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Be Careful With The Casino ETF After The Supreme Court's Sports Betting Ruling

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Be Careful With The Casino ETF After The Supreme Court's Sports Betting Ruling
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The U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), which made it illegal for states outside of Nevada to offer sports wagering.

Not surprisingly, the news sparked casino stocks higher. The VanEck Vectors Gaming ETF (NYSE: BJK), the only exchange traded fund dedicate to casino operators and gaming stocks, jumped 2.21 percent on volume that was nearly quadruple the daily average.

What Happened

By a 7-2 margin, SCOTUS ruled PASPA is unconstitutional, opening the door for states to offer sports gambling within their borders. Nevada is the only state offering legalized wagering on single games.

BJK, which is more than 10 years old, follows the MVIS Global Gaming Index and holds 45 stocks. The ETF's benchmark “tracks the overall performance of companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment,” according to VanEck.

Why It's Important

Several states, including Connecticut, Delaware and New Jersey, could soon unveil legalized sports gambling. Others that are in need of additional revenue streams could consider similar moves, but some analysts urge caution regarding the impact of legalized sports betting on casino equities and state coffers.

“Sports betting will not contribute substantially to either gross gaming revenue (GGR) or state tax revenue,” said Fitch Ratings. “Notably, sports betting in Nevada, where it is already legal, accounts for a relatively small proportion of gaming revenue. The Nevada Gaming Control Board reported almost $4.9 billion in sports handle in 2017, with $249 million in GGR and about $17 million in associated state tax revenue. That is a small fraction of the state's $4 billion in General Fund revenue.”

For its part, BJK only allocates 42 percent of its weight to U.S.-based companies, which potentially limits the impact of legalized sports wagering on the ETF.

What's Next

There's some good news for BJK's domestic holdings, many of which generate substantial portions of their revenue in Las Vegas, the largest U.S. gaming destination.

“We do not expect the growth of other markets to have a negative impact on casino operators in Las Vegas,” said Fitch. “We do not anticipate sports books in regional markets will materially compete with Las Vegas during marquis sporting events, such as the NCAA Final Four or the NFL Super Bowl, as Las Vegas has firmly established its attractiveness as a leisure destination.”

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