Schaeffer's Outside the Box Blog
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Remember that question about which is better, stock trading or sports gambling? We're (maybe) about to get a better test.

Gov. Chris Christie's administration issued a directive Monday allowing the state's casinos and racetracks to offer sports betting, a move likely to be challenged in court by sports leagues.

The governor said he took his cue from previous federal court rulings that found that nothing in New Jersey law prohibits the casinos and horse racing tracks from offering sports betting, so long as it's not sponsored or licensed by the state. Besides issuing the directive, he asked a federal court to approve it.

I'll believe it when I see it. It's going to happen eventually, but in some ways now may be the perfect moment. The leagues may challenge New Jersey (OK, they definitely will), but will their heart and full army of lawyers really be in it?

The NFL is knee-deep in PR disaster control thanks to its incredible bungling of the initial Ray Rice punishment.

The NCAA has its hands full trying to preserve its business model of keeping as much of its massive revenues in as few hands as humanly possible.

The NHL is looking at expanding to Las Vegas. Or not. It's certainly on the table.

And the NBA?

The NBA isn't taking a hard-line position against sports betting anymore. Commissioner Adam Silver, speaking at the Bloomberg Business Summit in New York, said on Thursday that the league will eventually profit from legalized gambling on sports in the future.

And that really gets to the heart of the issue, as far as the leagues are concerned. They're clearly not as oblivious to the prevalence of wagering as they pretend to be in depositions. They just need to figure out how they can profit from it. I doubt we're anywhere close to having teams wearing betting-house logos on their jerseys like they do in English soccer, but I'm pretty sure you're going to see some tie-ins coming to a broadcast and stadium near you.

Perhaps the biggest sign the leagues are about to ease up on their Captain Renault-like stance is that ESPN now has a dedicated sports gambling section.

Why's that significant? ESPN has contracts and often sycophantic relationships with pretty much every sport and league (besides the NHL). It's pretty implausible they'd keep expanding their wagering content without the express consent of everyone. And I'm guessing there's a 100% chance the ESPN page is going to ultimately include links to online betting sites, and that will serve to line everybody's pockets. Well, except the lion's share of bettors.

That's all far away at this juncture, but, for now, we have a test case here in New Jersey! I doubt it's any sort of magic financial elixir, but not for the reasons Gawker lays out. They don't differentiate casino gambling, which is indeed everywhere now, from sports gambling, which is only legal in Las Vegas. If it really does happen, New Jersey will at least have an East Coast monopoly for some amount of time, much the way Atlantic City did from the late '70s for a decade or so.

The problem is that we can only guess the real size of the betting market since it's mostly "offline." Las Vegas took something like $3.5 billion in bets last year, of which they hold about 5% (i.e., their profit). Even if the casinos fork over half of that to Nevada, that's not a fortune; it's less than $100 million, and New Jersey is theoretically starting from scratch with only a handful of locations that aren't always close to population centers. The theory, I suppose, is that it will draw in "new" customers to not only bet on sports, but also to buy dinner, play the slots and blackjack, and book a room.

Guess time will tell. I hope it works, but I doubt it's going to turn around Atlantic City or New Jersey's budget.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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For more than a month, I've been kicking it bachelor style, while my wife has been out in California for work. During our nightly telephone sessions, she updates me on her daily dealings -- which mostly consist of her being a do-gooder, enjoying the food and weather, and (invariably) something about Groupon Inc (NASDAQ:GRPN).

I don't know what's gotten into her, but I've heard the word "Groupon" more in the past six weeks than I have in the past six years (i.e., since the company first launched). During that time span, she's purchased at least three of these Apple Inc. (NASDAQ:AAPL) iPhone screen protectors -- two of which she's already broken -- and these shoelace earbuds.

There have been some winners, however. She bought a blow dryer … and it blows hot air without emitting green sparks, like our last one did. She also purchased tickets to a whale watching tour for when I visited her, and it was an experience I won't soon forget. Next up on her GRPN wish list: an iPhone cover and running band.

Of course, none of this appears to be helping shares of the daily deals website. The stock closed at $7.06 on Tuesday, roughly 40% off year-to-date breakeven. Things don't look too promising going forward, either, as GRPN has been running into resistance near the $7 level for the past few months, and could get pressured lower by its descending 32-week moving average (currently docked at $7.23).

On the sentiment front, options traders have been targeting GRPN calls over puts, per the equity's 10-day call/put volume ratio of 5.54 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This reading ranks in the bullishly skewed 76th percentile of its annual range. However, with 21.1% of the security's float sold short, it's possible some of these buyers are short sellers looking to hedge their bearish bets.

On a related note, peak front-month call open interest currently resides at GRPN's September 7 strike, where 11,984 contracts are housed. This could help to explain some of the congestion the shares are experiencing at present trading levels.

Lastly, the experts on Wall Street are skeptical of Groupon Inc (NASDAQ:GRPN). Specifically, two-thirds of covering analysts have offered up "hold" or worse opinions of the shares, and the equity's consensus 12-month price target of $7.28 is just a stone's throw away.


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