Gambling stocks in 2018: to invest or not invest?

The recent news of the possibility that sports betting will be legalised in the United States has caused more than a few flutters in shares of a number of UK-quoted gambling firms. The decision came after the state of New Jersey had fought for years for the legalisation of gambling on sports at casino and racetracks in the state. The result is favourable to only some of the UK listed gambling stock (which has seen impressive growth over the past decade)because the markets deem that only those gambling companies who currently have a presence in the US will be able to take advantage of the changes.Gambling stocks, like all stock market investments, are subject to varying levels of risk – just like gambling itself. Investors are always charged with doing their homework or taking professional advice when deciding whether or not to invest. A quick look at any performance chart for a gambling stock will show how the biggest impact on performance has been changes in the regulations either in the UK or abroad. A change in government policy or a series of bad news articles can have an immediate impact on the short-term performances of these companies. But given the rapid growth of the online gambling industry, it’s certainly worth considering – as we discuss here.How legal change has an impact on gambling share pricesThe rapid growth of online gambling shows the potential for investment based on year-on-year figuresChanges in gambling laws and regulations can have a huge effect on the fortunes of gambling companies. 888 Holdings, for example, was floated on the London Stock Exchange in October 2005 (the company was founded in Gibraltar in 1997) and saw mixed fortunes for a couple of years. After the slow-down in opportunities and poker's 'Black Friday' in 2011 when online poker was banned in the United States, they closed their US operations. There was an effect on the share price but, as they had built up operations in many other companies by then, the balance sheet wasn't too badly affected. Today, the company has licenses in countries across Europe and in the states of Nevada and, New Jersey and Delaware.The continued upward trend of the stock price since 2013, has been largely down to 888's re-entry into the regulated US online gaming market in September of that year with the WSOP brand (World Series of Poker). The success of their online casino offering has been instrumental in their continued upward price movements.The advances in technology and the ease with which people can now access poker online have been the main drivers for their success, although 888casino has also outshone the competition by creating an online experience that is as close to the real thing as is possible. This includes its mobile gaming option, which enables users to play their favourite casino games on the move – and live casino, which links players up to real-life human dealers and other players, to provide more immersive, natural gameplay – as you’ll see when you visit 888casino.For investors, this growth represents a huge investment opportunity. If you’ve bought ordinary shares in 888 Casino back in 2009, you’d have doubled your investment by 2018, with dividend payouts close to 3% each year, according to its most recent share price report.The growth of online gambling and a change in betting cultureOnline gambling existed before the digital revolution – but now it’s well and truly making its mark on the gambling industry. The online gambling sector has grown by around 146% in the UK since 2009. There are now more than 5.5 million people who regularly gamble online – be it poker, sports betting or online casino. As technological advances have enabled more innovative gaming tools, the number of users has risen. The regulators have not stood in their way and have supported the innovations with regulatory 'tweaks' where necessary. The UK has shown the way by having a proper regulatory environment that both protects players and raises revenue for the exchequer. Today, it accounts for one-third of all gambling in the UK, according to the Gambling Commission.Ultimately, this growth has been seen as a positive move for gamblers, governments and gambling operators alike. Gamblers can gamble safely within a regulated environment without fear of being cheated or their wins not being paid out, and the states can earn valuable tax income from the activities which benefit all the inhabitants of the state.What the Supreme Court’s decision meansThe US Supreme Court recently made a landmark ruling that could pave the way for online sports bettingOn Monday the 7th May 2018, the US Supreme Court made a landmark ruling when they voted 6-3 that the Professional and Amateur Sports Protection Act of 1992 be struck down. The result means that most States are likely to have legalised gambling on college and professional sports within five years.For the states that legalise the gambling, there is likely to be some lucrative tax earnings to be made. For 888 Holdings, this news caused an immediate 13% spike in the share price (to 305.6p) and was another example of how the continuing relaxation of gambling laws in the US can benefit investors also. Find out more about 888 Holdings’ results here.Other companies that benefitted from the news were William Hill (up 8.3% to 306p), Sportech (11% to 69.5p), GVC (up 5.1% to 920p) and Webis (up 65% to 1.65p). The largest player in the UK, Paddy Power Betfair rose 9% to £77.70.History has made the US wary of sports betting after the Blacksox scandal of the 1920s and the takeover of organized crime on the betting sector in the 1950s. The bills passed in the 1960s and 70s (the best known being The Federal Wire Act of 1961), saw the Federal Government seeking to clean up their sports events. The squeeze continued into the 21st century and culminated in Congress turning its attention on sports betting on the internet by targeting the flow of money. The 2006 Unlawful Internet Gambling Enforcement Act also targeted the financial institutions by putting the burden on them to block restricted transactions.The constant pressure from New Jersey, in particular, has been instrumental in the recent landmark ruling. Having spent millions of dollars trying to authorize sports betting and even repealing existing laws (a tactic which they subsequently lost in the Supreme Court) it looks as if they might be justified after all.The size of the black marketIt has been estimated by the American Gaming Association that Americans illegally wager around $150bn on sports betting every year so the recent ruling will be good news to the state legislators. If the gambling is taking place anyway, then why shouldn't they get a share of it. Likewise, the UK based gambling companies with a foothold in the US should be rubbing their hands. Already owning large amounts of the online real estate in other areas will give them a huge advantage when the licenses are handed out.With a good track record in European markets, gambling represents a good investment opportunity. Time is of the essence, as the global gaming industry is due to grow significantly well into the 2020s– regardless of changing situations in the US.Investing for the long term in the betting sector is always going to be a bumpy ride, and you have to decide whether these short-term rulings make it look like a good investment opportunity. We'll let you make up your minds about that.Disclaimer: We have no position in any of the stocks mentioned.