Casino Stocks Rally After Ruling Opens Up $4 Billion Market
(Bloomberg) -- Shares of casino companies soared after the U.S. Supreme Court struck down a federal law that bars gambling on individual sporting events, potentially opening up a $4 billion market for the industry.
Scientific Games Corp., Boyd Gaming Corp., MGM Resorts International and Caesars Entertainment Corp. all rose in the wake of the decision. Other companies, such as online gaming giant Stars Group Inc. and International Speedway Corp., also climbed.
The rally follows a decision that found a 1992 law unconstitutionally forced states to maintain rules that outlaw gambling. Nevada is the only state where single-game wagering is now legal. Sports gambling could begin in a matter of weeks in casinos and racetracks in New Jersey, which instigated the legal fight by repealing its gambling prohibition.
Scientific Games, a slot-machine maker that also processes bets for sports-book operators, saw its shares climb as much as 13 percent. Caesars, the largest operator of casinos in the U.S., rose 7.1 percent. Also gaining: a group of non-U.S. betting parlor and online operators that have already been taking wagers on sports in other countries.
William Hill Plc, one of the largest betting-shop operators in the U.K., saw its shares pop 11 percent. William Hill already has the largest number of sports books in Nevada. Stars, a Canadian company that owns the PokerStars brand and agreed to buy Sky Betting & Gaming last month for $4.7 billion, saw a 15 percent gain.
MGM, the largest owner of casinos on the Las Vegas Strip, saw its shares climb as much as 3.5 percent. The company gave a presentation to investors last week in week in which it sketched out a future of more professional sports teams in Las Vegas and a greater presence nationally in sports betting, either online or in casinos.
A company like MGM hopes that its prestige in traditional gambling will give it an edge as new players flood into the market.
“We believe in the next two years to three years, there are 10 to 12 states that are ripe and ready to activate on that,” MGM President William Hornbuckle said. “We will be there. We will participate in it. We bring technology. We bring knowledge. And frankly in this space, we bring trust.”
Carlo Santarelli, an analyst with Deutsche Bank Securities in New York, predicted that the U.S. market for both online and in-casino sports betting could reach $4 billion by 2023, based on 13 states having adopted it.
The first movers will be states that have already passed legislation allowing it, such as New Jersey, Pennsylvania, New York and West Virginia, Santarelli said in a research note Monday. Given the time required for regulations to be developed, he didn’t think any new state would offer sports betting this year.
Santarelli said he saw the biggest opportunity for stock-market gains in regional casino operators, such as Boyd Gaming Corp. and Penn National Gaming Corp., as well as gambling suppliers. Legalization could be a negative for Las Vegas because Nevada is losing its monopoly on the business.
He cautioned that it could be harder than expected to capitalize on the change. The size of the market -- and the speed at which it spreads -- could be disappointing, he said. A similar scenario played out with online casino gambling, which is still only possible in three states.
But sports teams expect gambling legalization to make their organizations much more valuable. Revenue from wagering could exceed the money that teams get from TV and other media, said Ted Leonsis, the owner of the Washington Wizards and Capitals.
“There’s an underground gigantic pool of revenue and now it moves into the sunshine,” he said in an interview. “All of a sudden you’re looking at a revenue stream that’s as big or bigger than the traditional media business. It turbocharges the media business.”
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