Trading on Headlines: Betting on Betting Companies

The U.S. Supreme Court just came out with a ruling that most sports betting fans will love: It struck down a federal law banning sports betting, and it upheld a 2014 law in New Jersey that permitted such betting in racetracks and casinos. And while sports lovers will jump for joy, perhaps this offers a trading (maybe even an investing) opportunity too.

The Stakes are High

According to one estimate, American’s spend over $150 billion in placing illegal bets each year. These are largely done through bookies in the black market, and through off-shore betting venues. What the new ruling does is to raise the stakes for legalized sports betting in the U.S. With more companies now able to move their action beyond spots like Las Vegas, chances are that some of those players could see their stocks rise.

Penn National Gaming, Inc. NASDAQ: PENN

Two classic examples of this are Penn National Gaming, Inc.(PENN) and Scientific Games Corporation (SGMS), which have seen run-ups of 24% plus and nearly 17% (intra-day at the time of writing this piece) over the past month. The lion’s share of that gain came following the latest Supreme Court decision.

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Placing your bets

Clearly, betting on betting companies might be considered somewhat of a gamble (pun intended!) by some. But there is an investment thesis to be made here. Consider what the liberation of sports betting can do to the industry.

  • Firstly, it will mean that more of such companies will now be able to offer their services in states where such betting was hereto illegal. This will mean more revenue.
  • More importantly, the opening up of sports betting will mean that a lot (if not all!) of that illegal betting action could see it’s way into the U.S, giving a boost to home-grown betting companies

Both these scenarios are positive for established players in the business. However, if you have always been a bear on the sports betting industry, then perhaps there’s no convincing you to put long-term money in the sector. Still, it might be worth a quick trading opportunity, given that there is likely going to be some price momentum as everyone tries to figure what the ruling means for the longer-term investor.

Gaming Stock 5 day performance

Apart from PENN and SGMS, mentioned earlier in this piece, you might wish to take a closer look at some other movers and shakers in the group, including:

  • Boyd Gaming Corporation (BYD) – which has seen a gain of nearly 8% intra-day; and
  • Churchill Downs Incorporated (CHDN) – that has risen almost 6% intra-day following the court’s ruling

For the slightly faint of heart, who don’t wish to place bets on individual players in the sports betting, gambling and entertainment space, perhaps raising a small stake in a basket of such names might be a good idea? You can do that by investing in the VanEck Vectors Gaming ETF (BJK), which counts U.S and international names like Galaxy Entertainment Group Ltd (0027.HK), Las Vegas Sands Corp (LVS), Wynn Resorts Ltd. (WYNN) and Sands China Ltd. (1928.HK), among its top-ten positions. Not only will BJK offer you variety in the type of companies held, but also geographic diversity in your portfolios.

Author does not own any stocks mentioned in this article

With a Bachelor's degree in Commerce (with Accounting/Finance as a major), a diploma in Technology Management and Entrepreneurship, and Microsoft’s IT Infrastructure Library (ITIL) certification (including from the London Chamber of Commerce and Industry, and the University of New Brunswick in Canada), Monty brings a diverse repertoire of analytical and writing skills to the team. Monty’s vast international work experience, in Audit, Tax, Project Management, IT and Management Consulting, including with companies like Price Waterhouse, Peat Marwick and KPMG, adds a unique perspective to the content he produces.