Legalized sports betting continues to be a polarizing issue, with many detractors expressing concerns about its potential social, ethical and economic consequences. But let’s look at how legal sports betting impacts investors.
Legal changes to sports betting
In May 2018, the U.S. Supreme Court ruled that states can legalize sports betting, striking down the Professional and Amateur Sports Protection Act. The 1992 law banned state-authorized sports gambling, with few exceptions. Consequently, Nevada became the only state where wagers could be placed on the results of a single game. At the time, and even today, some states viewed sports betting as a potential source of tax revenue, similar to lotteries.
After the ruling, shares of several casino companies moved higher, including Caesars Entertainment (NASDAQ: CZR), which rose 6 per cent, and Penn Entertainment (NASDAQ: PENN) spiked 4 per cent. Others gains included MGM Resorts (NYSE: MGM), Boyd Gaming (NYSE: BYD) and Churchill Downs (NASDAQ: CHDN).
More recently, in 2021, the Canadian government passed Bill C-218, a federal bill allowing gambling on single sport games. Soon after the bill passed, Penn Entertainment (formerly Penn National Gaming) acquired Toronto-based Score Media in a $2 billion deal. The deal saw Score Media and Gaming shareholders getting $17 per share in cash, plus nearly 0.24 shares of common Penn Entertainment stock for each Score share, making the deal roughly half in cash.
But legalized sports betting doesn’t just benefit gaming companies and their shareholders. Publicly traded media companies in Canada and the United States also stand to benefit from sports betting reform.
Broadcasters such as Rogers (TSE: RCI.B), Fox (NASDAQ: FOXA), Paramount (NASDAQ: PARA) and Comcast (NASDAQ: CMCSA), for example, have seen seeing subscription numbers, and traditional ratings, steadily decline since 2014 as consumers are cutting the cords and newer generations avoid cable altogether. As a result, broadcasters have seen advertising revenues also decline.
With narrowing revenue streams and increased audience fragmentation, sports betting reform has obligated broadcasters to develop new sources of revenue. For instance, media companies are capitalizing on rising casino and sports book advertising spending, as those organizations take advantage of heightened fan engagement that sports betting naturally brings.
Sports betting reform has also made room for companies, such as Disney’s ESPN, to leverage their platforms to create new digital products that deliver second-screen experiences during live sporting events.
Although these benefits haven’t completely revived the media and gaming industries, they do reposition companies in these sectors as attractive to investors looking for a calculated gamble.
While this isn’t investment advice, here’s how some of Canada’s top media and gaming companies are performing:
- Rogers Communications (TSE: RCI.B): – 0.19%, 61.50
- Bell Media (TSE: BCE): – 0.42%, 54.61
- NorthStar Gaming Holdings (TSX:BET): Unchanged, 0.0450
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