The estimate that $150bn-worth (£110bn) of sports bets are placed illegally in the US every year may be exaggerated but nobody doubts the true figure is enormous. That it is why it is mystifying that the US, or most of it, has held out so long against legalisation. Money – in the form of easy tax revenues – usually beats puritan scruples in the US.
Now, finally, the door has opened. The US supreme court has struck down the federal ban on sports betting, paving the way for a mini revolution. Each state will have to pass its own legislation and many may still confine betting to casinos and racecourses. Others, though, may allow betting via mobile phones, in which case large parts of the US could eventually look very European, and specifically British, in their approach.
Cue a celebration in the share prices of UK-listed bookies, which, in theory at least, have the experience and IT systems to capitalise. William Hill’s purchase in 2011 of a few betting operations in Nevada, the one big state where sports betting is legal, now looks superbly timed; its shares rose 11%. Paddy Power Betfair, another with a small legal US sportsbook operation, rose in value by 12%.
That instant reaction is understandable, since the creation, in a single supreme court ruling, of the world’s biggest regulated betting market is impossible to ignore. But before UK investors spend their winnings, they should take a step back. Nobody knows how individual states will tax sports betting or what cut will be demanded by the powerful US sporting bodies that lobbied for legalisation. There is no guarantee that the profit margins will be the same as in the UK.
A greater worry is that the UK firms will be playing away from home. It is surely odds-on that US operators will be at the head of the queue when new US licences are handed out. That’s just how life works. Sadly for a company that was early to spot the shifting mood in the US, it may make sense for William Hill to sell itself to a big US entertainment company in search of instant expertise.
Italian markets should be watchful
First, betting against the price of Italian debt is a risky trade when the European Central Bank (ECB) remains on hand with its bond-buying programme. Second, the two alliance partners, the anti-establishment Five Star Movement and the rightwing anti-immigration League, have dropped their previous anti-euro talk, so are not stepping wholly outside the EU consensus. Third, investors may be reflecting that an unlikely coalition government with a slim working majority may not survive for long.
Yet the scale of the radicalism being contemplated in Rome is genuinely new. Even in watered-down form, the economic plan represents a huge challenge to EU orthodoxy. Proposals include a flat tax at 15% for companies and most households; a universal income; and repeal of the 2011 reform that raised the pension age.
That collection would increase government spending by €60bn-€100bn (£53-88bn) a year, say economists, depending on the precise version of the proposals adopted. The higher figure is equivalent to 5.5% of GDP in a country where the stock of debt is 132% of GDP. Even the lower figure, if the accompanying tax-raising measures are relatively modest, would very likely mean Italy bumps up against the EU’s fiscal rules. The coalition partners say they plan to respect those rules but simultaneously say they want them to be relaxed. Something has to give.
In the circumstances, the lack of excitement in the Italian bond market, whatever the superficial reasoning, is bizarre. The yield on 10-year paper has risen in the past week but 1.9% (versus 0.6% on German bunds) is miles away from signalling serious concern among investors. A lot of money is resting on the questionable assumption that the new government will not do what it says or will collapse.
Either outcome is possible, obviously. But it seems equally likely that the plot could move quickly to confrontation in the form of a demand that the EU change its fiscal rules. That would be a serious showdown, with an uncertain outcome. In the meantime, demands by the French president, Emmanuel Macron, for more EU integration look like a non-runner – which won’t ease tensions.