The U.S. Supreme Court just struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992, which barred states from authorizing sports gambling.
While sports betting has been legal in Nevada for decades, the court said Congress had the right to regulate sports gambling if it wanted, but if it abdicated that responsibility, then the states could move forward on their own. Although the 6-3 decision doesn't automatically legalize sports betting everywhere, states can now set up their own regulatory framework to govern it.
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Ready to go all-in
Casino operators are obviously invigorated by the news, and many have been planning for this eventuality. They say they're ready to hit the ground running, and some are prepared to have sports book rooms in place within weeks.
For example, MGM Resorts (NYSE: MGM) issued a statement saying:
Having spent decades building trust with regulators, successfully operating sports books in Nevada, and hosting the world's leading sporting events, MGM Resorts International is extremely well positioned for a post-PASPA environment.
Similarly, Caesars Entertainment noted it also already manages a legal sports wagering business and that it plans to expand business "wherever secure and responsible wagering on sporting events is legalized."
Yet not all casinos will benefit equally. Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN), for example, derive most of their revenues from operations in Macau. Sands earns 60% there; Wynn, 73%. They could certainly expand their sports books beyond their Vegas operations, but they have so few casinos elsewhere (and Wynn's Boston Harbor isn't even completed), it's only going to be a tiny portion of their overall revenues.
MGM, on the other hand, with a casino network that tilts heavily toward the U.S. with operations in Las Vegas, Atlantic City, Maryland, and soon, Massachusetts, should be one of the major casino operators to gain from the Supreme Court's decision.
But it will likely be the regional gaming operators like Caesars, Boyd Gaming (NYSE: BYD), and Penn National Gaming that have casinos in numerous states around the country that will win the most.
Smaller may be better
Because they are more broad-based with casinos in smaller markets, regional operators stand ready to reap much of the windfall of revenues generated by the decision. Penn, once all of its acquisitions are completed, will be the country's largest regional casino operator, and Boyd has one of the biggest existing sports book operations in Nevada.
Penn president and CEO Keith Smith said the casino operator "is now in excellent position to become a leading player in the growth and expansion of sports betting across the country." It plans to have operations in 10 different states by the end of the year.
Of course, there are also the outfits that only run sports books, like William Hill, the U.K.-based operator that has been making acquisitions here and now runs the biggest sports book in the country. Also, Paddy Power Betfair has extensive operations and owns Draft, the third biggest fantasy sports league behind the better-known DraftKings and FanDuel, both of which have said they plan to cash in on sports betting as well. Equipment manufacturers like Scientific Games may also want to stake a claim.
No sure bet
Still, investors shouldn't get too ahead of themselves. While the potential $60 billion to $70 billion market will support a lot of players, it may not be the jackpot many are expecting.
As noted, Nevada has offered legal sports betting for decades, and last year, a record $248.8 million was wagered. However, the win for sports books, or the amount the sports books kept for the year, totaled just over 2%. With more players participating in more areas, the total amount wagered may rise, but no one may gain a significant financial advantage.
Further, many stakeholders in the sports industry want a say in the business, or a cut of the profits. The various players unions for major league sports say they want a voice in how the new regulations will be created, while the leagues themselves are demanding a cut of the profits. What the percentages work out to be will play a big role in how profitable sports wagering will be for casinos or others.
And whether any particular state will see sports betting flourish depends on the regulatory framework that's created. As Boyd's Smith also said, "Whether we ultimately offer sports betting in specific states will depend on the rules and tax rates set forth by each state." Let's also not forget the possibility that Congress steps back in and reasserts its authority on the matter.
The Supreme Court ruling gives casinos and other players a new, important opportunity to generate revenue and growth, but it may be much too early yet to say who, if anyone, will ultimately benefit from legalized sports betting.
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