Shorting the Mafia on sports betting

Californians can now order marijuana deliveries via an app named Eaze, even though the US attorneygeneral hates drugs. New Jerseyans should soon be able to gamble on sports events, despite a federal law that attempted to block it.

Hurrah for vesting power in the states, and to the Supreme Court for defending that right when it ruled it was unconstitutional to prevent New Jersey legalising sports gambling. Now, where should investors bet?

As Warren Buffett said of investing in the early car industry, the better option was to short horses. Here, the obvious call is to short the Mafia, which has operated sports books in the absence of legitimate alternatives, but that is difficult to do and probably unwise.

To pick winners, investors immediately gravitated to operators that had already wagered on legalisation. Back in 2013 UK gambling company William Hill, whose shares rose 11%, invested in a venture with a New Jersey racetrack: a William Hill-branded bar is just waiting to be able to take bets.

Scientific Games, a US maker of slot machines, also rose 11%. In an astute move in September, Scientific Games acquired NYX Gaming for $600m, adding sports betting software to its product line-up. That can now be sold to lottery and casino operators in any state that chooses to loosen rules.

The industry is understandably prone to euphoria. In this case, especially for the early movers ready to capture pent-up demand, that is justified, with a caveat: the US does not have a settled view on vices. As the Supreme Court opinion notes, gambling was legal and then largely banned throughout the country by 1900 before rules were loosened in the 1920s and 1930s.

This week, William Hill is expected to learn its fate in the UK, where previously permissive politicians are set to dramatically lower betting limits on fixed-odds terminals. London, May 15