The House Always Wins

Setting foot in the new Mecca... This might be fun, but it's mostly for suckers... The house always wins... An unprecedented event – not once, but twice... We're only getting started with this megatrend...

A couple of months ago, I walked into the new sports-betting mecca...

The venue covered more than 5,000 square feet. At least a dozen jumbo flat-screen TVs lined the 20-foot-high walls... and many of the tables throughout the room had a personal TV. A row of betting stations spanned one wall and there was an elevated VIP section off to the side.

The place was busy, but it wasn't cramped. The crowd of mostly men stood in line to place bets or sat and watched the TVs. And of course, no sportsbook is complete without a massive bar...

I (Alan Gula) sat down, ordered a beer, and turned to watch the action. I wasn't going to bet on any of the games. The people all around me shouldn't have been betting either, if they knew what was good for them. But no one can stop them... It's perfectly legal here.

I wasn't in Las Vegas... I wasn't even in the state of Nevada, where gambling like this has been legal since 1949. Instead, I was more than 2,500 miles away from Sin City... sitting in the new FanDuel Sportsbook in East Rutherford, New Jersey.

Perhaps it's too early to crown New Jersey as the new sports-betting capital of America.

But as I'll show you in today's Digest, sportsbooks in the state have surpassed their Nevada counterparts in recent months. And this trend isn't stopping in New Jersey...

During my visit, the New England Patriots were '+700' favorites to repeat as Super Bowl champions...

In other words, if you bet $100 on the Patriots to win Super Bowl LIV in February, you would make $700 (plus get your $100 back) if they actually do it. Those odds translated into an implied probability of about 12.5% that the Patriots would win the championship.

But just last weekend, the Patriots improved their already impressive receiving corps by signing All-Pro wide receiver Antonio Brown. If you're a football fan, you know all about the Brown saga by now...

The Pittsburgh Steelers, Brown's team for the past nine seasons, traded the seven-time Pro Bowler to the Oakland Raiders in March. But Brown's preseason was full of distractions... including a helmet grievance, frostbitten feet from cryotherapy, missed practices, and inflammatory social media posts.

The Raiders finally had enough with Brown, releasing him last weekend. He never played a single down in Oakland.

Brown wasn't out of a job for long... Within a matter of hours on Saturday, he moved from the dregs of the National Football League ("NFL") to having a legitimate shot at a championship with the Patriots.

After signing Brown, the Patriots' odds to win the Super Bowl surged...

It also helped that the Patriots beat the Steelers by 30 points on Sunday night.

Today, the Patriots are +400. That means you'd only make $400 if you bet on the Patriots and they go on to win it all. The implied probability of them winning has risen to about 20%.

In states where sports gambling is now legal, you can place a bet on whether any of the 32 NFL teams will win it all. For example, at +750, the Kansas City Chiefs are right behind the Patriots. The Chiefs' implied probability of winning the Super Bowl is nearly 12% today.

And all the way down at the bottom, you'll find the Miami Dolphins. They're the biggest longshot on the board today at +40,000. A $100 bet on the Dolphins is basically a lottery ticket... paying out a whopping $40,000 if the Dolphins win the Super Bowl. At those odds, the Dolphins' implied probability of victory is a miniscule 0.3%.

I don't recommend betting on any of these teams... Whether you bet on the favorite like the Patriots or a longshot like the Dolphins, it's generally a sucker's bet. It may be fun to do, but the odds are stacked against you.

The house has a huge advantage with futures bets...

If you add up the implied probabilities of the 32 NFL teams on the FanDuel Sportsbook, you get 124%. That doesn't seem to make any sense. They should add up to 100%. After all, one team – and only one team – will win the Super Bowl.

However, the surplus reflects the house's edge. The sportsbook systematically gives teams better implied odds of winning, which leads to lower payouts if they win. It's how the sportsbook is effectively compensated for accepting bets and taking on the risk of payouts.

You might be able to identify a team that's mispriced, bet on it, and win. But the house has a natural advantage based on all of the odds on the board.

Given the odds on the FanDuel Sportsbook's board right now, the house holds a 19% advantage (slightly lower than what you would expect because of how the house advantage is calculated). For every $100 that it takes in on team futures, it can expect to make an average of $19... assuming the betting is spread between the teams proportionately with the odds. (If a lot of people bet on an underdog and it wins, the sportsbook would get killed.)

A 19% advantage is massive. Gamblers would be better off wagering on individual football games instead of placing futures bets. But the thing is, they're still at a disadvantage.

Football is the most popular sport in Las Vegas...

Around 190 sportsbooks operate in Nevada. Last year, wagers on college and pro football at these sportsbooks totaled $1.8 billion – 36% of the total money bet on all sports.

Most football odds are listed at -110. If you bet $110 on a team and it covers the "point spread" in the game, you get your $110 back and win $100. If not, you lose your $110.

On this type of bet, the house advantage is around 4.6%. That's obviously not as high as the house's advantage with the futures bets, but it's still significant.

And of course, the house's edge doesn't stop with football. In fact, Las Vegas sportsbooks tend to have a slightly better average win percentage in basketball than football.

With all of these edges, it shouldn't be surprising that sportsbooks tend to make money. Collectively, Nevada sportsbooks haven't suffered a losing month since July 2013.

It's good to be the house.

Nevada sportsbooks used to have a near-monopoly on sports gambling. But now, due to law changes, Las Vegas is losing its crown as the sports-betting capital of America.

The U.S. sports-betting boom began about a year and a half ago...

The Professional and Amateur Sports Protection Act ("PASPA"), passed in 1992, effectively banned sports betting outside of Nevada. However, it was reversed last year. As I wrote in the August issue of Stansberry's Investment Advisory...

In May 2018, the Supreme Court overturned PASPA, saying that it was unconstitutional. That gave each state the right to regulate sports betting within its borders. Politicians in several states jumped at the chance to increase state tax revenues.

New Jersey quickly passed sports-betting legislation. That set the stage for an improbable and unprecedented event in the gambling world. Also from the August issue...

In May [2019], New Jersey sportsbooks took in more bets than their Nevada counterparts. And this was only a year after sports betting became legal in New Jersey. The Garden State is now at the forefront of the U.S. sports-gambling boom.

The feat was no fluke, either... New Jersey surpassed Nevada in July, as well.

You can place bets in person at a sportsbook like the one I visited, but betting online is more convenient...

Most of the states that have passed sports-betting legislation – like New Jersey – require the sportsbooks to partner with a land-based casino or racetrack sponsor.

FanDuel's partner in New Jersey is the Meadowlands Racetrack – a horse-racing track in East Rutherford, where it opened a retail sportsbook in June 2018. DraftKings, another sportsbook operator, has partnered with the Resorts Casino in Atlantic City.

But most of the folks placing bets don't even visit these venues...

You see, FanDuel and DraftKings offer online betting. As long as you're within the state's borders – verified by a technology called "geofencing" – you can make wagers. More than 80% of the betting action in New Jersey has come online through mobile apps and websites.

PASPA was just overturned last year, but sports betting is already spreading nationwide...

Pennsylvania is the next big target. In July, FanDuel went live with its mobile app in the state, just in time for football season. DraftKings has yet to launch its app in Pennsylvania, but it has partnered with Penn National Gaming (PENN) to gain market access.

However, DraftKings did launch its mobile operations in West Virginia last month – its first outside of New Jersey.

We won't have the September numbers for statewide sports-betting revenue until about a month from now. But with the New Jersey market in full stride and other states like Pennsylvania and West Virginia opening up, I expect the total numbers to be impressive.

Sports betting is coming to other states, as well... For example, FanDuel just announced that it will soon open four sportsbooks at Boyd Gaming (BYD) properties across Indiana and Iowa. FanDuel will also be able to introduce mobile betting as a result of the partnership.

Over the next few years, sports-betting fever will continue to move across the country...

Dozens of retail sportsbooks will open in states where gambling is legalized, and online betting will be made available in more states, too.

More and more Americans will throw their hard-earned money away by placing countless bets on sports... even though they should be investing in the sports-betting trend instead.

If you want to bet on sports, just keep in mind that your wagers have a negative "expected value." You'll almost certainly lose money over the long term because of the sportsbook's advantage that I discussed earlier.

If you want to make money, you must bet on the house.

And that's exactly what we're doing in Stansberry's Investment Advisory...

In August, we identified an ideal way to capitalize on this megatrend as it sweeps across the country. We're already up more than 15% on this recommendation in a little more than a month. And we're always on the lookout for additional opportunities to profit in this space.

One last thing...

If you're planning to join us at the Stansberry Conference in Las Vegas next month, I hope you'll heed my warning and take it easy at the sportsbooks. If you haven't signed up, it isn't too late for you to get in on the action. Learn more about an online access pass right here.

New 52-week highs (as of 9/11/19): Booking Holdings (BKNG), iShares Select Dividend Fund (DVY), iShares U.S. Aerospace and Defense Fund (ITA), iShares U.S. Home Construction Fund (ITB), Nuveen Preferred Securities Income Fund (JPS), Masco (MAS), Invesco High Yield Equity Dividend Achievers Fund (PEY), Sysco (SYY), AT&T (T), and Belo Sun Mining (VNNHF).

A busy day in the mailbag: One reader weighs in on California's recent employment ruling... another sends kudos for the new Stansberry Research app... and a third has a question about "hedging" with put options. What's on your mind? Let us know at feedback@stansberryresearch.com.

"[Regarding] California making tax law... RE-classifying workers from contractor to employee status is not the purview of states, only the IRS can do this... and re-classification usually arises from questionable practices that the IRS digs into. The Federal tax code defines employees vs. independent contractors. If these workers have control over their schedule and number of hours they work and can say 'no' to a potential rider, that is NOT an employee. And we've all seen the ads that say exactly that... set your own hours, work when it's convenient for you. Their own advertising is targeted at independents, NOT employees. Why isn't California getting smacked down by the IRS?

"Hello Stansberry Research team, I just wanted to say the new app is awesome and I totally love it. Great job guys." – Paid-up subscriber Sam R.

Brill comment: Thanks Sam! The response to the new and improved (and FREE) Stansberry Research app has been overwhelmingly positive so far. If you haven't tried it yet, be sure to check it out. If you're an Apple user, you can download it from the Apple App Store here. Android users can download it in the Google Play store here.

"On this [hedging] that is discussed, [do you mean] sell or buy the put? I have used selling short puts to make stock purchases but not portfolio protection?" – Paid-up subscriber S.V.

Brill comment: If you've been with us for long, you know we believe selling put options on high-quality companies you'd like to own – as our colleague Dr. David "Doc" Eifrig does in his Retirement Trader advisory – is a fantastic way to earn extra income and buy stocks at below-market prices.

But when using puts to protect your portfolio from the risk of a broad-market decline, you want to flip this strategy on its head... You want to buy put options on low-quality companies you have no interest in owning.

This is the strategy our colleague Bill McGilton uses in Stansberry's Big Trade... Bill has identified a list of the most-troubled companies in the market today – companies with flawed or fraudulent business models, and in many cases, suffocating from debt loads – that are likely to fail badly when the next recession arrives.

Regards,

Alan Gula
Baltimore, Maryland
September 12, 2019