Are the markets anticipating legal sports betting’s first ‘bad beat’? By Howard Stutz, Executive Editor, CDC Gaming Reports December 22, 2020 at 7:00 pm In the last 31 months, we’ve learned that any sports betting news item has the power to send the markets scurrying. In some ways, sports betting is akin to picking a winning stock, although we have yet to see a “bad beat.” In poker, a bad beat occurs when a seemingly unbeatable high-ranking hand loses to a higher-ranking hand. The term is often broadened to include non-poker gambles in which the outcome of an ostensibly winning scenario inexplicably changes. For example, the last-play safety in the Dec. 14th Monday night game between the Baltimore Ravens and Cleveland Browns covered the spread and swung millions of dollars in wagers at sportsbooks throughout the U.S. On Sunday, the improbable victory by the winless New York Jets – 17-point underdogs – over the Super Bowl-contending Los Angeles Rams cost parlay bettors who were banking on what was considered an apparently easy outcome. Employees get ready to open the BetRivers sportsbook Rivers des Plaines in Illinois So how does sports betting compare with stock projections? In New York last week, the anti-sports betting governor suggested he might not stand in the way should lawmakers legalize mobile sports wagering as one plan for filling some of the $70 billion worth of holes in the state’s COVID-impacted budget. Though several analysts downplayed the tax impact mobile sports betting would have on repairing the New York budget, by Friday, the stock price for Penn National Gaming, which owns 36% of sports media platform Barstool Sports, reached an all-time of $95.58. Penn broke that figure Tuesday, hitting $96.59. The regional casino operator doesn’t operate a New York casino, nor does it even manage one of the state’s eight retail sportsbooks. Bank of American gaming analyst Shaun Kelley, according to the Seeking Alpha news site, suggested Penn National’s stock price could be worth more than $100 a share if New York added mobile wagering. Penn operates the Barstool-branded mobile sports betting app in Pennsylvania and is looking to expand into other states. “New York could trigger additional regional pressure for legalizations in Massachusetts and Connecticut, both of which are on the radar for 2022, along with Ohio, which seems increasingly unlikely to pass in 2020,” Kelley told investors last week. The Supreme Court ruling that opened the U.S. to legal sports betting will be three years old next May. By that time, close to half of the states could offer retail sportsbooks inside casinos or racetracks, and/or mobile sports betting operations. Wall Street is still trying to figure out how to manage investor expectations. Sports betting is currently active in 19 states and Washington, D.C., with six additional states set to launch the activity in 2021. Movement toward legalizing sports betting is gaining steam in other states, including California, where a tribal gaming coalition qualified a ballot initiative to go in front of voters in 2022. According to Legal Sports Report, since the Supreme Court decision, states have seen almost $33 billion wagered on sports, with revenues topping almost $2.3 billion. The American Gaming Association said the nationwide sports betting revenue of $957.6 million through October is 39.1% higher than in 2019. And this is with professional and college sports being shut down for several months due to the pandemic. The activity surrounding sports betting has fueled surges in the stock prices of several gaming companies ever since sports betting became a topic. MGM Resorts (50% owner of BetMGM with Entain PLC), Caesars Entertainment (20% owner of William Hill US), and Boyd Gaming (a sports betting partner with FanDuel) have jumped anytime sports betting is in a headline. DraftKings, which went public in April through a merger with a special-purpose acquisition company, rose more than 10% on its first day of trading on the Nasdaq. Bank of American said the company, which has sports betting operations in 12 states, was worth 35% more than its current trading value. Still, Penn National is the biggest winner. The company’s stock was at $3.75 a share following the market’s crash in mid-March. The 395% increase since then has been credited to sports betting. This month, Penn said it would spend $31.1 million to acquire the operations of Hollywood Casino Perryville in Maryland. The state was one of three, along with Louisiana and Southern Dakota, where voters in November approved ballot initiatives to legalize sports betting. The growth of sports betting in states like Michigan – adding mobile to its retail operations – the launch in November of mobile sports betting in Tennessee, and soon-to-be-unveiled mobile operations in Virginia “provides an ongoing catalyst path and momentum in the sector,” according to Kelley. We’re just anticipating a bad beat. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.