The Supreme Court Could Open Up A $150 Billion Opportunity

Joseph Hogue's picture

Monday, March 12, 2018 - 2:30pm

by Joseph Hogue

The Supreme Court generally begins hearing arguments in October each year and wraps up in June the following year. Rulings can lag the hearings by several months but are always momentous and can have a big effect on stock prices for related industries.

The court heard arguments last December for a case nearly three decades in the making. The ruling could open up a $150 billion-a-year market in the United States and a decision is expected any day now.

The industry isn’t depending on the ruling for growth. It’s growing at 10% annually on a global level and as much as 6% in the United States alone. A favorable ruling though could send the industry booming.

Not every company in the industry will benefit but I’ve found three names that could see increased sales and surging investor sentiment.

One Of The Biggest Supreme Court Decisions Of The Year
The Supreme Court heard arguments in Christie vs. NCAA late last year, a case brought by former N.J. Gov. Chris Christie against the 1992 Professional and Amateur Sports Protection Act (PASPA) that prohibits all but a few states from implementing sports gambling.

The court is expected to render its decision any day now in a move that could dramatically increase gambling in the United States.

Where past challenges to PASPA have failed, this time looks increasingly different with officials on both sides coming down in favor of repeal. Analysis of the proceedings on Scotusblog, an unofficial blog reviewing Supreme Court cases, pointed to many of the Justices appearing to favor a repeal of the Act.

States are eager to fill budget gaps with billions of dollars in potential taxes and fees from sports gambling and members of the professional sports community have recently come out in favor of expanded gambling as well. In fact, Connecticut has already passed legislation to authorize sports betting if PASPA is repealed.

Several states, including Arkansas, Delaware, Florida, and Indiana, have already lowered the legal age to bet on horse racing to 18 and Nevada is considering lowering the legal age for all games.

Research firm Eilers & Krejcik estimate that 32 states could adopt some form of sports betting if PASPA is overturned, resulting in as much as $6 billion in annual revenue by 2023. The firm estimates that as much as $3 billion is being earned every year by offshore bookmakers and that up to 15 million Americans place illegal bets every year.

The American Sports Betting Coalition estimates that Americans place $58 billion each year on NFL and college football games alone, of which 97% is placed illegally. Total illegal sports betting in the U.S. could be as high as $150 billion annually.

The global casino market is by no means dying but it hasn’t had a catalyst like this since the first casinos opened in Macau in 2008. Overturning PASPA adds hundreds of billions in economic impact to gambling’s largest market.

The global casino gaming market is expected to grow at a 10% annualized rate over the five years through 2021 according to Research and Markets, with the U.S. gaming market projected to rise 6% annually over the period. Gambling revenues in Nevada alone increased 3.3% from the prior year to $980 million in September 2017 with a faster pace of 4.7% in Las Vegas.

Not All Casino Stocks Will Benefit From Legal Sports Betting
Not all casino or gaming stocks will benefit from legalized sports betting. Many of the largest, traditional companies do not have the geographic diversification throughout the United States to take advantage of a state-by-state change to betting laws.

Churchill Downs Inc (Nasdaq: CHDN) is known for its horse racing track in Kentucky but also owns nine casinos, four racetracks, a network of off-track betting sites and an online horse racing betting site. The individual casinos span eight states including population centers in New York, California, and Florida, and could all expand to sports betting as well.

The online betting platform could give the company a first-movers advantage in expanding to other online betting. TwinSpires is the largest, legal mobile betting operator in the United States, with wagers placed in 40 states and as 12.5% annualized growth in revenues over the last three years.

Stars Group (Nasdaq: TSG) operates the world’s largest online poker site, PokerStars, as well as an online sports betting service BetStars and one of the world’s fastest-growing online casinos, PokerStars Casino. The company books 64% of revenue from the E.U., followed by 18% in non-E.U. Europe and 13% in the Americas.

Customer registrations are growing at a 9% annualized pace, reaching 115 million in the third quarter of 2017. Casino and sports betting revenue jumped 43% in the most recent quarter and a repeal of PASPA could make the company a prime takeover target for larger gaming companies looking to jump into the market.

Boyd Gaming (NYSE: BYD) operates two dozen casinos in seven states, which gives it a geographic advantage as states roll out their individual gaming laws if PASPA is overturned. The sale of its 50% stake in the Atlantic City Borgata helped to pay down debt and increase balance sheet cash to $203 million, potentially giving it financial flexibility to position in sports betting this year.

The company’s casinos in 14 different markets, largely in the Midwest and South, target a local middle-class demographic -- a prime audience for sports bookmaking. The Board of Directors reinstated the dividend program in May and $92 million is authorized and remaining in the repurchase program.

Risks To Consider: The decision could still come down against sports betting, so investors should only position in shares of solid companies with long-term potential even without a favorable ruling.

Action To Take: Position ahead of the Supreme Court’s ruling on legalized sports betting in gaming stocks that could have a first-movers’ advantage.

Editor's Note: You know how in sports, some players unintentionally signal what they're about to do next? Like when a pitcher accidentally lets a batter see his grip on the ball before he throws it?

Well this kind of "tell" doesn't only happen in sports... but in the stock market too! And if you can spot this subtle sign... you'll know exactly what a stock will do... before it makes its move. Here's how you can spot it.

Joseph Hogue does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.