BUSINESS

Sportsbook legislation moving fast, but still no reason to chase it

TAGs: Editorial, Nevada, sportsbook

It took all of two months, and the first sports bets have been placed outside of Nevada to the delight of fans and consternation of sports leagues all over the United States. Sports fans in New Jersey have crowded the MGM Borgata betting on their favorite bad teams just for the hell of it. It’s the sportsbook honeymoon for fans, and the leagues feel like the unwilling chaperone at the school dance. Major League Baseball has already announced it will take no cut from sports betting ads.

Sportsbook legislation moving fast, but still no reason to chase itLeague attitude aside, it’s exciting, it’s good, and it’ll increase revenues generally for US gaming companies as well as foreign operators serving the US market, but there’s a right and wrong way to play this. The wrong way is to simply start buying US gaming stocks that could benefit on the assumption that a rising tide will lift all ships. There are too many negative crosswinds to successfully execute such a blanket strategy right now. Inflation has already crossed 3% annual in the US by the Producer Price Index, the trade war between the US and China keeps escalating by the day which will further increase prices, futures are sharply down this morning and price action like this could be par for the course for most of the summer. The S&P is down 1.5% in the premarket after Trump has threatened another $200 billion in tariffs against China, and a guy maniacal enough to actively pursue the disgusting policy of ripping apart illegal immigrant families as a deterrent is liable to do some crazy stuff that could swing the markets unpredictably any day. Not to mention, anger China more and they could start dumping US Treasuries.

Now is not the time to front-run sportsbook in an attempt to capitalize on the new industry. It’s more appropriate here to contain our excitement, be sober, track the numbers, and not chase the news with our capital full throttle just yet. A perfect example of this is 888, which got a bit of an overreaction back in May when the Supreme Court overturned PASPA and has since trended down 14% from highs, losing almost its entire 16% overnight pop when the decision went public. Traders realized it’ll take time for sportsbook revenue to actually be realized, and things don’t happen overnight.

If you want to slowly get in on a US stock though, MGM would be the safest. Not that I’d recommend it now, but slowly scaling into MGM on the dips would be a decent way to play the sports betting trade. In the 10+ states that could have legalized sports betting in less than 5 years, MGM has a presence in 6 of them, according to its latest investor presentation. The other option is to scale into to UK stocks like William Hill and 888 on down days that have decent dividends and are familiar with American markets. My basic point is there is going to be no quick pop every time a state legalizes sportsbook, and if there is, the rally will likely be sold as happened with 888. Keep playing the long game and don’t get distracted by the news too much. Over time, 888 will probably reach its May highs sooner or later.

Remember when New Jersey legalized online gaming and the numbers came in underwhelming? After the initial honeymoon is over, the excitement and novelty die down and the news stories about people placing bets on the Cleveland Browns to win the Super Bowl stop filling the presses, we’ll start to get a better idea of what we’re dealing with here.

The good news is that legislative initiatives are moving faster than I thought they would. Mississippi, Pennsylvania, West Virginia and New York are trying to get sports betting up by July, though in New York this is looking unlikely as the current state legislature’s session is about to end in a week and won’t reconvene until 2019. Legislation has already been introduced in California, Oklahoma, Louisiana, Kansas, Missouri, Iowa, Kentucky, Indiana, Illinois, Michigan, South Carolina, Maryland, Connecticut, and Rhode Island, so we’re definitely headed in the right direction here.

Legal sportsbook over time will also grow the US gambling market across the board because there are many people who feel comfortable placing sports bets but not playing casino games. By bringing in sports enthusiasts and fans, there’s a better chance for them to get into the casino itself.

What I find the most useful for legal sportsbook though is its potential as a read on the US economy. In the past we’ve gone over the MGM indicator, which tracks volumes on the strip, and the Super Bowl betting indicator, which tracks Las Vegas bets on the game as an indicator of free cash in the economy and willingness to spend. The more states that legalize betting, the greater area these indicators will cover and the better idea we will have of the shape of the economy.

The other party that stands to benefit from legalized betting, though they may not want to admit it, is the NFL. Suffering from a serious ratings slump lately made worse by the asinine kneeling controversy nobody wants to hear about, putting some money on the games will probably bring ratings back up this year. The NFL doesn’t have to take a cut from any advertising. It’ll still benefit from legalized betting just by the increased fan base. With the Raiders moving to Las Vegas by 2020 and a good chance the States with legislation on the table will legalize sportsbook by then, sports betting in America could be a big thing by next decade. For now though, there is no reason to chase it. Just let it develop how it develops and keep your powder dry.

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