Matt McCall’s entry level newsletter Investment Opportunities (currently $49/year) is being advertised with a promised “free” special report about the three stocks you need to own before more states legalize sports betting… perhaps as soon as September 6.
What’s so special about September 6? That’s just a guess that more attention will come to this market because some states are going to push to legalize sports gambling and start to take their cut of that lucrative black market before the NFL season begins, since that’s the focus of most sports gambling in the United States, and the season opens with a game between the Eagles and Falcons next Thursday night.
I wouldn’t expect that to cause an immediate doubling of these stocks or anything dramatic like that, gambling is more of a slow burn business and it takes time to build up your clientele — and most gambling companies will end up seeing sports betting as a nice boost, not a world-changing event… but who knows, perhaps there will be some manic behavior like we’ve seen with marijuana legalization votes and the like.
So let’s dig into the ad and see what we can find out about his secret “three stocks to own,” shall we? Then, once you’ve got an idea of the stocks and have had a chance to think rationally about them for a few minutes, you can make your own call about whether you should sign up for his newsletter. We’ve not heard from any subscribers about this letter yet, which appears to be a newer one, but it’s a little complicated because his Investorplace newsletters have changed names a couple times — other articles we’ve written about his past picks are here, if you’re curious, several of his recent ideas have worked out pretty well so far — NVIDIA and Broadridge late last year were timely picks, as was Auxly last month, though bluebird bio has not been as promising.
So… on to the clues:
“As many as 10 more states are planning to legalize sports gambling by September 6th…
“A number of stocks are making substantial upward moves after each announcement…
“Experts estimate up to $400 billion a year is up for grabs…
“I think this opportunity could be worth even more due to an explosion of in-game betting (in addition to traditional pre-game betting) via a smartphone app…
“And I have 3 companies circled to take advantage of what I anticipate will not only be an economic tidal wave, but what will one day be studied as a pop culture phenomenon.”
This is all fueled by the recent legal change, the Supreme Court’s decision that effective struck down the Professional and Amateur Sports Protection Act (PASPA) — that’s the law that forbade states (except Nevada, which was grandfathered in) from regulating sports gambling. That effectively prohibited states from legalizing sports wagering, either in traditional sports books or through lotteries or other means, and New Jersey, in defense of Atlantic City, led the charge in court to take down PASPA.So now, about three months after that decision was made, many states — close to half of them, according to some sources — have actually started to pass legislation to allow some form of sports gambling. It’s not exactly clear how big a market it will become, since we won’t know for a while whether all the black market gambling will want to move into the light — or whether legal gambling will create huge new businesses that no one envisions yet. And like most gambling, it’s a fairly low margin business — most traditional sports books are really just facilitators of the flow of betting on various sports events, and they end up taking about a 5% cut of the total bet (So if $5 billion was bet in Nevada sports books last year, which is roughly the right number for the size of that market, that created revenue for those casinos of about $250 million).
Still, that’s real money — and if the casino’s take is not cut too much by new taxes and fees in the states that allow some new form of sports wagering, there will be (and already are, in a lot of states) a lot of companies trying to get a piece. And with most states already having some form of legalized gambling (only about a half dozen don’t have any real gambling, either tribal or commercial casinos — and only a couple of those don’t even have a lottery), and a real taste for gridlock and foolishness in Congress, it seems very unlikely that the Feds will jump in with new legislation to regulate sports gambling — unless, perhaps, all the big casino companies put all their lobbing money to work and push for something to standardize the national market. It seems the cat’s out of the bag now, and we’re not sure where it will run.
Here’s a little from McCall:
“… let’s consider the ultra-conservative case for a second…
“This puts the legal sports gambling business at $100 billion a year in the not-too-distant future…
“Which would make this opportunity more than 4 times the size of the marijuana bonanza.
“And on the high side, which I believe will eventually prove to be a conservative projection…
“$400 billion a year puts this at 18 times the size of the recent pot boom.”
So that $400 billion would be the amount of betting, and most estimates would put the “take” for the casinos and the government at about 5-6%, so that’s really probably a $20 billion business when you talk about the commercial opportunity… but still, that’s meaningful. And there should be lots of side businesses, from equipment providers to service companies to software developers, who enjoy some of the spoils of what’s expected to be a growing business.
More from the ad:
“Ten more states are planning to legalize in time for the NFL football season…Are you getting our free Daily Update
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“Those states are Pennsylvania… West Virginia… New York… California… Illinois… Missouri… Rhode Island… South Carolina… Massachusetts… and Michigan.
“And right now these states are racing one another for headlines, and for betters close to their borders…
“They’re also competing for contracts with one of the companies I’ll tell you about in a few minutes, that’ll get their online sportsbooks up and running…
“At this rate, I wouldn’t be surprised if a number of states announced later this week. Or next week.”
He also tries to press that point about profiting from legislative change:
“The greatest investment opportunities — where individual investors like you and me can make life-altering returns, while in many cases taking on very little risk — are almost always made possible with ‘front running’ landmark government actions.”
He compares the money-making opportunity not only to prohibition and the legalization of marijuana, but also to the end of the ban on gold ownership in the early 1970s, and the legalization of private prisons in the 1980s. Now that we’re three months into this new era of likely expansion of legal sports betting, and it’s been talked up by the pundits and the Wall Street cognoscenti for quite some time, I don’t know if we’re at a point where you’re likely to earn Joe Kennedy-like profits from getting in early on a newly legal business (Kennedy famously built the family fortune by buying into liquor importers and distributors immediately after prohibition ended… or, depending on who you ask, before prohibition ended). But growth businesses and headlines will always generate investor interest, so let’s see what McCall’s actually pitching:
“Let me give you a quick introduction to the three companies set to go up like moonshots as states begin to legalize sports gambling…
“New PASPA Millionaire Maker #1 has established brands propelling one of the world’s fastest-growing online casino and sportsbook businesses. These guys have the presence and the trust factor that’ll attract hordes of gamblers…
“One of this company’s most important assets is its online wagering platform. It’s the largest legal online wagering operation in the United States.
“It’s hard to imagine a better spot to be in! See, this company’s online platform is already accepting wagers from gamblers in 40 states.
“Meaning users can place bets from anywhere. And remember, the future here is all about mobile. And this company is a ‘first mover’ and already well established…
“In fact, it brought in $87 million worth of bets in 2007… and grew that to $1.28 billion last year.
“That’s a blockbuster gain of 1,323% in 10 years. As sports gambling grows, I expect that number to keep climbing as well.”
That’s the TwinSpires business of racetrack owner Churchill Downs (CHDN), which has been talked up as a beneficiary of sports gambling expansion — which makes some sense, since horse wagering is obviously a core part of the history of US sports gambling. They’ve been expanding into other casino operations recently, including buying a couple smaller casinos in Pennsylvania. I’ve not studied it very closely, but compared to some flashier casino stocks Churchill Downs is downright cheap, trading at about 22X next year’s earnings — and while the continued success of the Kentucky Derby will obviously be important to the company, that online wagering company TwinSpires will probably be more imoprtant in the future… and they’ve already launched sports gambling at a couple of their casinos in Mississippi, and are likely to be officially launched in Pennsylvania and New Jersey as soon as the rules are in place.
Perhaps not a bad idea as a way to play sports gambling, and the company is small enough (under $4 billion market cap, about $720 million in revenue) to feel the impact of any new business fairly quickly — the real question is whether sports gambling can reignite regional casinos that are suffering some from competition as the country gets arguably over-served by casinos, or do enough to absorb the costs of operating their racetracks that are generally in decline outside of a few marquee events. I like that they’re small and nimble and are trying to expand, though I don’t have a strong sense of how likely they are to succeed or to take meaningful share of the sports betting market in Mississippi, Pennsylvania, New Jersey or other early-adopter states where they have a presence.
“New PASPA Millionaire Maker #2 has an infrastructure already built in and proven for mobile wagering. These guys have the tech to make app-based sports gambling a near-term reality…
“Its sportsbook app was launched in 2012 and has since been downloaded more than 2.5 million times from the Apple App Store. In fact, mobile gambling already accounts for 56% of the company’s sportsbook turnover and 41% of gaming net revenue.
“Even though most states will require brick-and-mortar casinos initially, the majority of bets will ultimately be through mobile devices. Similar to company #1, this firm has a big advantage with its well-established app, name recognition, and loyalty among gamblers. It is not easy to put a number on those factors, but they will be key when it comes to differentiating the winners and losers in this long-term mega-trend.”
This, I expect, is the leading UK gaming company William Hill (WMH in London, WIMHY OTC in the US), which has been gradually building a sports gaming business in the US to join its core UK and Ireland businesses. I don’t know much about William Hill, but it pays a solid dividend, is not currently profitable according to the latest data in YCharts, and is indeed pushing a major US expansion to run sports books for a bunch of casinos — 11 in Mississippi so far, one in West Virginia, and they say they’re talking to lots of other operators in 14 other states.Don’t know where that will lead, but the company has arguably more expertise in retail casual sports betting than anyone else in the world, given their strong position in the gambling-happy UK, so the story makes sense — whether you’ll like the financials when you dig into them, I dunno.
We’ve got one more name to ID, so I’ll leave you to your research and dig into those final clues:
“New PASPA Millionaire Maker #3 is uniquely positioned to expand from a niche gaming company into the exploding realm of mobile in-game betting…
“It already boasts one of the fastest growing online casinos and sportsbooks. But what comes next will change everything.
“Imagine you’re in a stadium, or a bar watching your favorite baseball team. You have a feeling the next batter will get a base hit, so in addition to proclaiming your prediction to your fellow fans, you set aside your beer, grab your phone and open an app to place a $10 bet that will pay off handsomely once the hitter gets on…
“Whether this sounds like a dream to you or not. I promise it will be a big deal to investors.”
That does have the potential to be a big deal eventually, though I don’t know if it will grow to become big compared to the more mainstream bets — who knows, maybe your local sports bar (or Buffalo Wild Wings) will end up being a gambling den filled with people who are staring at their phones. That doesn’t really narrow it down, though, this kind of technology isn’t owned by any one company.
So we’ll just guess — a publicly traded stock of a company that’s a fast-growing provider of online casinos, the Thinkolator will point you toward The Stars Group (TSG), which is much better known as the parent of PokerStars but which is, indeed, growing its US business and focused on sports betting after that May Supreme Court decision. They had weak results in their last quarter, mostly because of lower than expected margins, but they are pushing forward with some of the same priorities in sports gambling — they have a partnership in Pennsylvania with Mount Airy Casino to launch a sportsbook, and one with Resort Casino Hotel in New Jersey to build on their BetStars platform that’s in wide use in Europe.
It’s awfully early to figure out who the winners might be, and I wouldn’t be surprised if the sports gaming business takes a few years to have a real impact on these larger companies, many of whom look like they’re competing pretty hard for the same states when it comes to off-premise sports gambling (Mississippi, New Jersey and Pennsylvania keep coming up)… but building a brand early might end up being huge, and you never know how it will develop.
So… some ideas for you there as you consider whether sports gambling will make you rich. It’s also likely, I’d say, that this is going to lead to additional interest in the regional casino operators like Boyd Gaming (BYD) and in the gaming-related startups like Fanduel and Draftkings. there was briefly a rumored plan for Fanduel to go public through a SPAC merger, but they were instead bought by another big UK gaming concern, Paddy Power Betfair (PPB in London, PDYPY OTC in the US)… and that leads me to think that Paddy Power, which is quite a bit bigger than William Hill and has better current financials, might be worth considering. DraftKing is rumored as an IPO candidate, though I haven’t seen anything beyond rumors (Disney is apparently going to hold onto Fox’s Draftkings investment after the Disney/Fox deal goes through, though they’re being forced to divest many of the other sports assets so that could change, and I own Disney shares, though not for that reason — I don’t own any of the other stocks mentioned).
And that’s about all I know about sports gambling and the currently teased picks from McCall — any of that sound interesting to you? Other ideas that you think should be considered? Let us know with a comment below… and thanks for reading!