On May 14 2018, the United States Supreme Court struck down a 1992 federal law that effectively banned commercial sports betting in most states. This landmark decision kicked off a rush that has seen the world’s top gaming companies vie for market share in one of the largest betting markets in the world. Many states are still in the process of pushing through legislation to legalise sports betting.
We are left with rough estimates as to market size with the market driven underground in the US for so long. Some early figures suggest that illegal sports wagers placed in the US reach around $150bn annually. Gambling Compliance, a London and Washington-based provider of business intelligence into the gambling industry, projected that the US market for lawful sports wagering would grow to $5.7bn in annual revenue by 2024. It also forecast that, by this time, legal sports betting will have spread to 34 states.
Flutter is making big moves in the US
Why is this relevant for investors in the UK? Dublin-based Flutter Entertainment (LSE: FLTR) struck a deal in October that will see it grow into the world’s largest online gaming operator. Stars Group agreed to a roughly US$6bn all-stock takeover. Flutter will own approximately 54.64% of the combined company and Stars Group shareholders will own about 45.36%. The deal is expected to be approved by the second quarter of 2020.
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Flutter had been pushing towards a US expansion in the face of toughening EU regulations. Last year Flutter obtained the New York-based fantasy sports site FanDuel, which reported nearly $96m in year-to-date revenue in the state of New Jersey as at September 30.
Stars Group has already established a strong presence in the US. Its partnership with Fox Sports resulted in the launch of Fox Bet in the late summer. Earlier this month, Fox Bet announced a multi-year deal with Major League Baseball (MLB) that will make the mobile sports betting platform an ‘Authorized Gaming Operator’ for the MLB.
If the deal closes by the second or third quarter in 2020, Flutter will find itself in possession of two of the strongest brands in the US market. Online takings are dominating early sports gambling revenues in the states of New Jersey and Pennsylvania, with FanDuel standing out as a big winner. The pace of legislative action will keep this market from achieving its full potential until we are late into the next decade, but results in early states show that the wait will be worth it for gaming operators.
Why I’m snapping up Flutter in the fall
Shares of Flutter have climbed 21.6% year-on-year as of morning trading on October 23. I want to take a brief look at Flutter’s Relative Strength Index (RSI), which aims to chart the historical weakness or strength of a stock based on the closing prices of the most recent trading period. An RSI above 70 indicates that a stock is technically overbought, whereas an RSI below 30 indicates that it is technically oversold. Shares of Flutter spiked into technically overbought territory after this deal was announced, but the stock has since retreated to neutral levels with an RSI below 60.
Flutter stock does possess a price-to-earnings ratio of 31 at the time of this writing, but I’m willing to pay the premium to bet on Flutter’s growth after it has gained even more access to this explosive market.
