This Trend is Worth a Gamble

In 2018, the Supreme Court struck down a law that created a massive windfall for investors.

Back in 1992, Congress passed the Professional and Amateur Sports Protection Act, or PASPA. The law reduced legal sports gambling to just the state of Nevada. It effectively made it illegal for voters to decide whether they wanted their states to have sportsbooks.

But when the high court struck down PASPA in 2018, it unleashed a wave of voter interest. States, struggling with deep debts and hungry for revenue, started to consider laws that would allow people to legally bet on the Super Bowl or even Russian table tennis.

If you thought that the legalization of cannabis was a big deal for investors, you need to learn about what’s happening with sports gambling. A new trend among gambling companies has the potential to deliver — get this — $30 billion in additional revenue annually by the end of the decade.

Let’s dig into this opportunity.

The Road to Legalized Gambling

The Supreme Court’s strike-down set off a wave of state gambling legalization reminiscent of the cannabis legalization trend earlier in the 2010s. The overturn of PASPA also pushed legal sports gambling into the investment spotlight.

Today, 21 states plus Washington, D.C., have legalized sports gambling thanks to broad political support and government desire for tax revenue. Another 10 states have legalized the practice but have yet to start operations. And three more states will push new legislation in 2021.

That’s a much faster pace of state legalization than what we’ve seen with recreational cannabis (legal in 19 states, Washington, D.C., and Guam).

Moreover, this pace is expected to accelerate in the future. Some analysts suggest that roughly 49 states (minus Utah) will have legalized sports gambling (and other forms of predictive gaming) by the end of the decade. (Utah is projected to reject gambling laws due to religious objections by the majority population.)

Given that 98% of states could soon have access to sports gambling, a significant opportunity has emerged for sportsbooks and casino operators. But, like any company seeking a new audience, sportsbooks are getting very aggressive with a new trend.

These companies are engaging in a significant amount of mergers, acquisitions, and partnerships.

The $30 Billion Driver

We have seen an incredible uptick in dealmaking and partnerships between sportsbooks and media outlets. It started when Sinclair Broadcast Group (SBGI) purchased regional sports networks from Disney in 2019. Sinclair, which broadcasts thousands of live sports games each year, rebranded its networks under the casino name Bally’s in a 10-year licensing deal worth $88 million.

Then, casino operator Penn National Gaming (PENN) got in on the action when it paid $163 million for a 36% stake in Barstool Sports, a popular network covering sports gambling and related gambling on certain shows. Penn has the right to purchase the rest of Barstool and is branding sportsbooks under the media company’s name in 10 states in 2021.

Even The Walt Disney Company (DIS) is getting in on the action. The entertainment giant owns sports network ESPN and has engaged in strategic partnerships with Caesars Entertainment (CZR) and DraftKings (DKNG). ESPN also hosts multiple shows that focus on sports gambling. And it will continue to develop its presence in Las Vegas and other gambling centers such as New Jersey.

FanDuel, a sports and fantasy gambling franchise, has a partnership with Turner Sports.

Then there’s DraftKings, which made a massive move in March 2021 by purchasing Vegas Sports Information Network (VSiN), a gigantic Vegas-based sports media group that hosts 18 hours per day of gambling-related content.

Why does this dealmaking matter? Because these media outlets will direct people to sportsbooks, get them excited about the legalization effort, and move them away from any remaining black market for the practice.

And there’s a lot of money on the table.

Equity research firm Macquarie suggests that the U.S. sportsbook and online gambling market will grow by an annual rate of 33% through 2030. It projects that these media deals alone could deliver upwards of $30 billion in 2030.

On the surface, it’s a no-brainer. Actionable gambling content will drive more and more people to these sportsbooks, where people will bet on games and events. And it likely won’t stop at sports. Suppose the United Kingdom’s gambling market is any guide. In that case, people here will eventually bet on government elections, or even if Elvis is still alive. (One gambler in 2017 bet 25 pounds that the King is still with us. The bet would pay off 2,000-to-1, or 350,000 pounds.)

This trend opens many possibilities for companies like Penn National Gaming, DraftKings, Caesars Entertainment, and Flutter Entertainment (an Irish bookmaking firm that evolved from a massive merger between multiple U.K.-based gaming firms). Flutter is listed on the London Stock Exchange, but it also trades over-the-counter here in the U.S. under the ticker PDYPF.

With DraftKings reporting earnings today, and given its growing market power, this is a stock to watch. In the coming week, I’ll revisit these gambling stocks. I’ll tell you which companies are rated “buys” and which are not. I’ll even tell you my favorite one as well.