Shares in Irish gambling giant Paddy Power Betfair and its rivals soared on Monday after the US Supreme Court struck down a federal law banning states from legalising sports betting.
Investors believed the ruling would open a market, that some say could be worth around €120 billion, to the likes of Paddy Power Betfair, which already has a foothold there.
The Irish group owns leading US horseracing channel, TVG, which has an on-line betting network, an on-line casino and horseracing betting exchange in New Jersey, and a fantasy sports start-up, Draft. These businesses have revenues of $140 million.
Price
Paddy Power Betfair’s price was down around 1.8 per cent in London at 7,833 pence sterling at lunchtime, but it held on to much of the 12 per cent gain it made on the back of Monday’s news.
While analysts such as David Jennings and Joseph Quinn in Irish stockbrokers Davy agree that the court's ruling should boost betting companies' fortunes, they believe any payout could be some distance away.
What the court did was rule the 1992 Professional and Amateur Sports Protection Act unconstitutional.
This federal law banned individual states, except Nevada - home to US gambling capital Las Vegas - and some others, from allowing sports betting.
That meant that it was illegal to bet on sports, including those that are most popular in the US, such as American football, baseball, basketball, outside Nevada, Delaware, Oregon and Montana.
Betting on horseracing is legal. Much of this is done on course through pools - totes - operated by state racing bodies which use their share of the revenue to fund the sport.
There is limited off-track betting in some states, through betting parlours, while a majority of them have allowed on-line betting on horseracing since 2006. Similar rules apply to greyhound racing.
Pressure
Outside Nevada, casinos are allowed in some form in 17 other states, including New Jersey, home to Atlantic City, and Native American reservations.
The Supreme Court’s ruling means that all states can now legalise, regulate and tax sports betting, if they wish to do so.
Around 20 – out of 50 – states have indicated that they want to do this, they account for around half the US’s 300 million population.
Chief amongst them is New Jersey, whose former governor, Chris Christie, initiated the Supreme Court challenge in 2014.
These states want to legalise betting so that they can tax it as many of them are seeking extra sources of revenue.
For this to happen, individual state legislatures will have to pass the necessary laws.
Some of them, such as Delaware, which the 1992 act did not cover as it allowed limited sports betting before the law’s introduction, are ready to pass legislation on a comprehensive legalised regime.
However, it is likely to take time in many others. Lawmakers will face pressure from various interest groups, some of which could seek to stall or end any attempt at legalisation.
Jennings and Quinn point out that land-based casino operators derailed California’s efforts to legalise on-line poker.
Revenue
Once laws are passed, betting companies are likely to have to pay licence fees, taxes and some form of revenue share to professional sports bodies or leagues.
Davy suggests that this could eat into marketing budgets, which its analysts predict could to a certain extent determine the overall market’s size.
Estimates of the overall market's worth vary. The American Gaming Association, calculates that illegal sports betting amounts to $150 billion (€126.6 billion) a-year.
Based on the number of states that want to legalise and using the UK market’s value of €4 billion as a yardstick, Jennings and Quinn, reckon it could be worth around €10 billion.
Whatever its size, it seems almost certain states which legalise sports betting will seek expertise developed by European betting companies, such as Paddy Power Betfair.
“And to that extent, irrespective of the nearer-term implications of the decision, the strategic value of all those operations have risen,” Jennings and Quinn say.
