Yesterday, I showed readers how the Supreme Court ushered in a new billion-dollar market of legal sports betting with its landmark ruling in May.
Just to catch you up, the case revolved around something called the Professional and Amateur Sports Protection Act (PASPA). It outlawed sports betting across the U.S. The only exceptions were states such as Nevada that already had sports betting laws on the books.
What the Supreme Court decided in May was that PASPA was unconstitutional. Specifically, the court ruled that PASPA violated the Tenth Amendment to the U.S. Constitution, which states that any powers not specifically delegated to the federal government have to be left up to the states to decide on.
And it didn’t take long for states to make up their minds…
States Rushing In
When the Supreme Court lifted the federal ban on sports betting, New Jersey’s state legislature moved immediately. The Supreme Court handed down its decision on May 14. One month later, Governor Phil Murphy made the first legal sports bet in the state.
Murphy bet $20 that the New Jersey Devils hockey team would win the Stanley Cup, and another $20 that Germany’s soccer team would win the World Cup. (He lost on both.)
Delaware, Pennsylvania, and New York now also have sports betting laws on their books.
And the recent midterm elections were very favorable for legal sports betting.
Voters in Arkansas passed Issue 4, which gave a number of horse tracks there the ability to take bets on sports other than horse racing. In Louisiana, fantasy sports betting is now legal in a majority of the state.
Other states that didn’t vote directly on sports betting still elected governors who view legal sports betting favorably. The new governors of Illinois and Ohio have both come out in support of legal sports betting.
Why are politicians in favor of legal sports betting? One word: taxes.
It’s estimated that New Jersey could make an extra $600 million in tax revenue from sports betting each year. Delaware – which has only about 960,000 residents – took in $322,135 in sports bets the first day after legalization there. And that was on June 5 – there was no major sporting events taking place in the U.S. around then, just regular season baseball games.
When states begin to see the tax revenue that can be claimed from legal sports betting, they’ll rush to get laws on the books. It’s just a matter of time before sports betting is legal nationwide.
You may be wondering: How big could the industry get?
Open the Flood Gates
It’s hard to know for sure how big the sports betting market will become. But research from the University of Nevada, Las Vegas, suggests that the illegal sports betting industry is turning over $150 billion a year. That’s more than the GDP of Nebraska.
My own research shows that the market should turn out to be even larger than that. Markets the government has outlawed always get bigger when they become legal again.
Up to now, if you wanted to bet on a game outside of Nevada, you had to find a “bookie” – someone who would illegally take a bet for you.
If you lost the bet… and didn’t pay up… your bookie might have someone break your legs. And because you were betting illegally, you probably felt like you didn’t have any legal recourse.
Even with those hurdles, sports betting was, at a minimum, a $150 billion business. Now that it can be legally out in the open, I expect the industry to hit $250 billion in the next few years.
That may seem like a huge number. After all, the alcohol industry is estimated to be a $250 billion yearly market. Will sports betting be as big as alcohol?
I believe so. A legal market is going to be a lot bigger than an illegal one. Just look at what we’re seeing in the legal marijuana market.
In 2016, the illegal cannabis market in the U.S. was worth about $46 billion. But with pro-cannabis legislation sweeping the country, the legal cannabis market will grow a lot more. By 2025, the legal pot market is forecast to reach $146 billion. That’s more than a 200% increase.
A $250 billion dollar market for sports betting may turn out to be conservative.
Of course, there are investment implications here. But it’s not what you’re likely thinking…
Investors may assume that the biggest beneficiaries of sports betting will be the Las Vegas casinos. That couldn’t be more wrong.
Sports betting has been legal in Nevada for years. Last year, the state earned about $250 million from sports betting. So even with this new Supreme Court decision, it’s business as usual for Las Vegas. The ruling won’t hurt. But it won’t cause the casinos there to see a spike in betting.
So where do you look instead?
The place to start your investment research is with legal casinos in states that previously outlawed sports betting.
There are about 1,000 casinos across the U.S. Some are tribal casinos. Others are legal commercial casinos and card rooms.
Depending on local laws, these can already have a variety of card games and slot machines. But if they’re in a state that had previously outlawed sports betting, they’re now looking at a new source of revenue.
The casinos I’m talking about won’t be the big resorts with Celine Dion performing on the weekends. I’m talking about the small casinos where the average Joe goes on a Friday night to blow off some steam and maybe place a bet on the Sunday night football game.
Because these casinos have a physical presence in the state, they’ll already have a relationship with regulators. That will put them first in line to open sports betting operations when legislation is put in place by the states.
Right now, I’m looking at casinos in Pennsylvania, West Virginia, and Rhode Island. These are states that already have sports betting legislation on the books. Local casinos there will profit the most from legal sports betting.
Editor, Strategic Investor
P.S. The size of legal sports betting in America will likely catch investors off guard. Like I said, I expect the market will be as big as alcohol sales in the coming years. But the companies that will profit the most won’t be the Vegas casinos. I’ve identified three under-the-radar stocks that I believe will soar thanks to legal sports betting. You can get the full details here.