Stars Group (TSX:TSGI)(NASDAQ:TSG) stock fell 4.08% on January 15. Shares are down 3.5% over the past week after a recent decision from the United States Department of Justice (DOJ) cast a shadow over online gambling.
The U.S. DOJ decided to expand a federal prohibition on internet gambling this month, which will force businesses and state lotteries to re-evaluate strategies going forward. The DOJ reconsidered its 2011 opinion on the Wire Act, a federal law which banned bettors from transmitting gambling data across state lines. Las Vegas Sands CEO Sheldon Adelson, a top GOP donor, led the Coalition to Stop Internet Gambling and poured millions into the campaign.
However, investors should not jump to bury Stars Group just yet. Analysts are expecting a rigorous challenge of this reversal from the DOJ. Online gambling has huge growth potential after the Supreme Court struck down a 1992 ban on sports betting. This decision was celebrated by Stars Group back in May 2018.
Stars Group received positive news in December after it announced that the Kentucky Court of Appeals reversed an $870 million lower court ruling against the company. Kentucky residents had sued Pokerstars in 2010, four years before Stars Group had acquired the company. Unfortunately, this decision failed to build significant momentum in the middle of December’s sharp sell-off.
Back in November, I’d discussed why I thought Stars Group’s prospects looked good heading into 2019. The legalization of sports betting looked poised to spread across other states in 2019, and a federal bill introduced in December may add a clearer framework going forward. The legislation, introduced by Republican Senator Orrin Hatch and Democratic Senator Charles Schumer, would create a national clearinghouse for wagering data and require that sportsbooks only use official game data from professional leagues.
New Jersey was one of the first states to move forward with legal sports betting after the 1992 law was struck down last spring. The state Division of Gaming Enforcement revealed that betting declined in December after consecutive months of solid growth. On the plus side, online sports betting’s share of bets has grown from 57% of revenue in September to 76% in December. The competition for online sports betting has also heated up on the national level with NBC reportedly plotting to register its own sports-gambling operation.
Stars Group is expected to release its fourth-quarter and full-year results for 2018 in March. In the first nine months of 2018, Stars Group revenues have surged 44.6% year over year to $1.37 billion and adjusted EBITDA has climbed 19.5% to $541 million. The acquisition of Sky Betting & Gaming has been a huge boon for Star Group’s earnings on a year-over-year basis.
Stars Group stock boasted an RSI of 45 as of close on January 15. That puts the stock firmly in neutral territory past the midway point this month. Investors should not let this recent U.S. DOJ decision get them too down on the stock, as it is likely to face fierce opposition in the courts. Stars Group is still well positioned to post solid growth on the back of its online offerings and its gradual expansion of sports betting across states that are pursuing legalization.
Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.
This Article Was First Published on The Motley Fool