May 15, 2018

Breakingviews: Ready, Set, Gamble!

by Breakingviews

Get ready to gamble: U.S. sports betting is going legit. The Supreme Court on Monday ruled that the feds can’t stop states legalizing wagers on basketball and other games, ending a 1992 ban. It will push a black market into the light and give gaming firms, sports leagues and media outlets like ESPN a grab at a big revenue pot.

The American Gaming Association estimates that more than $150 billion of sports wagers were made illegally in 2016. Figure 6 percent of the headline number ends up in the top line of gaming companies, according to research firm Eilers & Krejcik Gaming, and that alone means some $10 billion in newly legal corporate revenue.

It could ramp up quickly, too. Only a handful of states, including Nevada – home to gambling mecca Las Vegas – and Oregon, were previously permitted to host sports betting, having started before the federal ban was enacted. S&P notes that more than 20 other states including New Jersey, which led the Supreme Court challenge, have proposed legislation to expand sports gambling.

UK specialists William Hill, Paddy Power and GVC collectively saw their market value rise 10 percent, adding almost $2 billion, after the ruling. The shares of Scientific Games, which develops gaming technology, surged 11 percent on Monday, adding over $500 million in market cap. U.S. fantasy-sports startup DraftKing says it’s ready to wade into the market.

U.S. states, inevitably, will want to take some kind of levy. Sports leagues, like the National Basketball Association, will also lobby legislators for a cut of the cash that’s wagered, perhaps partly as a payment for their data.

But there should be enough cushion. Attendance at live sports could increase if more people have financial skin in the game. And hundreds of millions of dollars could flow to ESPN and other television networks both from rising ratings and new advertising sales as betting upstarts vie with established British groups for market share.

Right now, though, there’s no science to the new industry’s odds. If lawmakers overdo regulation, take too much in tax or hand too big a slice to the leagues, the black market could continue to thrive. On the other hand, the right balance could expand the opportunity way beyond what’s currently wagered illegally. Expect a lot of jockeying.

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