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Source/Full Story - CalvinAyre.com
Remember when former New Jersey Governor Chris Christie infamously predicted a $200 million annual increase in tax revenue from online gambling? He not only predicted it as an academic exercise. He put other people’s money where his mouth was and authorized a $200 million increase in state spending based on his projections. New Jersey ended up netting about $34 million. Well, at least it’s not so bad when you’re betting other people’s money.
Legalized Sports Betting in the United States is in its infancy, it’s tantalizing, and it’s good news for all people who like to be able to spend money on things they enjoy. One day it will be a powerhouse, but that day is farther down the line than I believe most in the industry would like to admit. As I see it, there are three unique challenges for investors in this space that have to be dealt with before the U.S. Sports Betting market can really take off.
Challenge #1: Big-spending social engineers have the keys
While Sports Betting is fully legal in some states, New Jersey being the most prominent example, it is only potentially legal in most others. Even when legalization has technically passed though a legislature, this does not mean that companies can simply start setting up shop. Take New York. This was once one of the most promising of states for full legalization since it had legalized betting in principle way back in 2013. The industry had to wait until PAPSA was overturned by the Supreme Court, but it did seem that everything was already put into place in advance and the industry was just waiting for the go ahead. PAPSA was overturned in May 2018, and even then with all the groundwork supposedly laid, it still took 8 months for the state to get its act together and let casinos start taking actual bets. That’s a lot of time, maybe not for politicians but certainly for businesses and their investors. That didn’t even include online Sports Betting, which is still illegal. Hopes of it becoming legal in 2020 are waning.
Challenge #2: The state has a head start
This is a more general corollary to the first challenge. Usually, when a new industry appears, it has a head start over the state in its efforts to tie it down, regulate it, and milk it for as much tax revenue as possible. Think of the internet itself for example. It came into existence long before government had any idea how to leech off of it. Internet retailers still benefit enormously from the lack of a federal online sales tax. Independent media can still thrive online, though this is becoming increasingly difficult now that regulatory regimes are catching up. If a new industry has a head start, then the state has a hard time playing catch-up because jobs already exist and they don’t want to damage those. It’s too obvious who’s doing the damage. So they have to invade cautiously, armed with industry leaders in hand as cheerleaders. On the other hand, when the state has a head start, it’s hard for voters to see jobs lost due to taxes when these jobs haven’t been created in the first place..
Challenge #3: Unclear effects on big gaming
If we’re speaking from an investment perspective, it’s hard to say what effect fully legal Sports Betting will have the big U.S. players like MGM and others. Some revenues will be cannibalized, some won’t, but think of Sheldon Adelson for example. He’s spent a lot of time and money lobbying against online gambling legalization generally. There’s a good reason for that. He doesn’t want the competition. If you look at MGM’s most recent 10-K, it’s also ambivalent about legalized Sports Betting particularly:
Remember when former New Jersey Governor Chris Christie infamously predicted a $200 million annual increase in tax revenue from online gambling? He not only predicted it as an academic exercise. He put other people’s money where his mouth was and authorized a $200 million increase in state spending based on his projections. New Jersey ended up netting about $34 million. Well, at least it’s not so bad when you’re betting other people’s money.
Legalized Sports Betting in the United States is in its infancy, it’s tantalizing, and it’s good news for all people who like to be able to spend money on things they enjoy. One day it will be a powerhouse, but that day is farther down the line than I believe most in the industry would like to admit. As I see it, there are three unique challenges for investors in this space that have to be dealt with before the U.S. Sports Betting market can really take off.
Challenge #1: Big-spending social engineers have the keys
While Sports Betting is fully legal in some states, New Jersey being the most prominent example, it is only potentially legal in most others. Even when legalization has technically passed though a legislature, this does not mean that companies can simply start setting up shop. Take New York. This was once one of the most promising of states for full legalization since it had legalized betting in principle way back in 2013. The industry had to wait until PAPSA was overturned by the Supreme Court, but it did seem that everything was already put into place in advance and the industry was just waiting for the go ahead. PAPSA was overturned in May 2018, and even then with all the groundwork supposedly laid, it still took 8 months for the state to get its act together and let casinos start taking actual bets. That’s a lot of time, maybe not for politicians but certainly for businesses and their investors. That didn’t even include online Sports Betting, which is still illegal. Hopes of it becoming legal in 2020 are waning.
Challenge #2: The state has a head start
This is a more general corollary to the first challenge. Usually, when a new industry appears, it has a head start over the state in its efforts to tie it down, regulate it, and milk it for as much tax revenue as possible. Think of the internet itself for example. It came into existence long before government had any idea how to leech off of it. Internet retailers still benefit enormously from the lack of a federal online sales tax. Independent media can still thrive online, though this is becoming increasingly difficult now that regulatory regimes are catching up. If a new industry has a head start, then the state has a hard time playing catch-up because jobs already exist and they don’t want to damage those. It’s too obvious who’s doing the damage. So they have to invade cautiously, armed with industry leaders in hand as cheerleaders. On the other hand, when the state has a head start, it’s hard for voters to see jobs lost due to taxes when these jobs haven’t been created in the first place..
Challenge #3: Unclear effects on big gaming
If we’re speaking from an investment perspective, it’s hard to say what effect fully legal Sports Betting will have the big U.S. players like MGM and others. Some revenues will be cannibalized, some won’t, but think of Sheldon Adelson for example. He’s spent a lot of time and money lobbying against online gambling legalization generally. There’s a good reason for that. He doesn’t want the competition. If you look at MGM’s most recent 10-K, it’s also ambivalent about legalized Sports Betting particularly:
