Wanna bet?
I do. And here it is: I bet that betting is going to be big.
Just seven short months ago, the Supreme Court cleared the way for states to allow sports gambling if they want to.
Over my 25 years of investing experience, I cannot remember many things that come close to the magnitude of the May 14 ruling in terms of the investing opportunity that opened up. As states became free to decide if they want legal sports betting, it didn’t take long for several to move in that direction.
In 2017, the only state that allowed true sports gambling was Nevada, where a total of $4.87 billion was wagered. That was peanuts compared to the estimated $150 billion bet through illegal bookies around the country.
And it leaves a whole lot of room for this transition from illegal to legal sports betting to be a huge opportunity.
Sports betting is now up and running in seven states. Arkansas just voted to legalize it in November. New York has a partial bill active and is considering more. Seventeen other states have also considered it.
Well over half of the U.S. will likely allow sports gambling in the next few years. Eventually, it will be coast to coast.
The truth is that money talks. States constantly battle budget shortfalls, so a new revenue source can always make its way onto a ballot – especially when a neighboring state is already bringing 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. That’s strong incentive for legalization.
Look for 2019 to be a banner year for sports betting, starting with the biggest betting event of all – the Super Bowl. My Philadelphia Eagles may or may not get a chance to defend their championship, but a lot of folks will be able to place a legal wager on that game for the first time.
Multiple Ways to Profit
Massive amounts of money are involved in sports betting. That makes it an exciting and investable theme. I also like that there are multiple ways to profit.
You could bet a lot of money on your favorite football team in hopes of a quick double… but please don’t. That would be a dumb idea, even if it sounds fun.
Instead, you can look to a number of players positioned to take a big piece of the growing sports gambling pie. I’ve recommended a few already in Investment Opportunities.
One would be the casinos that can easily add a sportsbook and attract gamblers who are already on their properties.
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 you want to own companies at the forefront of this technology.
Then there are the bookmakers that have been around for years overseas, predominantly in the UK.
And finally, there are the professional sports leagues and teams themselves.
Betting on Leagues
Most investors look right past the leagues and teams. That’s a mistake. Without the leagues, the teams, and the players, there is nothing to even bet on. You can also bet they want in on the action.
We’re seeing the first stages already. Just last week, the NBA announced a multiyear partnership with the largest online poker company in the world. The Stars Group (TSG) is known for its PokerStars brand, but it also boasts one of the fastest growing online casinos and sportsbooks.
TSG is now an “authorized gaming operator” of the NBA. This is big for a couple of reasons. First, the company can use images and logos. If you’re betting on the Chicago Bulls, TSG apps and websites can show the famous red bull scowling at you.
Even more significant, The Stars Group has access to official NBA betting data. The league already wants legal operators to use its data because it is reliable and transmitted quickly. This is especially important with the growth of in-game betting, which constitutes an estimated 40% of bets at the moment. That number will probably get larger.
Here’s how in-game betting works: Say you’re sitting courtside at the NBA Finals as the Philadelphia 76ers are poised to win their third consecutive championship. (Okay, I know there’s a difference between betting and fantasy, but hey, it could happen!) Instead of betting on the outcome of the game, you pull out your smartphone and place a wager that Joel Embiid will make his next free throw. Swish. The $50 bet just paid for your food and drinks for the evening.
My Top Sports Betting Technology Pick
I recommend The Stars Group in Investment Opportunities as my top pick on the technology aspect of sports gambling.
The Stars Group is shifting its business model from being a leader in poker to becoming a leader in the whole industry, including sports gambling. The process has not been as smooth as I would have liked, and the stock has been cut in half in the second half of this year.
The latest earnings report showed what’s to come. Revenue increased 74% over the prior year. The company’s international division reported solid organic growth. TSG also got up and running in Pennsylvania and New Jersey. In late November, it announced a deal with Eldorado Resorts. The 20-year agreement allows Stars to offer online sports gambling, gaming, and poker under Eldorado’s licenses.
Investors who have dumped this stock the last several months are missing the long-term potential. We see this all the time in emerging industries, and they later regret it. As a result of the selling, TSG is now extremely undervalued. It is trading at just 6.5 times next year’s earnings expectations of $2.46 per share. That’s way too low.
The online gaming market was set for explosive growth even before the Supreme Court’s ruling. It was a $42 billion global industry in 2017, and that figure was expected to increase to $57 billion by 2021. As sports betting becomes legal in more states, we could easily see another $10-$20 billion added to that number.
The Stars Group is an established leader in online poker, and the new frontier in sports gambling multiplies its potential. The stock could well double in the next 12-24 months as the benefits of the new business model accumulate and more states allow sports betting.
The Stars Group is just one company set to double thanks to the legalization and growth of sports betting. Others include the company with the largest legal online wagering operation in the United States, one of the world’s leading betting and gaming companies with a very popular app, and another is a rare direct investment in professional sports leagues and teams. You can learn the names of these recommended stocks immediately with your risk-free trial subscription to Investment Opportunities. Click here for all of the details.
