Will Sports Betting Drive Gaming Growth in 2018?

Gaming companies have been extremely excited about the Supreme Court's decision earlier this year to allow sports gambling across the U.S. MGM Resorts (NYSE: MGM), Boyd Gaming (NYSE: BYD), and Caesars Entertainment (NASDAQ: CZR) have already announced sports book expansions, both in casinos and online, and that's just the early movers.

While sports betting might be getting attention from the public, it isn't a very big business for casinos yet. In Nevada, sports betting wins for casinos were just $329.1 million, which pales in comparison to games like baccarat and blackjack, which pulled in $1.24 billion and $1.17 billion, respectively. But there's a reason casinos are excited about sports betting growth long-term.

Engagement, engagement, engagement

One of the most challenging things for gaming companies is engaging customers when they're not in a casino. Marketing emails are often the most contact a gaming company has with customers when they're away.

Sports betting could change customers' engagement with gaming companies, particularly if online betting spreads. Customers could make mobile bets on their casino accounts from anywhere in a state, and gaming companies will likely expand their betting options now that gambling is legal for a wider audience.

Overseas gambling may be a model for the industry in the U.S. In the U.K., gamblers can bet on much more than traditional sports results, like who wins a game, the line, or over/under total score. They can bet on how many shots a player will take in a basketball game, who will score the first touchdown of a football game, or how many touches a player gets in a soccer game. Increased betting options are possible simply because there are more people gambling and casinos have the data to make these bets possible. It's data that drove MGM's deal with the NBA, where it sees a lot of potential for increased engagement with customers.

Gaming is all about volume

Sports betting is also about boosting the overall volume of wagers for casinos. If there's very little volume, it doesn't make sense to take complex bets or even make your own odds for a game. But if volume increases, it makes financial sense to buy data and hire oddsmakers for the sports book. It'll snowball as more people start betting on sports.

Keep in mind that illegal sports betting is already a big business today outside of casinos. Bets on sports total around $150 billion each year according to the American Gaming Association, but it's mostly underground. Some of this betting will move from bookies to legal casinos in states that open up for sports betting, effectively shifting volume from illegal locations to legal ones.

A reason to be bullish on U.S. gaming

There will be a number of potential winners in sports betting, and I think investors looking to play the market should look for breadth of sports betting exposure. MGM and Boyd's partnership will give the two companies 15 states of physical reach in which to offer sports betting as it's legalized, and Caesars Entertainment has a presence in 13 states.

The other area to look at is service providers who build the betting infrastructure for casinos. IGT (NYSE: IGT) is powering MGM's sports betting already, and Scientific Games (NASDAQ: SGMS) announced an agreement with Caesars to use its sports betting platform in New Jersey and Mississippi. They're in the early phases of building out sport betting businesses, and will likely be providers for most early casino sportsbooks. These companies have a lot of potential upside if sports betting takes off as casinos hope.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.