The EventShares Policy Playbook series is a group of concise, client-friendly research reports highlighting key policy investment themes. Each Playbook covers background of the policy, U.S. industries and companies impacted, and the emerging opportunity.
The Sports Betting Playbook provides an in-depth overview of the policy, the size of the market opportunity, the investment case and timing. Download the full PDF to read the entire report.
Policy Overview: What's Happening?
Sports Betting was initially outlawed by the Professional and Amateur Sports Protection Act in 1992 (PASPA). This was recently repealed in May 2018 by the U.S. Supreme Court, who ruled in Murphy v. NCAA, to allow for states to license and tax sports gambling either on-site or online. The case had been brought by New Jersey, which wanted to give a boost to its struggling Atlantic City casinos and had tried a series of legal moves to end the federal ban against sports betting in all states except Nevada.
The Numbers: Size of the Opportunity
- 8 States - Number of states, including NV, that have legalized gambling (+2 with states in the on-deck circle: NY, AR)
- 2019 Legislative Docket - 22 states have bills on the 2019 legislative docket (Legal Sports Report)
- $2-6 Billion - Forecasted annual gross win averages over the next five years (International Game Technology - 2018 Investor Day)
Our Take: The Investment Case
Sizing Up the Market. U.S. sports betting is still in the early innings, which leaves many unanswered questions. How big will the market grow? Will casinos be successful in capturing bets from the illegal market and increasing foot traffic? Could sports betting be a way to attract younger generations to casinos? The passage of time will help answer all of these questions. However, the potential for growth is enormous in our opinion.
A European Style Market. Companies in the European market have a head start given that sports betting has historically been more regulated in the U.S. That means most solutions, including bookmarker services and platform technologies, will likely be "imported" from the European Union. It also means a lack of U.S. listed securities through which to invest in the growth of sports betting. For example, mutliple sports bettings companies are primarily listed on European exchanges, leaving thinly traded over-the-counter (OTC) securities and American Depositary Receipts (ADRs) as the only way for U.S. investors to gain exposure. Lastly, history tells us the gambling sector is cyclical, which means these European based companies will rely on global, as opposed to U.S., GDP.
Sport Betting Ecosystem. Casinos and sportsbooks are the betting arenas where bets are placed. The casinos build and interact with the user base of bettors through loyalty programs and promotions. In our view, casinos are not a pure play way to invest in sports betting due to their diverse set of operations in lodging, bars & restaurants, and mix of traditional gambling entertainment. Bookmakers, or the underwriters, are the market makers that pool bets and calculate the odds. The published odds are different from what the bookmaker decides are the true odds, and the bookmaker profits on the spread. Platform technology runs the entire system, including both in casino kiosks and mobile betting apps.
Timing: Significant Actions Taken & Next Steps
A Patchwork of Regulations. The reality is that there isn't a "U.S. sports betting market". It's actually a network of 50 different markets and regulatory regimes, with legalization being considered on a state-by-state basis. As of January 2019, Nevada, Delaware, New Jersey, Mississippi, West Virginia, Pennsylvania, Rhode Island, and New Mexico have each legalized gambling. There are numerous other states that have bills on the schedule in 2019, such as New York, Arkansas, Kentucky, and Massachusetts.
DOJ Memo. The Department of Justice (DOJ) complicated the ongoing sports betting rollout by releaseing a memo. The DOJ said the memo was supposed to clarify how the Wire Act impacts interstate betting and gambling. But it did just the opposite by creating confusion. At risk are technologies and software that facilitate mobile betting and interstate lottery ticket sales. There is a 90 day implementation period, after which no one is sure what DOJ will do next.
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