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Time to Bet on the Bookies as USA Revokes Sports Betting Ban?

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London-listed bookmakers finished in the money yesterday for anyone who held their shares with online stock brokers. 888 surged 15.39%, Paddy Power 12.25%, William Hill 10.71% and GVC, the holding company of Ladbrokes Coral, Bwin and Sportingbet, 7.37%. Sportech, which creates and licenses software to the sports betting industry also rose almost 12%. Total gains across the sector over the course of Monday trading combined to a staggering £1.5 billion. And there could well be more to come after a US Supreme Court judgement that paves the way for the country’s ban on sports betting being lifted in the near future.

Sports betting has been banned in most US states since 1992 but yesterday’s ruling seems set to relaunch an industry analysts believe could see turnover of $150 billion a year. With the UK’s online bookmakers among the biggest and best in the world, they will be licking their lips at the prospect of taking their know-how to such a hugely valuable, virgin marketplace. That could either be through joint ventures with domestic players or as standalone operations.

Legalising sports betting has been a long running and contentious debate in the USA. Its reintroduction would be expected to see tax revenue generated significant boost the coffers of states as well as help finance grass roots sports associations across the country. The opposition lobby argues it will increase the likelihood of corruption in sport and fuel gambling addiction, the fall-out from which could ultimately cost states more than the tax revenue generated.

The initial ruling yesterday came down in favour of New Jersey being able to offer sports betting at casinos and race tracks. Betting on horse racing is legal but until now the same has not applied to sports such as basketball, baseball and American football. The 6-3 vote overruled the Amateur Sports Protection Act, which has prevented states from legalising sports betting, as unconstitutional. The initial ruling applies only to New Jersey but opens the door for other states to similarly challenge the Act with the near certainty of success.

Online betting sites will need to go through a licensing process before remote bets can be taken and, at least initially, only intrastate bets will be permitted. Nonetheless, based on yesterday’s share price leaps, the market clearly believes yesterday’s ruling means greater freedom for online betting sites will quickly follow. Before taking a bet on listed UK and European online bookmakers, investors should keep in mind there is no certainty which, if any, will manage to take a significant slice of the new US market. There is also the likelihood that in the first years of operation the land grab will result in significant expenses before profits start to flow.

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Paul

The author Paul