Game on
05/15/18

Score one for the gaming industry.

Yesterday the US Supreme Court struck down a federal law prohibiting single-game sports betting, opening the door for other states besides Nevada (currently the only one with legal sports wagering) to get in on the action. Reports suggest legal sports-betting operations could be up and running within weeks in New Jersey (Delaware, Mississippi, New York, Pennsylvania, and West Virginia are expected to follow soon), with as many as 10 states in the game before the year is over.1

How potentially big is this business? One research firm estimates that offshore sports bookmakers earned $2.5-$3 billion from US customers last year, and wagers the sports-betting industry could span 32 states and generate in excess of $6 billion annually by 2023.2 We’re way beyond your NCAA office pool.

Interestingly, American professional sports leagues, which were against legalizing sports betting, had reportedly thrown in the towel and shifted to figuring out how to best profit from its eventuality. Earlier this year, for example, sports league representatives had floated the idea of making the new legal sportsbooks pay leagues 1% of all wagers.3

So, it’s no wonder shares of many gaming companies and casinos spiked after the news yesterday—even though the decision was widely expected. Scientific Games (SGMS), which specializes in technology for gaming and lottery, was one of the bigger winners, shooting up more than 13% to hit a new record high above $60:

Scientific Games (SGMS), 12/29/2016 – 5/14/18. Breakout to new record.

Source: OptionsHouse

SGMS has been no stranger to big upside recently, having rallied more than 260% in 2017 before cooling and consolidating during the market correction earlier this year. It traded sharply lower (intraday) on May 3 after the release of its Q1 numbers (when it revealed it missed earnings estimates by a wide margin but topped revenue comfortably); yesterday’s moon shot took it out of the short-term consolidation it had been in since then.

The Supreme Court decision has likely paved the way for the expansion for what is already a sizable business, and some traders likely believe the companies that are well-positioned in this space have the potential for more upside. But those corporate profits aren’t going to materialize overnight. In the case of moves like the one in SGMS, experienced traders are likely to wait for the initial enthusiasm to recede before putting their money down on a long-side play. Pullbacks to previous technical levels (e.g., the recent consolidation in SGMS shares) are certainly possible.

Wynn Resorts (WYNN), 6/23/17 – 5/14/18. On the rebound.

Source: OptionsHouse

Other traders may also look at stocks that didn’t spike (or spike as much) on yesterday’s news. Wynn Resorts (WYNN), for example, fell more than 1% yesterday (see chart above). The stock tumbled earlier in the year when it was announced that founder and chairman Steve Wynn was stepping down, but despite lingering legal issues, WYNN shares rebounded to nearly their record high above $200 before turning lower again the past couple of days. Some traders may view a stock like WYNN as one that hasn’t yet benefited from the Supreme Court’s decision.

For some people, sports may have just gotten more exciting. Others—including those who don’t care about sports—may be more interested in what the stock market is doing.

 

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1 Bloomberg.com. States Can Legalize Sports Gambling, US Supreme Court Rules. 5/14/18.

2 Forbes. How Legalized Sports Betting Could Bring In $6.03 Billion Annually By 2023. 9/27/17.

3 Bloomberg.com. The British Bookmaker Betting Big on American Sports Gambling. 4/12/18.