On May 14, the United States Supreme Court ruled in favour of New Jersey and overturned a 1992 federal law that prohibited sports gambling in most states. The ruling opens the door for casinos to take advantage of a multi-billion-dollar industry and could bring a massive injection of cash from overseas. The pressure is on in Canada to open sports betting, but can major Canadian casinos benefit in the near term?
The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) is an obvious target in the aftermath of the ruling. Its stock surged 9.37% on the same day. Major sports leagues are also acting quickly. The National Football League moved to lobby Congress to enact a betting framework to protect the “integrity” of its league.
What about conventional land casinos like those operated by Great Canadian Gaming Corp. (TSX:GC)? Shares of Great Canadian Gaming have soared 53.5% in 2018 so far. The stock surged after releasing its first-quarter results on May 9.
The company reported revenues of $230.5 million in the first quarter, representing a 62% increase from Q1 2017. Adjusted EBITDA climbed 84% year over year to $88.9 million. Revenues were bolstered by the inclusion of the GTA bundle’s first 68 days of operations under the management of Great Canadian. This tantalizing revenue stream should have kept the stock on investors’ radars since the deal was announced.
Analyst David Katz estimated that the U.S. casino gaming industry could add $2.9 billion to its annual profit with sports gambling legalized. Major U.S. casinos applauded the move on May 14, no doubt excited over the massive windfall. The process is still in its early stages, but Canadian legislators could move to embrace a similar path here at home.
The British Columbia attorney general recently commented on gambling laws in an email statement. “So long as single-event sports betting is criminalized in Canada, Canadians who engage in this type of betting online do so in a completely unregulated and potentially unsafe way,” he said. “In Canada, this issue is better addressed with good policy and law-developed discussion between provinces and the federal government, instead of an abrupt court decision as the Americans are currently grappling with.”
The comments do not lend much optimism to legalized sports gambling making its way into revenue streams for companies like Great Canadian. However, the general trend in North America appears to be open to taking sports gambling out of the shadows. This can only be good news for casinos going forward.
Legalized sports betting may not be a reality in Canada for some time, which will deny companies like Great Canadian the massive revenue opportunity. However, the company is still a fantastic hold for the long term with revenues getting a huge boost from the GTA bundle acquisition. The promise of loosening sports betting rules in the future in Canada should only entice investors to stock up on this premium growth stock today.
