ:DKNG) and Penn National Gaming (NASDAQ:PENN) jumped an average of more than 16% for the week ending Nov. 5.
LCA Stock State Analysis
Entering Election Day, GNOG was operational in just New Jersey, with eyes on an imminent launch in Michigan. The Garden State is significant because it’s the largest sports wagering market in the country and has a robust, fast-growing iGaming market.
Michigan is a newer entrant to the sports betting and internet casinos fray. Broader rollout of those offerings is expected to happen early next year, but the state is undoubtedly alluring for operators such as GNOG because it’s one of the largest in the Midwest. And when it comes to sports, despite the recent struggles of Detroit teams, fans in the state are passionate, be it about Motor City pro franchises, Michigan State or the University of Michigan.
Looking at what happened on Election Day and its implications for GNOG, South Dakota doesn’t mean much because sports betting there will be, at least to start, confined to a casino in the tourist town of Deadwood. Louisiana and Maryland, however, are far more meaningful to Landcadia investors.
Starting with the Pelican State, residents in 55 of the 64 parishes signed off on sports betting. Louisiana is important to the Landcadia/GNOG investment thesis for a couple of reasons. First, parent company Golden Nugget operates a land-based casino in the state, meaning GNOG should easily swim through the application process.
Second, Louisiana has a rabid sports culture. Finally, neighboring Texas, the second-largest state in the country, won’t be legalizing sports betting anytime. Not next year, not the year after and probably not for years after that. All of that adds up to opportunity for Landcadia investors.
Maryland is equally compelling. It’s got an impassioned fan base, a decent number of professional and college teams, plus favorable income demographics, which mean more discretionary income to throw at things like gambling.
For GNOG, the issue will be getting licensing approval in the Free State. That shouldn’t be a problem, but the company doesn’t have the structural advantages of a previously operating casino there as it does in Louisiana or New Jersey.
Landcadia Futures Bets
With Election Day 2020 in the books, at least as far as sports betting is concerned, it looks like near-term political catalysts to move Landcadia are in short supply.
That doesn’t mean investors should doubt the potential for significant upside going forward. The takeaway from this year’s election is that Americans, regardless of voting proclivities, are increasingly open-minded about vices.
Need convincing? Consider this: In one day, South Dakota legalized medicinal and recreational marijuana as well as sports betting. That says the political landscape is increasingly favorable for names like GNOG, and with more states needing cash in the wake of Covid-19, more are likely to turn to sports wagering and iGaming. That speaks to long-term opportunity with Landcadia.
On the date of publication, Todd Shriber owns shares of DKGN and PENN.
Todd Shriber has been an InvestorPlace contributor since 2014.
