An unstoppable trend is rolling across America...
So far 19 U.S. states have joined in. And now Michigan could soon be the latest state to legalize sports betting...
Last week, Michigan's Legislature voted to legalize sports betting and Internet gambling. Now, all that's needed is a signature from Governor Gretchen Whitmer, and Michigan will become the 20th state to follow this trend.
So how did we get here?
The 1992 Professional and Amateur Sports Protection Act ("PASPA") effectively banned sports betting in 46 U.S. states. But 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. Delaware and New Jersey quickly passed sports-betting laws.
That means that citizens can legally bet, instead of going through an unlicensed bookmaker (or "bookie") to wager on sports.
And that's a huge untapped market... To get an idea of how large the illegal betting industry is, illicit sports-gambling activity in the U.S. totals roughly $150 billion annually, according to estimates from the American Gaming Association.
Now, legal sportsbooks are going to start attracting more and more of the action that used to go to the illegal market. And this provides a great growth opportunity for legal betting firms.
Today's company is an excellent way to play this powerful trend...
We're talking about Flutter Entertainment (OTC: PDYPY).
Flutter is a holding company for several businesses, each with their own well-known brands. The company was formerly known as Paddy Power Betfair, a company formed in 2016 after the Irish bookmaker and betting-shop operator Paddy Power merged with Betfair, a British bookmaker and owner of the world's largest betting exchange.
Sports revenue (including fees from the Betfair Exchange) account for more than 70% of Flutter's online revenues. The rest is online gaming, like virtual blackjack.
The U.K. is Flutter's largest market.
It accounted for 46% of the company's $2.5 billion in total revenue last year. (Flutter reports in British pounds, but we're converting most figures to U.S. dollars.)
Flutter's market share in U.K. sports betting is more than 20%. That trails only bet365, a private British company, which has a 25% share. William Hill's share is 11%.
While Flutter has an extensive business in the U.K., one of its assets is perfectly positioned to benefit from the boom in U.S. betting legalization.
You see, Flutter owns daily fantasy sports company FanDuel.
In fantasy sports, fans select virtual teams of athletes to play against one another. A prize pool goes to the "coach" of the winning fantasy team. Many of these leagues are season-long affairs. But FanDuel offers daily and weekly pools. The shorter formats make the contests more intense and exciting.
The FanDuel Group now has four segments:
- Fantasy Sports: FanDuel offers fantasy sports in 41 states, with "salary cap" and "snake" draft formats. The company takes a commission from the prize pool when each contest ends. FanDuel also owns DRAFT, another DFS provider.
- Horse racing: TVG is FanDuel's horse racing business. It operates an online advance deposit wagering network, partnering with more than 150 racetracks in 33 states. TVG takes no risk on the outcomes of the races, but it does collect a commission on the wagers forwarded to the venues. The TVG Network is the only TV station dedicated to horse racing in the U.S. and reaches more than 45 million households.
- iGaming: In operation since 2013, Betfair Casino is a leading online casino in New Jersey. The platform is rolling out in Pennsylvania soon.
- Sports Betting: The FanDuel Sportsbook retail location opened in June 2018.
FanDuel is the early leader in the New Jersey sports-betting market – which has already surpassed that of Nevada. That puts the company in a position to dominate in other states as they allow sports betting one by one.
It has partnered in Pennsylvania with the Valley Forge Casino Resort, which is a Boyd Gaming (BYD) property. This past March, FanDuel opened a physical sportsbook at this casino, which is located in King of Prussia. But as with New Jersey, most of the action in Pennsylvania will be online.
The FanDuel Sportsbook app went live in Pennsylvania earlier this year.
Now, 20 states will have legalized sports betting if Michigan's governor signs the bill into law. And more than 20 states have pending sports betting legislation under consideration.
These other states are sure to follow suit...
The tax revenue is too tempting for lawmakers to not consider it. New Jersey is taxing land-based sports-betting revenue at 8.5% and online betting at 13%.
As more states have legalized online sports betting, Flutter's shares have soared. The stock is up 48% so far this year, and recently hit an 18-month high.
But this trend is far from over. Flutter's acquisition of FanDuel ensures that it will be at the forefront of the U.S. legal sports betting boom for years to come.
Sometimes investing is simple.
Alan Gula recommended shares of Flutter to his Stansberry's Investment Advisory subscribers in August. Readers who followed his advice are sitting on gains of 55%. Congratulations to Alan and his team on a great call. And right now, we're offering a special deal on Stansberry's Investment Advisory. You can get a one-year subscription for just $49 – 75% off the regular price. Click here to get started.