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SCOTUS Decides to Let States Regulate Sports Betting, Who Wins and Loses?

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The U.S. Supreme court announced Monday that it has decided 6-3 to allow states to regulate their own sports gambling, overturning a 1992 law that outlawed sports gambling nationwide except in the state of Nevada where it has been legal for decades.


The ruling does not mean that sports gambling is immediately legal across the nation, but rather that states are free to devise their own regulatory structures, potentially allowing betting on sporting events in several states where the move has public support.


Nevada-based casinos and collegiate and professional sports leagues have been staunch opponents of an expansion in sports gambling.  Vegas Casinos have had a near-monopoly on legal sports betting which they are reluctant to relinquish.  The NCAA, NFL, NBA and MLB have expressed concern that widespread gambling on their events could incentivize nefarious activity on the part of players, coaches and officials. They also have a bit of an image problem.  Though they are aware that illegal betting on sports increases their gate revenue and viewership by an unquantifiable amount, they (and their sponsors) would prefer to be seen as family entertainment rather than an enterprise that exists purely for gambling - like a horse racing track.


Ironically, individual owners of professional sports franchises cheered the news.  Ted Leonsis, owner of the Washington Wizards and Washington Capitals and Mark Cuban, owner of the Dallas Mavericks both applauded the decision for its potential to take a bite out of the illegal gambling market, but also for its potential to increase the value of their holdings.  In what was probably a bit of hyperbole, Cuban said on CNBC Monday, “I think everyone who owns a top four professional sports team just saw the value of their team double.”


Several states – most notably New Jersey, who filed the original lawsuit in an attempt to prop up its falling Atlantic City revenues – look likely to quickly approve their own plans to allow sports gambling as quickly as possible.
So who will the winners and losers be when sports betting is allowed in much of the U.S.?


(It’s worth noting here that obviously the biggest losers will be the proprietors of existing illegal sports betting operations, but since none of those are public companies, we will ignore them here.  The same goes for individual states who will be able to tax sports gambling for the first time.  It might be a big win for state budget coffers, but since you can't invest in them, we’ll ignore them, too.)


Existing Casino Operators


Casino stocks were mixed on the news, with a bright line drawn between the companies that operate primarily in Nevada and those that have properties spread around the rest of the U.S.


Wynn Resorts (WYNN - Free Report) and Las Vegas Sands (LVS - Free Report) both derive the majority of their revenues from the Asian markets – specifically the island of Macau – and both have existing U.S. operations primarily in Las Vegas.  Both stock were hit by investors Monday with Wynn down 2% and LVS sinking about a percent.


It’s unlikely that the Nevada casinos will actually be hurt too badly by the ruling.  Las Vegas has made great strides toward attracting visitors for more than just gambling, expanding its offerings of entertainment, dining and resort and spa services.  It’s hard to imagine that a significant percentage of visitors go specifically for sports gambling and will now choose to go elsewhere. Johnny Avello, director of the Sports Book at Wynn Las Vegas said last week that he expects the ruling to have “a negligible effect on our handle” – using a casino insider term for the total amount of money wagered.  


Beyond Las Vegas


Though based in Las Vegas, Caesar’s Entertainment Corp (CZR - Free Report) operates gaming properties all over the U.S., including land-based and riverboat casinos, horse racing tracks and even dog tracks. Investors seem to like the chances that Caesar’s will be able to add sports gambling to many of its existing operations, sending the stock higher by 5%.


Selling Shovels at the Gold Rush


The stocks that are most likely to see increased revenues from legalized sports gambling are those that make the machines and computer systems that facilitate wagering.  An expansion in sports gambling nationwide would likely bring about a surge in demands for peripheral technology to support it.


Penn National Gaming (PENN - Free Report) operates gaming and racing facilities nationwide with a focus on slots and machine-based betting.  Sports betting would fit nicely into their portfolio. They have recently expanded into online social gaming.
Currently a Zacks rank #1 (Strong Buy), Penn has already seen their stock on the rise of late on the back of several analyst upgrades, and Monday’s news gave it an additional boost, closing up nearly 5% on the day.



International Game Technology (IGT - Free Report) designs and manufactures gaming equipment, casino systems technology and game content.  Also a Zacks Rank #1 (Strong Buy), IGT will likely see a surge of sales growth as new and existing sports gaming operators outfit their operations for the new business.

 


Coming off strong earnings beats in the previous two quarters, IGT had already seen several upward revisions lately and Monday’s ruling ought to improve their results even more.
 





 



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