Justin’s note: Today, we turn to Strategic Investor editor E.B. Tucker for more on one of the biggest investment opportunities today: the legal sports betting market.
E.B. has been following this trend since May, when the Supreme Court opened up the floodgates to this new, multibillion-dollar industry.
In today’s essay, E.B. shows why the once-illegal sports betting market will be as lucrative as selling alcohol… why it will be bigger than the entire legal marijuana space… and most importantly, how early investors can stake a claim…
By E.B. Tucker, editor, Strategic Investor
Last month, I showed you how the Supreme Court ushered in a new, billion-dollar market with its landmark ruling on sports betting 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 the 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 were no major sporting events taking place in the U.S. 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 Floodgates
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 until 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 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 Supreme Court’s recent ruling on the legalization of sports betting will set up the greatest day in stock market history… when over $4 billion moves out of the shadows and into three very specific stocks – on one day, February 4, 2019.
Investors who get in ahead of time could make a killing and ride share prices up 4x in a single day. Click here to get all the details…
On Friday, Doug Casey talked about the future of privacy. He explained the dangers of using “virtual assistants” like Alexa and Siri… and told us why this disturbing trend is getting worse every day. Here are a couple of your responses…
I would not give Alexa one minute of consideration. My family tries to keep as low-key as possible and make certain that our home is as private as we can make it. We cannot afford to lose any more privacy. We live in a Communist state already!
Hi there, yes, I have an Alexa device. I received it as a gift and it sits under the kitchen sink in a cabinet. But after this interview and prior information, it is now going into my truck to go for a ride to the range for target practice.
Yes, I have recorded all my personal information on it. Everyone everywhere surveilling the thing will hear the bullets hit that sucker.
And no, I do not have a cell phone… never did and never will. I was skeptical about that sort of thing, maybe because I grew up in Europe where phones and bugs even then were common surveillance gadgets. Thank you for speaking out and applying your sensible and clear logic to this monster coming at us.
I am happy to be 82… from this perspective, I look at things as did Louis XV when told by his minister that France was heading towards bankruptcy and revolution.
“Les choses, comme elles sont, dureront autant que moi.” (Things as they are will last through my time.) Thank you for all you do, a dedicated follower, unable leader.
As always, if you have any questions or suggestions for the Dispatch, send them to us at [email protected].
Last week, Doug Casey joined Bill Bonner and Mark Ford in what was one of the most important events we’ve ever held. If you missed it, you can watch a free replay right here.