By Jeff Herman

Equity Partner, Wagner Wealth Management

Have you ever thrown in a couple bucks for Super Bowl squares, filled out a March Madness bracket for the office pool, or picked a horse to win the Kentucky Derby? If so, then you are among the estimated 100 million Americans that have enjoyed sports betting in the United States every year. However innocent these games are, though, they have been illegal in most states until May of last year.

In a 2018 decision, the U.S. Supreme Court ruled that each state should have the authority to offer legalized sports betting. As of today, there are eight states where you can legally place a wager on your favorite sports team: Nevada, Delaware, New Jersey, Mississippi, West Virginia, New Mexico, Pennsylvania, and Rhode Island. If you happen to live in one of them, you can walk into the betting parlor and pick your favorite college basketball team to win, or if you are feeling confident, bet how many points they may score in a certain game.

 

Just for clarity, sports betting is predicting results and placing wagers on the outcome of games or events—such as horse races, football and basketball games, golf tournaments, or NASCAR races. This is not a “how to” article on sports betting, but we will investigate ways of potentially profiting from this new growth area. 

According to the American Gaming Association, sports betting is estimated to be a $150 billion business with the potential for explosive growth. Although only eight states have currently agreed to allow this practice, there is a wave of 20-plus states with legislation currently under consideration.  

While the future is bright for this industry, there are numerous opportunities for investors as well, including how and where sports bets are placed. Until recently, you had to walk into a sportsbook at a casino to place a bet. In the years to come, there may be betting parlors or franchises, just like your local Panera Bread. Think of companies like WYNN Resorts, stock symbol (WYNN), Caesars Entertainment (CZR), or MGM Resorts (MGM). These are all big casinos that could potentially open smaller sports betting locations around the country. Another player in this area is William Hill (WILMHY), which is well known in United Kingdom and Ireland where they have an approximate 25 percent share of the market. 

Another investment option centered around a physical location includes horse tracks that are already up and running and taking sports bets. One to consider is Churchill Downs (CHDN), where the Kentucky Derby is run. Also, Boyd Gaming (BYD) operates “racinos” in three states, as well as more traditional casinos in an additional seven, and is well positioned to expand operations for sports gambling.

Something even more interesting is that Buffalo Wild Wings is reportedly interested in offering sports betting at its restaurants. I can just hear it now: “I’ll have the extra hot wings and Clemson -6 vs. Pitt.”

As with everything today, technology is going to play a massive role in this growth. The company or operation that makes it easiest to bet will likely get the most business. If you don’t want to leave the house to place a bet, just log in on your computer, tablet, or smartphone. It’s going to be that easy and convenient. 

Investors should take a look at International Game Technology (IGT) or Scientific Games Corp. These companies are helping to build the backbone of web-enabled betting sites. IGT has even taken the step to partner with several larger casinos, enabling them to offer apps that allow online gaming while having an IP address located in an approved state. 

Another option for the growing online market is The Stars Group. Poker players will recognize this company as the founder and operator of PokerStars, the popular site for the game.

If, as expected, we see large growth in the mobile/online market, there will also be a need to move money between bank accounts and betting sites; think fintech for these investments. Established names like Visa and Mastercard come to mind right away, but don’t overlook Square or PayPal as well. In the fintech space, an exchange-traded fund may help you reduce the individual stock risk and one to consider is the Pure Funds Prime Mobile Payments.

A final major piece to this growing industry is the advice business. As in every burgeoning industry, there will be many “best stocks to buy” lists, but this industry will also have game pundits. Yes, there are going to be quite a few people that will want you to buy their game-picking advice.

Taking my own advice, I’m picking a lot of upsets in my March Madness bracket.