What are “The 3 Stocks to Own Before Another State Legalizes Sports Betting?”

Will the Supreme Court create windfall profits for sports betting companies as soon as next week? Looking into the pitch from McCall's Investment Opportunities newsletter.

By Travis Johnson, Stock Gumshoe, August 27, 2018

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.

Sight on monitor with the teletext and betting offer of baseball matchups.

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…