Legalized Sports Betting Won't Be a Game-Changer Here
The recent U.S. Supreme Court ruling that any state may allow betting on sporting events will have limited impact on MGM, Wynn, and Las Vegas Sands.
Although the U.S. Supreme Court ruled this week that any state (not just Nevada) may allow betting on sporting events, we don’t expect any meaningful impact to our respective $39.50, $175, and $70 fair value estimates for no-moat MGM (MGM), narrow-moat Wynn (WYNN), and narrow-moat Las Vegas Sands (LVS). Therefore, we think the market’s muted response to the share prices of these companies was the correct one. We see MGM shares as undervalued.
We believe the ruling offers limited incremental opportunity for operators with regional gaming exposure (MGM gets 25% of its EBITDA from regional resorts versus negligible exposure for Wynn and Las Vegas Sands). While the ruling opens the $150 billion illegal sports betting market, an estimate provided by the American Gaming Association, it would not surprise us if this marketplace refrained from now visiting regional casinos to place event wagers, as it would reduce privacy and subject gamblers to gaming taxes (Pennsylvania is levying a 34% tax on sports wagers) and integrity fees (leagues are expected to seek a portion of bets). Even if we assumed that one third of this illegal market converted to placing bets in supported facilities, the opportunity would be diluted not only by taxes and fees, but also by the low-hold mid-single-digit percentage sports betting has provided in Nevada. Further, this opportunity would be diluted as more states approve sports betting and potentially allow multiple properties to offer the service within their borders.
We also don’t expect much impact to the Las Vegas gaming region (about 55%, 25%, and 10% of our estimated 2018 EBITDA for MGM, Wynn, and Las Vegas Sands, respectively). In our view Las Vegas will remain a world destination resort due to its enclave of resorts and activities that continue to grow with the recent addition of professional sports. Further, only 34% of Vegas’ entertainment revenue came from gaming, with just 2% of that from sports betting, mitigating the risk of lost sales.
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Dan Wasiolek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.