Connect with us

Hi, what are you looking for?

Sports Betting

Place Your Bets: Conquering US Lucrative Legal Sports Betting Markets

As betting regulations tighten in regions like the UK, gambling operators are turning to a more promising US market.

people betting

As betting regulations tighten in regions like the UK, gambling operators are turning to a more promising US market.

  • Sports betting is legal in 26 states in the US. According to Morgan Stanley, this number is set to increase to 39 by 2025.
  • Gambling companies in the US are looking to emulate the technology and expertise UK operators use.

Despite the ravaging effects of the pandemic, gambling companies have been on the winning end. More and more people are looking for a distraction from lockdowns and boredom, and many of them are turning to gambling. Sporting events and gambling casinos have gone through a series of closures due to the effects of the pandemic. However, bettors have opted to turn to online and mobile betting.

Ladbrokes’ owner, commonly known as Entain (ENT), despite facing a drop in cash profits from retail operations, down to £98m, there has been a considerable increase in online business profits by 50% to £804m.

During the pre-pandemic period, online gambling was already performing well, thanks to the rise of the smartphone era, as this gives bettors the advantage of carrying casinos in their pockets. Nevertheless, this growth has been turbocharged over the past few months. The momentum of the UK gambling stocks have been enough evidence of this considerable growth. For instance, 888 Holdings’ share price is 150% higher compared to the beginning of last year.

There has also been a significant improvement in the recovery prices of several gambling stocks to above pre-pandemic levels. This also shows the level of enthusiasm among investors towards the US market as online gambling and sports betting are legalized in several other states. Some UK-listed companies, such as Flutter Entertainment, have been making moves as they look to enter the US market. Other domestic names are also on the verge of catching up.

Wall Street will not be left behind as it is piling into gambling stocks, and Caesars Entertainment (US: CZR) and Penn National Gaming (US: PENN) gained their promotions into the S&P 500 index last month.

Home Front Battles

The onset of the pandemic came with its sheer share of challenges, especially to UK-listed gambling firms. These companies were weighed down by tightening gambling regulation in mature markets such as Australia and the UK. Governments have been working hard to reduce the effects of gambling, such as addiction and exploitation of vulnerable society members.

The threat of tightening regulations hasn’t subsided as the UK market is yet to review its gambling laws. The analogue law, the 2005 Gambling Act was meant to regulate a gambling industry that mainly operated in physical betting shops. However, most gambling operations are now online and Oliver Dowden, the culture secretary, argues that this is an analog law operating in the digital age.

Some of the major changes that could be seen include curbs on advertising. There would be a potential ban on football shirt sponsorship and limits on the amounts of spending and online stakes. The maximum wager amount on fixed odds betting terminals will also be slashed from as high as £100 to only £2.

Betting is no longer a new thing as more than two-fifths of Premier League teams depend on betting companies for sponsorship. There are logos of betting companies all over. In one report published in 2020 by a House of Lords committee proposed that gambling companies should not advertise in any part of the team’s sports kit or in near sports venues. However, it was later determined that this would have a huge impact on smaller football clubs. As a result, it was discussed that the recommendations should not be implemented.

Another expected change is that there could be an increase in scrutiny on how gambling companies use their customer data. This is because these companies usually personal details from the customers’ financial information to their behavioral patterns. Companies might use their customer data to carry out promotions encouraging loss-chasing. These promotional campaigns are usually designed to keep customers hooked.

The Treasury might not jump into the idea of turning to gambling as a major source of tax revenue. But research by the Social Market Foundation (SMF) indicates that tightening gambling laws could help improve the amount of tax revenue collected. According to the report by SMF, a fall in the net spending on gambling to about £1bn could mean that the revenue collected would shoot by £171m. This will happen because customers will switch their spending to areas with longer supply chains, such as retail, which can easily generate more taxes.

Entain plans to counter the regulatory challenges. Late last month, the group pointed out that it will roll out individual stake limits and player affordability checks by the summer of 2021. They mentioned that these changes would focus primarily on vulnerable customers.

But others think that excessive regulation will cause more harm than good. The chief executive of SpringOwl Asset Management, Jason Ader, thinks that there has been overregulation in the UK. As a result of the stringent regulations in the region, most UK businesses have gone offshore, he added.

As more regulations are yet to be introduced, UK-listed firms are looking to reduce their risks in the market by venturing into international markets. Entain, for example, has identified more than 50 regulated markers across Latin American and Africa and Central and Eastern Europe, and it has completed the major takeover of £316m over Swedish-based company Enlabs. This allowed Entain to expand its territories across the Baltics.

Nevertheless, the biggest opportunity is predicted to be in the US market, and Ader asserts that the market could grow to match the likes of the EU and UK combined.

A Gambling Gold Rush

The Professional and Amateur Sports Protection Act (PASPA) came into law in the US in 1992. This law banned sports betting in several states, and it was only in Nevada where all types of sports betting were considered legal. Oregon, Montana, Delaware permitted a number of limited gambling formats.

However, the federal ban was overturned in 2018 through a Supreme Court ruling. Since then, individual states have taken measures to legalize sports betting. To this day, 26 states including the District of Columbia, have pushed for such legalization of sports betting. For the remaining states, it seems they will follow the same path.

The efforts of the remaining states are likely to be accelerated by the pandemic. According to AJ Bell, Russ Mould investment director, sports betting could be used as a means to cope with economic challenges associated with the pandemic. Some states will look to increase taxes and initial licensing fees, he added.

This is the perception in New York as in-person sports betting is legal and that mobile betting will soon be legalized.

Morgan Stanley analysts predict that by 2025 39 US states will have permitted sports betting. This will be matched up with a gross gaming revenue that is predicted to reach $10.2bn, an increase from $1.6bn in 2020. Arguably, this is an enticing prospect. However, this doesn’t come with easily as there are challenges involved. For instance, most betting companies will be required to have a physical presence in the states where they intend to invest in. To counter such challenges, Entain took the step to partner with MGM Resorts International. On the other hand, William Hill joined forces with Caesars.

Currently, the prospects in the US are not admirable as betting companies need to reach a certain sale to make profits. The leaders in the market are FanDuel and DraftKings, with a market share of 35% and 25%, respectively.

Initially, DraftKings started off as a fantasy sports app. But over time, they have spread their wings to cover world live sports betting. In the last quarter of 2020, DraftKings increased their monthly unique players (MUP) to 1.5m, equivalent to a 44% increase. Besides, the company saw an increase in MUP revenue by 55% to $65. Nonetheless, analysts still continue to think that profitability is still miles away. This has not prevented Cathie Wood’s Ark Investment funds from settling with the company.

Penn National Gaming looks to catch up with the market leaders Flutter and DraftKings. To achieve this goal, the company purchased 36% stake in Barstool Sports last year alongside 66m monthly unique visitors. Penn has also gone forth to launch online sports betting in three other states. As a result, investors have made a move to increase their shares with the company. Remarkably, they have increased sevenfold over the past 12 months.

Despite the high valuations and expectations, Ader asserts that the sports betting market could negatively impact the casino industry. He added that online sports betting is highly volatile with low margins. Hence it’s not the best of businesses.

According to Ader, there is a greater potential if states opened up to different forms of online gambling. He continued to mention that sports betting moves fast due to its huge support from the municipalities and the leagues. Nevertheless, online gaming forms like bingo and poker will soon follow suit. Over the next 10 years, the sports betting market should expect to see a wide range of gaming offerings in the US market.

Flutter Battles With Fox

Flutter recently bought a 61% stake in the FanDuel sports betting platform in 2018. By December, the company had increased their stake to 95%.  Boyd Gaming (US:BYD) holds the remainder of the stake. Fox (US:FOXA), Flutter’s media partner, has the opportunity to buy about 18.6% of FanDuel sports betting stake from July. Flutter indicated that this purchase should be made based on a fair market valuation. Contrarily, Fox argues that the purchase price should be based on $11.2bn valuation of FanDuel as of December. To settle this dispute, Fox has gone ahead to file for an arbitration claim.

One of Redburn’s analyst, Alistair Johnson, indicated that basing the valuation on December’s price will make Fox eligible for a 40% discount. The suit could also push for the establishment of a market value by FanDuel.

US Predatory on the UK’s Gambling Sector

Based on the market experience, the US gambling groups are not well versed in sports wagering and online betting. Consequently, most companies have been on the verge of snapping up UK operators. This is because it is cheaper to gain their technology and expertise rather than developing it from scratch.

Last year, Caesars entered into an agreement that would allow it to take over William Hill for £2.9bn. The deal is till underway, but it is expected to be completed soon. Complications could, however, ensue as hedge funds HBK Capital Management and GWN Asset Management push for a renewal of the vote. They argue that the shareholders lacked adequate information before the original vote that took place in November.

Meanwhile, Gamesys (GYS) has completed an “agreement in principle” that will allow it to be taken over by US casino operator Bally’s for £2bn. Mould argues that some of the benefits Gamesys seek to exploit include their strong free cash flow as well as the low valuation of their technology and platform. There is no doubt that Bally’s would be more than interested in investing in them with these perks.

Certainly, the takeover will improve Bally’s technology as it looks to offer online sports betting. Gamesys, on the other hand, will gain access to the US betting market. However, Bally’s has to the end of April 21 to bring an offer or walk away.

The William Hill deal is still uncertain, but Peel Hunt thinks that Gamesys takeover will be successfully completed. After that, the next target could be 888 Holdings. According to the broker, 888 Holdings has what it takes to attract a potential takeover from any of the US betting operators. Playtech (PTEC), the gambling software provider, might also be a major target.

Is it Worth the Gamble?

The threats facing UK-listed gambling firms are not surprising. Still, it’s worth noting that similar backlash may ultimately unfold across the US and Atlantic online market as they mature up.

The excitement over the US gambling prospects is not baseless. In fact, there is a potential for further momentum now that the normal sports calendar will soon resume. Regardless, investors should be wary not to allow this excitement to get the best of them.

You May Also Like

Sports Betting

Sports betting in Canada could kick off in months after the Canadian parliament revised the nation’s Criminal Code, thus allowing for single-game betting Tuesday.

Sports Betting

Earlier this month, Gov. Ron DeSantis approved an agreement that would allow the Seminole Tribe to run online sports betting and land-based betting and...

Sports Betting

The onset of the COVID-19 pandemic had a significant impact on sportsbooks and gamblers. Casino closures, for example, influenced most jurisdictions to reassess legislations...

Sports Betting

For the longest time, sports betting in America was limited to Las Vegas only. Placing wagers on sports, one of the country's oldest activities...