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Gambling: SCOTUS Clears Way for Sports Betting Tsunami

Since 1992, sports betting had been prohibited across the United States. That is, until Monday when the Supreme Court rescinded the law, leaving it up to each state to decide whether to permit sports-related gambling. While there’s no official accounting of the size of the illicit sports betting black market in the US, experts estimate total wagers to be between $80 billion to $150 billion annually. The high court’s decision is expected to help transfer sizable amounts of betting from the black market back into casinos across the nation. More importantly, it opens up new streams of revenue across the evolving gaming industry as a whole. Legalized US sports betting could put anywhere between $2 billion and $5.8 billion of win (revenue) on the books and generate between $21.9 to $26.6 billion in total economic impact.

Struggles throughout some of the nation’s largest gambling hubs like Atlantic City have been well documented. The number of casinos in Atlantic City has shrunk from 12 to only 7 in recent years. But, following the high court’s decision, AC expects to generate somewhere from $150 to $175 million in additional revenue. Churchill Downs, the racing and gaming company behind the Kentucky Derby, agreed on Wednesday with Golden Nugget Atlantic City to get into the New Jersey legal sports betting and online gaming markets.  Churchill Downs said it’s targeting the first quarter 2019 to begin accepting legal wagers for sports betting and online gaming in New Jersey.

Since Nevada had already been the lone exception to the sports betting ban, some have speculated that other states muscling in on their game may hurt Las Vegas’ bottom line. However, Las Vegans think otherwise. They believe the city will remain the capital of sports betting, while greater ease of access generates new gamblers that will begin filling up the city’s books. This shot in the arm comes just as Nevada casinos have begun a rebound, collecting more than $1 billion in gaming win (revenues) for the first 3 months of 2018. Total win is up 2.8% statewide, 2.3% in Clark County, 3.3% for the Strip and down 3.8% downtown over that same period.

The most radical changes, however, will be felt outside of the casinos. Online betting, in particular is set to explode. Draft Kings, a fantasy sports contest provider that allows players to wager and win real money, is expected to offer outright betting to its nearly 10 million customers.  The rollout could come relatively soon since the company has been preparing a gambling platform since 2017 in anticipation of this ruling. Paddy Power Betfair, the Dublin, Ireland, sports betting and gambling company, said it is in talks to merge its U.S. business with FanDuel, Draft Kings’ major competitor, to grab a huge piece of the new market share that will be created in the coming years.

Some very new territory is also now in play as the Supreme Court’s ruling will also extend to esports betting. It was less than 2 years ago in 2016 that the Downtown Grand Casino offered the first legal esports wagers on “League of Legends”. Since then, audience sizes for esports have grown massively, and continue to accelerate. Activision’s Overwatch League has garnered audiences two times larger than what had been projected, and gains in licensing, events and merchandise could see league revenue coming in 1.4 times higher than expected. For 2018, esports betting was already projected to surpass $6 billion in wagers via Vegas alone. Luckily, operators and regulators in esports betting have been already cleaning up their act for the past couple years in anticipation of the Supreme Court striking down the ban.

With barriers down, social media could also begin pushing industry growth. New media sharks are uniquely positioned to serve new players, as well as betting and fantasy aficionados, with something they dearly crave: more information. Given the onslaught of competition from streaming services, video games, social networks, and mobile phones, and the resulting decline in ad revenues for traditional sports television, outlets dedicated to sports gambling are thriving. The Action Network, a huge social media sports outlet focused on fantasy games, already has 230,000 subscribers to its daily email newsletter. Although bettors only made up 25% of the NFL’s television audience in 2015, they were often the most loyal viewers, accounting for 47% of all minutes viewed. Sports bettors watch about twice as much sports coverage as non-bettors do and it is very likely that a broader pivot to interactive media could be pipeline already. If this transformation occurs, sports entertainment could begin convincing non-gambling sports fans to start placing bets.

While it will take some time before vital infrastructure and full regulatory framework is completely laid out, legal sports betting will inevitably create a sizable disruption in gaming. Investors can gain exposure to the gaming industry via the Gaming ETF (BJK).

 

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