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theScore, Bragg Gaming stocks climb as experts eye $28B per year in sports bets

·4 min read
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Companies placing bets on the legalization of single-sports gambling in Canada have seen their shares climb in recent weeks. The momentum comes as experts project nearly $28 billion per year eventually flowing through legal betting channels allowing wagers on individual events.

Score Media and Gaming (SCR.TO), Bragg Gaming Group (BRAG.TO), and FansUnite Entertainment (FANS.CN) shares have surged 207, 109 and 100 per cent year-to-date, respectively, as of Friday’s close.

Jeff Harris, national leader of Deloitte Canada’s sport business advisory, sees the potential expansion of sports betting in Canada as a meaningful event for investors. He expects legal reforms to spur growth beyond betting companies, with opportunities spanning the IT, telecom, media and secure payment sectors.

“We could see quite a lot of capital markets activity in the next 12 to 18 months,” he said in an interview. “We have seen some institutional capital go into the space from Canadian organizations already.”

The trio of Canadian companies are cheering the advancement of two pieces of legislation. Bill C-218 and Bill C-13 each seek to amend the Criminal Code to give provinces and territories permission to regulate online and in-person bets on the outcome of a single hockey game, for example.

Most legal sports bets in Canada must include at least two events, known as parlay wagering. Currently, horse races are the only single sporting event that can be bet on legally. The result has been an estimated $14 billion per year in wagers from Canadians going to offshore firms like Bet365.com and homegrown illegal bookmakers, according to the Canadian Gaming Association. A recent report by Deloitte Canada suggests that within five years of legalization, Canadian sports betting could grow from $500 million to nearly $28 billion in legal-market wagering.

Investors are taking notice. If Bill C-218 or Bill C-13 become law, Canada could see a replay of the investment activity that followed a 2018 decision by the U.S. Supreme Court to allow legal sports betting. Shares of the dominant U.S. sports betting platforms, DraftKings (DKNG), FanDuel parent company Flutter (PDYPY), and Penn Gaming (PENN), majority owner of Barstool Sports, have been strong performers as a growing number of U.S. states pass laws to reform sports betting.

Last Wednesday, C-218 passed through the House of Commons with overwhelming cross-party support.

It will now be referred to the House Justice Committee, where members can suggest changes. It will then have to win another vote in the House, and make it through the Senate, before becoming law. The government-backed C-13 bill was set for debate on Friday. Both pieces of legislation are nearly identical, with C-13 including an exclusion for federally-regulated single horse races.

Both theScore and Bragg are anticipating increasing investor interest. Earlier this month, theScore’s shareholders approved a stock consolidation resolution aimed at helping the company list on a U.S. stock exchange. The announcement was followed by a decline in the company's share price. Bragg recently up-listed to the Toronto Stock Exchange from the more junior TSX Venture, and is working towards a NASDAQ listing.

theScore, known in Canada for its sports news and information mobile app, is already a player in American sports gambling. The ScoreBet app is available in Colorado, Indiana, New Jersey, and Iowa. In Canada, the company estimates between US$3.8 billion and US$5.4 billion in annual gross gaming revenue from online gaming.

Bragg, a software provider for online gambiling operators, has recruited former Ontario Lottery and Gaming chair Paul Godfrey to guide its move into the single-sports betting market.

Investors have more diversified options in Canadian telecom giants Rogers Communications (RCI-B.TO) and BCE (BCE.TO), both of which have spoken publicly about plans to incorporate single-sports betting into their media offerings. Both companies have ownership stakes in MLSE, which owns the Toronto Maple Leafs, Toronto Marlies, Toronto Raptors, Toronto FC, the Air Canada Centre, Leafs TV, NBA TV Canada and Gol TV Canada. Rogers also owns the Toronto Blue Jays.

There is also Nuvei (NVEI.TO), which recently pulled off the biggest tech IPO in the Toronto Stock Exchange’s history. Last September, the Montreal-based payment processor announced approvals that will allow it to serve the sports betting industries in Colorado and Indiana.

So, should investors expect the wild ride that accompanied the last industry to turn legal after years of operating outside the law, a.k.a. cannabis? Deloitte’s Harris doesn’t think so.

“I wouldn’t expect to see the volatility,” he said. “A lot of who would be the operators within Canada have a track record and business model in this space.”

Shares of theScore fell 13.14 per cent to $40.01 at 2:05 p.m. ET on Monday. Bragg's stock dropped 3.01 per cent to $2.90 per share, and FansUnite stock was virtually flat at $2.18.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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