Sep 07, 2018
A New Kind of Croupier Business is About to Thrive. Here’s Why That Can Make Us a Fortune
Yesterday, I showed you how big the sports betting market really is, and how some of the biggest players in sports betting – including the sports leagues themselves – are preparing to cash in on this new opportunity to expand their businesses!
Today, I am going to give you another huge reason why I’m so bullish on sports betting, especially the betting platforms: They employ a unique, extremely powerful business model that is often called the “croupier” model.
Croupier is a French word – pronounced like “croo-pee-ay.” A croupier is someone at a gambling table that runs the game and helps gamblers place their bets. He also takes a small cut of the total bets placed.
A good croupier business is a wonderful, wonderful thing. The croupier is not one of the gamblers taking huge risks. He doesn’t bet at all, but makes a little bit of money from each and every bet. He is the guy skimming small amounts from huge volumes. Eventually, all the small amounts add up to a big pile of money.
Croupier businesses can include stock exchanges, commodity exchanges, brokerages, and, of course, casinos. They are toll roads on the world’s financial highways. Trillions of dollars travel around the world every day. That travel is not free. The croupiers always get their cut.
But it gets better. Croupiers are also often insulated from competitive threats because of regulatory barriers to entry or because they moved into their market first, became established, became trusted, and made it so it was insane to compete with them. Their businesses often have “wide moats” around them. A wide moat – or a set of circumstances that makes it very hard for other businesses to compete – is a quality treasured by the legendary investor Warren Buffett.
For example, the Chicago Mercantile Exchange (CME) is one of the world’s largest and most important financial exchanges. It’s where investors, speculators, and businesses go to transact in financial instruments like currencies and commodities. Businesses use CME’s exchanges to hedge currency exposure. Large commodity producers use CME’s exchanges to lock in the prices at which they will sell their future production. Speculators use the CME’s exchanges to bet on stocks, bonds, and commodities.
The CME doesn’t risk money on the direction of any of these things. It doesn’t care if the price of oil goes up or down. It’s just the middle man, taking a small cut from each transaction. CME’s dominant position in the marketplace makes it very difficult to compete with it.
This business model has made CME a fantastic investment. From 2004 to mid-2018, CME shares returned 1,675% (including dividends), an incredible return compared to the broad market’s return of 150% (including dividends) during the same time.
CME isn’t an isolated case of a croupier proving to be an incredible investment.
Below is a chart showing the returns generated by another croupier, a large financial exchange called IntercontinentalExchange Group (ICE), compared to the broad market from 2004 to mid-2018. ICE returned 1,427% against the broad market’s 150%.
And the chart below displays the return generated by the powerful London Stock Exchange Group (LSE.L) compared to the return generated by the broad market from 2004 to mid-2018. LSE returned 1,951% compared to the broad market’s 150% return.
Collecting small fees on millions and millions of transactions…
Acting as the toll taker on the world’s financial highways…
That’s the croupier business.
The sports gambling trend is clearly in motion, and everything points to a strong boom in sports gambling following the monumental SCOTUS decision.
There are multiple ways to profit. One idea is to bet a lot of money on your favorite football team in hopes of a quick double. That would be a dumb idea, even if it sounds exhilarating. There are far smarter ways to profit, and that’s where we rely on our extensive research to find the winners.
There are a number of players in the industry that can all succeed and take a big piece of the growing sports gambling pie. The most obvious would be the casinos that can easily add a sportsbook and attract gamblers who are already on their properties. They also have another advantage because in most states you must have a physical property, such as a casino or racetrack, to obtain a sports gambling license.
Plus, technology is needed to power the gambling experience on land and on mobile. In the coming years, the majority of wagers will be placed via apps, and we want to own companies that are at the forefront of this technology.
Then there are the bookmakers that have been around for years overseas, predominantly in the UK. Paddy Power Betfair is already making a big move into the United States with the FanDuel purchase we talked about.
And then there are the leagues and the teams themselves. There are only a few publicly traded sports teams in the United States, and my favorite has the makings of a big winner thanks to the SCOTUS decision.
How to Get Rich Without Trying or Thinking Very Hard
When an industry enjoys years and years of robust growth it’s often said to have a “tailwind.”
When an industry has a strong tailwind blowing behind it – like Internet stocks enjoyed in the 1990s – practically anyone can make lots of money in it.
Achieving success in these situations can be like hopping on a boat that is headed down river. You can practically float your way to success.
You can make good money in a slow growing industry, but making big money is a heck of a lot easier and your chances of doing so are a heck of a lot higher if you focus on industries with powerful, long-term tailwinds at their backs. When you do this, you can get rich without trying or thinking very hard.
This is just the situation we have in the sports betting industry. A very powerful long-term tailwind is about to start blowing at its back. Invest accordingly.
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