A Look at the History of Sports Betting

In this podcast, Motley Fool host Mary Long caught up with Motley Fool analyst Jason Moser for a conversation about the publicly traded companies associated with the Super Bowl to dig into whether any are worth an investor’s attention.

Mary also interviewed Dave Schwartz, ombuds at the University of Nevada, Las Vegas, and a student of gambling history.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Feb. 10, 2024.

Dave Schwartz: Traditionally, the NFL thought that gambling was terrible, Las Vegas was even worse at gambling. Even now that reason because we’re having gambling scandals, and cheating scandals in the past in football and baseball and other sports, professional amateur so it makes sense if people want [inaudible]. But they continue to have this policy long after gambling had become more mainstream within the United States. Long after we have casinos all across the country, they continue to have this. It’s interesting that as the national prohibition on the spread of sports gambling fell, the league’s policy changed.

Mary Long: I’m Mary Long, and that’s Dave Schwartz. Ombuds at the University of Nevada, Las Vegas, and a student of gambling history. I caught up with Schwartz for a look at the history of sports betting and what it means today. But first, I talk with Jason Moser about four publicly traded companies with ties to the Super Bowl to see if any of them are worth investors attention. Tomorrow at the Kansas City Chiefs face off against the San Francisco 49ers in Las Vegas, Nevada. It’s a Super Bowl and you know what they say, if you can’t go to the Super Bowl, make your own Super Bowl so that’s what we’ve done. Jason, excited to be here with you.

Jason Moser: Happy to be here, Mary. Thanks for the invite.

Mary Long: We’ve got four stocks, each representing a different element of Sunday’s Super Bowl game. We’re going to talk through each of these teams, and at the end, I’ll ask you, which stock is the winner in your mind. Let the games begin. In one corner, we’re repping the San Francisco 49ers we’ve got United Airlines. United is the presenting sponsor of the 49ers. It’s also the official airline for both teams. But for our purposes, we’re going to put United solely with San Francisco. The airline industry uses some metrics that might be unfamiliar to investors who are newer to the industry or just exploring it. How do you grade airline stocks and where on that scale would you put United?

Jason Moser: Well, so in grading airline stocks, I will say first and foremost, I’ve just never been an investor in airlines personally. To me, it’s not the most attractive long term type holding. The capital requirements, the constant fuel hedging, it’s certainly an industry where size does matter. But whenever I hear about investing in airlines, it just takes me back to that Warren Buffett quote from 2007. He wrote in the Berkshire Letter. He said, ”If a far sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orval down.” Obviously, he’s kidding and he even had a little bit of a turnaround there and tried some airline investments as well. It didn’t work out so great. But when you look at the data from this industry, the data I found, and compiled by airlines for America, since 1978, there’s been over 100 bankruptcy filings in the airlines industry. They’ve not all resulted in liquidation, but this is just an industry rife with bankruptcies and that’s obviously, not a good thing. But like I said, size does matter. You look really too I think, the big players in the space as the ones that probably stand the best chance. United absolutely stands out in that way. As far as metrics, I think one that stands out to mean the load factor, that’s something that ultimately measures the percentage of available seating capacity that’s been filled with passengers. Higher means that an airline has sold most of its available seats, and so I think that can give you an idea, at least to the health and consistency of any given airline. But it’s absolutely a difficult space to invest in.

Mary Long: There’s a difficult aspect of the space because the bankruptcy like you mentioned, just massive upfront costs. But also more recently we’ve seen shorter-term issues also plague the industry. I feel you can’t talk about airlines today without talking about many issues, not least of which is Boeing‘s chaos that’s happening. How is that in particular affecting United’s operations?

Jason Moser: Well, with United, the short answer is it’s a big deal. United has plenty of exposure to this particular plane. If you go back to the earnings call recently, they noted as of Saturday January 6, the MAX 9 aircraft had been grounded, and they noted a call. They’re the largest operator of the Boeing MAX 9 and that represents approximately 8% of their capacity from the first quarter. Clearly, that’s something that matters a lot for United. That speaks to I think, one of the short term challenges that they’ve been witnessing. It’s absolutely playing out in their guidance looking toward 2024. They’re spending in particular, they’re expecting reduction in orders and deliveries from Boeing all the way out into 2025. That ultimately requires them to go in there and rework their fleet plan and exactly how they’re going to manage this. One of those near term headwinds that is absolutely going to impact United more so than others, something investors definitely want to keep in mind.

Mary Long: Playing on behalf of Kansas City, we’ve got the official soup sponsor of the Chiefs none other than the Campbell Soup Company, Ticker CPB. Despite the name, it’s not just soup that Campbell sells. They also own Pepperidge Farm of Goldfish Fame, Pop Secret popcorn, Cape Cod potato chips, lots of snacks basically. Campbell’s breaks down their revenue into two different segments, meals and beverages as one and then snacks as another. That snack segment has accounted for an operating profit of 640 million in fiscal 2023. That’s 42% of its total profits, even in the age of Ozempic are snacks big business?

Jason Moser: Absolutely, they’re a big business. We love snacks. We all love our snacks. Whether it’s sweet, salty, a mix of the two, snacks are very big business and it’s absolutely been a driver for Campbell. If you look at the data, at their statistic data actually, says that revenue for the US snack food market is set to hit $114 billion here in 2024. It’s expected to grow annually, close to 4% through 2028. That’s not mind bending growth, but it is pretty reliable and pretty steady. Then when you look at another, I think shining snack example out there in the market, like Pepsi. Pepsi I think is a great example of a company that has benefited through the years by building out their snack side. Just to put that in context, their free to lay business went from $15.8 billion in revenue in 2017 to $23.3 billion in 2022. Talking about going to the numbers because they tell the tale, Mary. I think those numbers tell us a lot.

Mary Long: Over the past 10 years, you look at Campbell’s stock price and it hasn’t moved too much. There’s ups and downs, but it’s leveled out over time. Neither has its operating income. What needs to happen for Campbell to not just beat its competitors in this fool bowl that we’re playing today, but in the market?

Jason Moser: It’s going to be difficult I think that what we’re seeing with Campbell is that they are trying to really hone their portfolio of offerings for where the future of food is going ultimately. Part of that is in packaged foods. I think part of that is we’re going to see some acquisitions from this company going forward as well though, they just acquired Sovos Brands which gives them Rao’s. I think that’s how you pronounce it Rao’s, the pasta sauce in a number of other ancillary brands and prepared meals. That’s where they see a lot of opportunity there. But you’re right, the growth, this company’s lobbed up, it’s nothing to write home about. It’s not been a winning stock for investors just based on returns. Ultimately, when organic growth runs dry, when the company has trouble just growing on its own, then they start leaning on some of those acquisitions in that consolidation. I understand that strategy, but acquisitions do come with their share of risk.

Jason Moser: It’s going to take a number of different efforts I think for this to ultimately be a market beating stock going forward.

Mary Long: Growth is not the story here but Campbell has a decent defensive line we might say. Stock pays a 3.44% dividend. That dividend has been around for several decades and with few exceptions has increased relatively regularly. Does that make this a more compelling case for a portfolio?

Jason Moser: I think it certainly makes for a better argument in holding the stock. I think anytime you’re getting a 3% or better yield on a dividend-paying stock, that’s a good thing. That’s a healthy yield and we like to see that. Now if we look at the total return for this company over time, over the last 10 years a total return for Campbell shareholders has been close to 50% versus the markets 180% or so. This is clearly a company that has lagged the market significantly. Again I think dividends are great. I want them, I’m getting older and I’m moving more of my portfolio over toward income bearing investments there but this doesn’t really look like the best income idea out there. It’s not a dividend aristocrat, it’s not a dividend king, it’s not to say it can’t be one day but those are the companies I think we want to look more toward when we’re looking for really reliable dividend payers. Those companies that have grown their dividends annually for at least 25 consecutive years or if you’re a king status and that 50 years, that really tells you that dividend is a priority and once those companies achieve that status they really do everything in their power to not relinquish it because investors really do care about it.

Mary Long: Playing on behalf of Las Vegas and Allegiant Stadium we’ve got Allegiant Travel which is not your typical airline it seeks to be an integrated travel company. In addition to running Allegiant Airlines, the company officially opened Sunseeker Resort in Florida in mid December of last year. They’ve also acquired a golf course management software company called Teesnap. They’re looking to launch a family gaming center that has laser tag, go carts, bowling, you name it. We talked about airlines already. Seems like that’s a hectic enough, expensive enough business to be a part of. Why take on even more? Is that something that differentiates Allegiant or does it diversify it?

Jason Moser: It could be maybe a little bit of both. I think it absolutely differentiates it. Because you and I were talking before we started recording and that was one of the things with Allegiant that makes it stand out, it’s not just one of those discount airlines, it’s more, and that could potentially be a good thing. Now it absolutely could run that risk of diversification. Just trying to do too many things and not really doing anything well. But I think it’s compelling. It makes me want to look at Allegiant a little bit more closely because when you consider the size of the travel and experience market, all together they really are focusing on not just the travel but the experience and entertainment side of it as well. That can be very powerful assuming that they do it well. The company IPO back in 2006, it’s still a true small cap; one-and-a-half billion dollar market capitalization. It is not a company that has grown by leaps and bounds but it does seem like they’re taking these steps in order to try to be able to grow here in the coming years. Time will tell whether that actually works or not but listen, I respect the effort.

Mary Long: Allegiant has pulled a bit of a Disney in the past year. Former CEO Maury Gallagher is now CEO once more. He replaced John Redmond this past fall after Redmond had been in the spot for less than a year. Redmond resigned. We don’t really know why, but Gallagher had been with the company for a while. He’s been a majority owner and board member of Allegiant since 2001. Basically brought Allegiant from being one plane to a fleet of over 100. He’s played a role in several low-cost airlines. Unlike other airlines, Allegiant’s stock peaked mid-pandemic in 2021 but today it’s still off about 70% from those highs. Is Gallagher’s returned the beginning of a turnaround story?

Jason Moser: Well, I hope. It seems like that’s the guy that could probably make it happen given his track record. Bringing an airline out of bankruptcy and obviously, we talked about that earlier with United. Bankruptcy was just a common word in this space. But that also can present opportunities and it seems like Mr. Gallagher is certainly trying to take advantage of that opportunity. Looking through their most recent earnings call, they seem very optimistic with the strategy. They are getting some headwinds in regard to pilot negotiation issues behind them and I think that’ll be a load off of the business. Right now today, 75% of their roots don’t have any direct competition at all so they do stand out a little bit in that way. I think that’s one of the things that’s most interesting about this company is they know what they are and what they’re trying to be. They’re not out there trying to compete in those big cities and networks where all of the money is. They’re really trying to do their own thing. They said in the call I thought this was a pretty interesting way to put it. He said, “We’ve created our own private swim lane and are proud to be in it.” They really are a company focused on their identity doing things their way and focusing on that particular market opportunity. Hey, listen, I like that.

Mary Long: If you’re not at Allegiant Stadium to watch the game, you’re probably watching the Super Bowl on a screen in which case you’ve got Paramount Plus to thank. The streaming business is not awesome if you’re not Netflix, where does Paramount Plus fit into that picture?

Jason Moser: Well, if you look back at their earnings call in November of last year Paramount Plus the streaming offering crossed 63 million subscribers. I was actually surprised to see that number that high. This is not a company that I have followed very closely because like you said streaming sucks unless you’re Netflix. [laughs] I think that really speaks to a lot of things Netflix did right early on in their efforts there. But Paramount Plus 63 million subscribers they deliver 38% direct to consumer revenue growth. They were able to increase prices a little bit. That’s all very encouraging. Now it all does come at a cost. That content just continues to get more and more expensive. To me I think this is just a space that is going to witness a lot of consolidation in the coming quarters in years. If I’m a betting man, I think that Paramount probably ends up being a part of something bigger there but there’s no doubt they have a portfolio of content that a lot of viewers really place a lot of value in because 63 million subscribers, that has nothing to seize that.

Mary Long: Consolidation seems like that will be a likely story for Paramount moving forward or even earlier this week news broke that media mogul, Byron Allen, who owns the Weather channel among other local TV stations made a $14.3 billion offer to acquire Paramount Global. Allen’s deal offers shareholders a 50% premium on the current share price. If you are a shareholder, are you praying that the deal goes through or are you holding out and hoping for a realistic larger growth story beyond being bought?

Jason Moser: I personally would be hoping for an acquisition just get out of this thing and go for. Now I don’t own Paramount shares and I don’t think that I will. But for me again just streaming in particular, it is just a very difficult space in speaking to that consolidation theme, I mean, it is. We’re just seeing it all over the place. Paramount Plus even recently, they incorporated showtime into that offering so like with the price points there you had you could do Paramount Plus essential which is just six dollars a month or if you want to do Paramount Plus plus Showtime that’s essentially double the cost. But even just there’s a little consolidation going on even in their own universe. Then we saw also this recent announcement just the other day ESPN, Fox and Warner Brothers Discovery teaming up for a new sports streaming service and Disney trying to figure out exactly how to move forward with that ESPN strategy. To me Netflix has taught us a lot. They taught us that the economics of streaming are really difficult and that being early to the game for them made a really big difference. Now it feels when a new streaming service is announced people get a little bit more fed up with the whole thing. Remember we’ve talked about Zoom exhaustion before. That’s totally a thing and I think there’s a similar dynamic that’s now playing out with all of these streaming services so they have to be very thoughtful in the new services they announce and how exactly how much they’re going to be charging for them because consumers are getting close to having had enough.

Mary Long: Jason, we’ve talked airlines, we’ve talked soup and snacks. We’ve talked integrated travel and streaming. Which of these teams has your bet to win Fool Bowl 2024?

Jason Moser: Well, if you look at the track record of all four, none of these four has really lit the world on fire so to speak. Let’s assume Paramount is going to ultimately be acquired. I think that that’s more than likely a given. Even if it weren’t going to be acquired, to me I think actually I’d like to learn a little bit more about Allegiant. I still don’t have much of a desire to invest in a pure play airline but to me with Allegiant, this is more a travel company and entertainment company which could be a little bit more compelling. I like that they know their customer, they seem to be laser-focused on that particular opportunity as opposed to doing other things that they may not really be able to compete so effectively on. I don’t know, I’m going to be keeping my eye on Allegiant here.

Mary Long: Unlike the Super Bowl we won’t know who wins out tonight or tomorrow but well, we’ll keep our eyes posted on what happens in the long term.

Jason Moser: But we’ll revisit it next Super Bowl.

Mary Long: Bingo. For Fool Bowl 2024. That’s hard to say. I did not do myself a favor with that one.

Mary Long: Up next is my conversation with Dave Schwartz, Ombuds at the University of Nevada, Las Vegas, and a student of gambling history. I wanted to talk to you because our relationship with the nation as gambling has changed a lot in recent years. Before the ’80s, you could really only bet in two places, Nevada and Atlantic City. Today, sports betting is legal in 38 states plus DC, and we all walk around with virtual casinos in our pockets. How did gambling go from being mostly illegal and mostly stigmatized to mostly everywhere?

Dave Schwartz: It has been an interesting process and a lot of it was driven by money. I guess not surprising because it’s gambling. Basically casino style gambling for many years was only legal in Nevada, New Jersey, rolled the dice in it, legalized it in ’76. It started in ’78 and other states and the federal government saw this be used to make some money that could help. Atlantic City, it was for urban redevelopment. Tribal gaming, of course, was also recognized and came along in the ’80s and ’90s and a lot of states legalized gambling. Most of the idea was, look, people are going to be doing this anyway, but if we legalize it, we can gain some benefit from it.

Mary Long: I want to hone in on one organization’s role in this changing relationship with gambling in particular, Super Bowl Sunday is coming up. The NFL used to pretty strongly oppose not just sports betting, but Las Vegas in particular. In 2003, the Las Vegas Convention and Visitors Authority attempted to buy air time for a Super Bowl commercial. They were flat out denied. There’s been like this firewall of sorts between the league and Las Vegas this year. The Super Bowl is in Las Vegas. How did the NFL in particular come to embrace Sin City?

Dave Schwartz: I have a feeling that three quarters of a billion dollars in public funding really helped change that relationship. That, of course, is what was guaranteed for the stadium, it was built for the Raiders when they moved here. Traditionally, the NFL thought that gambling was terrible. Las Vegas was even worse than gambling. Not without reason, because there had been gambling scandals and cheating scandals in the past in football and baseball and other sports, professional and amateur so makes sense. They wanted to keep it a arm’s length. But they continue to have this policy long after gambling had become more mainstream in the United States. Long after we casinos all across the country, they continue to have this. It’s interesting that as the national prohibition on the spread of sports gambling fell, the league’s policy changed and they seem to be much more gambling friendly.

Mary Long: How did the NFL’s relationship with sports betting and their embrace of that compared to the pace at which other sports leagues embraced it?

Dave Schwartz: NFL seemed to be a little bit behind you had MBA was probably one of the more proactive ones, but in general, most of the other sports started to embrace it once after 2018, when the Supreme Court struck down the Professional Amateur Sports Protection Act. More states started to legalize it. It became more mainstream in the other sports. I want to say jump on the bandwagon, but became a lot friendlier toward it.

Mary Long: In 2018, Americans wagered 4.6 billion dollar on sports betting. 2023 they bet $104 billion. How much of that growth comes from previously illegal wagering that’s now been brought into the public light or is that just all new money coming into this?

Dave Schwartz: That’s a really good question and you’ve got to imagine that a lot of it was the previously illegal gambling they came in. You also have as there’s advertising for it and it’s more mainstream and it’s more accessible, it becomes less stigmatized, so it’s easier for people to bet, so they’ll get into it a little bit more. I think it’s probably a combination of both, where they’re maybe taking some of the business away from the illegal gambling, but also maybe people are learning more about it for the first time.

Mary Long: It seems safe to bet too that that number of dollars wagered each year will only grow more in the future. As we enter into an era when gambling maybe becomes a larger part of everyday life. We talked about like mini casinos in your pocket. Are there lessons from history that we as a society should keep in mind?

Dave Schwartz: There’s certainly some lessons. I think number one, people have gambled throughout all of human history. Some societies have been a little bit more on the prohibition aside, where they don’t allow legal gambling. But pretty much if you look at the history of humanity, somebody was gambling somewhere. It seems like that’s a universal impulse. What makes it interesting is the way people gamble change. We’re no longer betting, back in Egyptian times, people betting a game that was a lot like Backgammon. That’s not such a big deal. Now we’ve got craps and Blackjack and especially slot machines. Slot machines is another great thing. If we went back to 1850 and said people are going to be gambling in machines, they would say, how could that be? That’s a big deal now. Basically, gambling tends to evolve as the technology evolves. It’s interesting if you look back, going all the way back to history, you have the shift to groundstone technology from flakes stone technology, back in the stone age, you start seeing cubicle dice which are polished instead of the animal bone dice. You have the rise of block printing and you see the proliferation of playing cards. In the 19th century you have the telegraph being used and what’s one of the things that people use it for, to gamble by sending horse racing results across the country. If you look at every technological change, it seems like people have found a way to make it about gambling. I’m not surprised we’re still doing that.

Mary Long: There are a lot of threads, I think, between this trend, the rise of sports betting, and social media and like this need for constant stimulation, but also maybe an inclination, particularly among young people, toward financial nihilism. You want to shoot your shot, you want to get rich quick, you want to beat the house. I think that, that fascination with chance is like very natural and very human. But in your research, do we tend to see increased interest in gambling at times of social, cultural, economic discontent? Or is it just a constant throughout any type of period in history?

Dave Schwartz: It definitely ebbs and flows. For example, in Western Europe, you saw a real boom in gambling from about 1,500, 1,600 to about 1,800 as there was a lot of changes going on. You had a lot more cash and money economies developing things like that. You also have the rise of things like insurance, which originally was considered a form of gambling. Basically, you take out insurance on a ship. You’re betting that your ship is going to sink. That was one of the first areas of insurance. You also have the rise of joint stock companies splitting the risk, things like that. You also have the rise of the theory of probability, where you can even do that. We see that boom. Then in the 19th century, it declines. That’s when you have a rising middle class. You’ve got what the historians call the market economy misses Max Weber’s Protestant work ethic where he work hard, save money. Gambling is subversive to that because you can go from rich to poor overnight. There’s a crackdown against gambling and pretty much United States, at least, which is where I studied most of my history. There’s a shift from a more subsistence style economy to more market style economy. More people are getting pulled into that. There’s a lot more speculation and a lot more importance for discipline people working hard, saving their money. You see a turn against gamble. Then getting into the 20th century, people are still gambling and there’s the idea that hey, wait, we can actually use this to fund some stuff for the government which means we don’t have to raise taxes and that’s one thing. I don’t know if any politicians are ever, ever yet popular for raising taxes that ever gets maybe I don’t know. It’s very popular because hey, we can raise money without raising taxes and let people that. I think that’s how that’s played out in the past.

Mary Long: As always, people in the program may have interest in the stocks you talk about and the Motley Fool may have formal recommendations for or against. So don’t buy or sell stocks based solely on what you hear. I’m Mary Long. Thanks for listening. Enjoy the game tomorrow if you’re watching and whether you are or not, we’ll still have an episode here for you. See you then.