What's Next Now That the Supreme Court Has Allowed Sports Betting?

In this segment from MarketFoolery, host Chris Hill is joined by Motley Fool One's Jason Moser and Stock Advisor Canada's Taylor Muckerman to consider where investors might want to place their bets now that the U.S. Supreme Court has overturned the law that restricted states from legalizing sports betting.

Several have already passed laws set to immediately regulate sports betting now that the federal law is out of the way. But don't expect all casino companies to benefit equally from the new opportunity, and don't think they'll be the only ones finding ways to cash in.

A full transcript follows the video.

This video was recorded on May 14, 2018.

Chris Hill: Big thank you to the U.S. Supreme Court, which showed up this morning with a phenomenal news fairy moment. We're going to dip into the Fool mailbag, but we have to start with the Supreme Court ruling that cleared the way for states to legalize sports betting. This strikes down a federal law from about 25 years ago that had prohibited most states from authorizing sports betting. Where do you want to start? We could start with the stocks, we could start with the states. Just in terms of the states, this was a suit brought by the state of New Jersey. If we're ranking winners and losers, I'd say New Jersey is a winner today.

Taylor Muckerman: Atlantic City might come back from [...]

Hill: Yeah, and right behind them, Pennsylvania, West Virginia and Mississippi, which already passed state laws basically saying, "If the Supreme Court rules in our favor, we're ready to go."

Muckerman: If this, then that, yeah.

Jason Moser: I love that. That's great forward thinking.

Hill: Yes!

Moser: That's something that really works for investors. That's what investing is all about, forward thinking. Just sitting here talking right now, it just struck me, I have the war on cash basket, the healthcare and wealthcare basket. I feel like we have a "gambling on your future" basket coming here. I mean, there's something we could put together, because I think this affects a lot of different areas for investors.

From the very beginning, I like the fact that this was not even close decision, six to three. I think it was a very clear decision there. And the beauty of the Supreme Court is, ultimately, not a whole lot of ways you can overturn that, unless they overturn themselves or unless states try to amend the Constitution. So, generally speaking, this decision should stick.

It gives states the choice. And I think that's really the point. We're not saying you have to do it, but if you want to do it, you can. I think it makes sense. I think consenting adults generally are going to get what they want. We've seen it over time. Prohibition, I think, from 1920 to 1933 or so, that kind of worked out well in the beginning but as time went on, the attitudes changed, and there were some economic reasons as well that pushed Prohibition out the door. I think this is a much different country today than even it was 25, 30 years ago. So, hey, I'm a fan. I like the decision. I think it'll have a big impact on a lot of different areas.

Hill: And anyone who thought, when we talk about baskets of stocks, thinking in terms of just, "I'll just buy a basket of casino stocks," not necessarily.

Muckerman: No, there's going to be other players in there.

Hill: Well, there will be other players in there, but also, some of the bigger casino companies that are publicly traded are not going to really benefit from this in the way that others are. Caesars Entertainment, Penn Gaming, those are two stocks that are up today. When you look at where their casinos are spread out, they stand to benefit from this.

Muckerman: Yeah. And I could see, even, maybe a wise movie theater operator getting in there and maybe opening a couple of screens to a sports book where you can go in there and have a split screen, maybe get some interactive gambling going on at a Sportsbook or an arena or something. Certainly, I think other industries outside of just casinos could benefit from this immensely.

Moser: Yeah, I think the casinos are a bit of a knee-jerk reaction. Matty Argersinger and I were talking about this earlier. Nevada, and Vegas in particular, those are the places where I think you need to start looking away from, because this basically spreads that competition out, now. There's going to be more competition in play, not less, which takes a little bit of the power away from these casinos and spreads it out into other places -- namely, really, I think the internet is going to figure out ways to disseminate these sorts of gambling opportunities.

I think the leagues stand to benefit tremendously from it. They should get a scrape from this. I was watching something the other day on TV, the PGA Tour, not the commissioner, but someone with the PGA Tour said they've already been working with players on the Tour, saying, "Listen, this is probably something that's going to pass, and if it does, this is going to be the impact. So, as professionals, as players, you need to be aware of this," because it's going to be rife with possibilities of people coming in there and saying, "Hey, maybe I'll pay you a little money to throw a couple of extra shots," or something. So, players, I think, have to be aware of it, too.

But I think it goes anywhere from casinos to -- well, I mean, how is the money being moved here? PayPal seems like an obvious potential winner. Possibly Square, to an extent. But I think this is more a PayPal's alley. This is not going to be cash changing hands as much as it's going to be just electronic funds changing hands. Then, of course, the DraftKings, FanDuel future seems to be a bit more interesting now, as well.

Hill: I'm glad you mentioned the impact on the athletes themselves. I think, when we think about knee-jerk reactions, that is, understandably, I suppose, one of the knee-jerk reactions. "Well, this is going to increase the amount of approaching athletes to throw games," and all that sort of thing, even hearkening back to the Black Sox scandal of 1919. I think the important thing to keep in mind there is, that scandal -- and obviously, that was literally a hundred years ago -- was able to happen, and these types of scandals are able to happen, when there's very little money involved for the athletes themselves. When we're talking about the NBA, the NFL, when we're talking about the major pro sports, the financial incentive just doesn't really exist for those types of athletes.

Moser: I tend to agree. It seems like now, more than ever, these athletes are making a mint playing these sports.

Hill: And endorsements.

Muckerman: And if Pete Rose is any example, that's a stiff penalty for getting caught throwing a game or gambling on the same game.

Moser: Absolutely. I think the one league where perhaps this comes into play more than others would be the NFL, and that's just because of the nature of the game and how short an individual's career likely is in the NFL. It's easy to look at those guys and say, "Man, they just signed this $40 million contract, what in the world?" Well, half of that is going to Uncle Sam immediately anyway, and his career is probably around three or four years. There's another 40, 50 years he has to account for. So, they really actually don't get paid all that well when you think about it. So, I could see, in certain cases, where it becomes enticing, at least.

And that comes down to people. I mean, everything ultimately comes down to people, at the end of the day. But again, along that line, people want this. People want to be able to do this. It only makes sense to open this up. And, again, it doesn't mean every state is going to immediately sign up, but the ones who want to do it will, and I suspect they'll reap the benefits.

Muckerman: I also wonder the impact on state lotteries. Maybe better odds gambling on sports than simply buying a lottery ticket with a scratch-off.