The Potential of Legal Sports Betting Has Stars Group Inc. Celebrating: Is it a Buy Right Now?

Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) stock spiked after a key ruling, but companies looking to capitalize off legalized sports betting are likely to meet hurdles in the coming years.

Back in September 2017, I’d discussed why investors should target Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) with a decision on sports betting south of the border looming large.

On May 14, the United States Supreme Court struck down the Professional and Amateur Sports Protection Act that banned sports gambling, with few exceptions. The pressure is now on the U.S. Congress to regulate sports gambling directly or allow the states to act freely in determining policy. The decision has been met with open arms by casinos and by key figures in professional sports.

All four major sports leagues; the NFL, NHL, NBA, and MLB, argued openly that the law should be upheld to protect the integrity of their respective sports. This position was not uniform among top owners. Washington Capital and Wizards owner Ted Leonsis, for example, called the decision a “great one for sports fans.” Atlanta Hawks owner Antony Ressler also said the ruling would be “positive” for the NBA.

Stars Group did not hide its elation after the ruling. On May 15, the company released a statement praising the move: “The decision by the Supreme Court is an important step forward in the regulation of sports betting in the United States,” said Marlon Goldstein, executive vice president and chief legal officer at Stars Group.

The decision came after Stars Group had announced a $4.7 billion acquisition of Sky Betting & Gaming, a sports betting operator in the United Kingdom, and the world’s largest online gaming market. It also acquired 80% of the combined Crownbet and William Hill Australia businesses, which represent the second-largest online gaming market in the world.

The American Gaming Association estimates that the number of illegal bets made by Americans is as much as $150 billion per year. The huge numbers are enough to make casinos, online or otherwise, salivate at the potential revenues that could be generated going forward. However, it will likely take years for regulations and the market to settle.

Stars Group stock has surged over 60% in 2018 as of close on May 23. Does this mean investors should wait on the sidelines?

The company released its first-quarter results on May 10. Revenue climbed 23.8% year over year to $392.8 million, and net earnings jumped 13.1% to $74.3 million. Casino and sportsbook revenues rose 55% from Q1 2017 to $134.5 million with 20.7% of that total related to sportsbook revenues. A portion of this growth was propelled by the acquisition of CrownBet. Net deposits increased 25.9% from the prior year to $353.4 million. Customer registrations also hit 2.3 million in the quarter.

It is hard not to be intrigued by the huge potential offered by legalized sports betting going forward. Companies will be forced to wade through the uncertain environment in the short term, but looking long, Stars Group is too good to pass up, even at its current price. The company has made some fantastic moves to position itself well ahead of this ruling, and investors should look for entry points over the coming months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

3 Canadian Dividend Stocks to Buy Hand Over Fist

These three Canadian dividend stocks each offer a unique opportunity, making them some of the best investments to buy at…

Read more »

Chalk outline of two arrows pointing in opposite directions
Top TSX Stocks

2 TSX Stocks That Can Deliver Massive Gains in a Recession

Restaurant Brands International (TSX:QSR)(NYSE:QSR) stock and another recession-resilient firm that can win big in 2023.

Read more »

Growing plant shoots on coins
Stocks for Beginners

For New (and Old) Investors: 3 Dividend-Paying ETFs With Lower-Risk Profiles

Three dividend-paying ETFs with lower-risk profiles are suitable for new and old investors alike.

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Is Now the Time to Buy Shopify Stock?

Shopify stock (TSX:SHOP)(NYSE:SHOP) hasn't hit these lows in years. So is it a great time to buy the dip, or…

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Retirement Wealth: 2 Oversold Canadian Stocks to Buy Now and Own for Decades

These industry-leading dividend stocks look cheap right now and have increased their distributions annually for decades.

Read more »

money cash dividends
Tech Stocks

Got $1,000? 3 Cheap Stocks to Buy Right Now

If you've got cash on the sidelines that you're looking to put to work, here are three cheap stocks that…

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Dividend Stocks

2 of the Safest TSX Stocks Right Now

The stock market is heading towards a crash. Investors are seeking the safety of dividends, and these two stocks provide…

Read more »

question marks written reminders tickets
Tech Stocks

Nvidia Stock Is Down 60%: Should You Buy?

Nvidia (NASDAQ:NVDA) stock has slipped over 60% as short-term headwinds hurt its revenue. But a long-term view of the stock…

Read more »