Yes, PASPA has been overturned and we’re all very happy about it. But investment gains are not made on news that the entire market is already aware of with expectations already high. Putting capital to work in the U.S. now is a bet on long term U.S. gambling growth prospects with only minor short term hiccups down the road. If this is your view, then by all means. Sportsbook growth in the U.S. will only add to it, if that is your base case.
A snapshot of the overall industry though shows that even the bullish case of $5.2B in gross gaming revenue over the next 5 years for U.S. sportsbook doesn’t add that much revenue by percentage. Even assuming no downturn in the U.S. economy over the next 5 years, a projection I consider to be way off base, total GGR in the US would be somewhere in the vicinity of $90B. If we add the bullish case of $5.2B in 5 years for sportsbook, total sportsbook contribution well be below 6%.
Sportsbook alone is not going to compensate for any downturn that may occur. What it will do is make the way back up that much quicker, especially for firms that are exercising maximum financial prudence now. It will be all the more reason to buy the U.S. once the next downturn is over.
I’ll spend a few paragraphs discussing Boyd here in a minute, but first, two big elephants in the room to watch over the next month that should indicate whether a U.S. downturn is in store this year or if it will be postponed for at least another year. The first is not something I typically mention here, and that is the effective federal funds rate, what banks charge one another to borrow excess reserves overnight. This is one of the most, if not the most important interest rate in the world, the benchmark against which almost all other rates in the world are set. It of course affects the gambling market as much as any other. When you hear about Fed hikes or cuts, this is the actual rate they’re talking about. And the Fed is losing control of it as we speak. It’s up 3 basis points in the last three days, from 2.41% to 2.44%.