Turn on your TV to watch your favourite soap or football team and it won’t be long before you’ll see an advert for a betting website. Whether it’s bingo or sports betting, you don’t have to be a gambler to be familiar with new betting brands like Foxy Bingo or 888.com, as well as the more established players like Ladbrokes and William Hill.
Like it or not, sports betting is big bucks and the US, which has previously prohibited such activity, is about to open for business.
On Monday the US Supreme Court made a landmark ruling that could pave the way for states across the country to legalise sports betting. The court upheld a legal challenge by the state of New Jersey, which argued that the federal law that bans sports betting in the US, the Professional and Amateur Sport Protection Act of 1992 (PASPA), was unconstitutional.
The American Gaming Association has estimated the size of the black market in sports betting in the US is about $150bn. This provides a whole new market for online gambling companies to tap into as well as the opportunity for the US government to earn some ‘sin taxes’ along the way.
Several major US sports bodies have opposed the move, including the National Basketball Association.
This side of the Atlantic the news was welcomed in the City with London-listed gaming firms such as 888, Paddy Power Betfair and William Hill, surging by more than £1.5bn. Shares in online gambling firm 888, which operates a poker network in three US states, rose by more than any other company, gaining 15%.
For investors, the betting industry has had its fair share of winners and losers. Back in April shares in UK betting firms fell sharply on suggestions that the Treasury will back limiting the maximum stake on fixed-odds betting terminals. The announcement that the Department for Digital, Culture, Media and Sport (DCMS) were conducting a review on machines that allow gamblers to bet £100 every 20 seconds, sent gambling shares tumbling.
William Hill for example derives 54% of its revenue from fixed-odds betting machines. Yesterday its chairman Roger Devlin wrote to Theresa May warning the firm risks being bought by a foreign rival if maximum stakes on these machines are lowered significantly. He also warned of catastrophic job losses in an industry employing over 40,000 people and a big reduction in tax paid to the Treasury. An announcement on the future of gaming machines is expected imminently.
Whatever happens in America we can be sure the debate will be heated across the various states, with supporters arguing the legalisation will produce much needed tax revenue and weaken illegal sports betting operations. Opponents will argue how it will only increase the growing problem of gambling addiction as well as open up mainstream sports to corruption and match fixings.
Whatever happens, and however it is introduced across the 50 states, there will be opportunities for investors. With the US stock market currently pausing for breath after a strong bull run since the financial crisis of 2008/9, it could be a driver of further growth.
UK companies could also be winners. Paddy Power Betfair and William Hill, already have a presence in the US. FTSE 250 listed, GVC Holdings, one of the world’s largest sports betting and gaming groups, which recently acquired Ladbrokes Coral Group, already has regulatory licenses in Nevada and New Jersey. The company features in the top 10 holdings of two funds on our Select 50 - the Threadneedle UK Mid 250 Fund and the Fidelity Special Situations Fund.
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