• Research

May 16, 2018

S3 Analytics: Casino Short Sellers Roll Snake-Eyes on Supreme Court Ruling

Short sellers of the twenty-two stocks in the U.S. Casinos and Gaming Sector are down a total of $201 million in mark-to-market losses after the Supreme Court of the United States (SCOTUS) ruled that the federal ban on state-sanctioned sports betting is unconstitutional. The ruling allows states to authorize legalized sports gambling by striking down the 1992 Professional and Amateur Sports Protection Act as a violation of the Tenth Amendment, limiting the federal government from encroaching into state’s rights and powers.

Short interest in the sector is $4.65 billion, an increase of $646 million, or +16%, in 2018. Although short sellers have seen their exposure grow in the sector, they are down $399 million in year-to-date mark-to-market losses in 2018 with the largest year-to-date mark-to-market losses in Wynn Resorts (WYNN), Caesars Entertainment (CZR) and Scientific Games Corp (SGMS).

This week’s price moves and resulting profits and losses incurred by the Casinos and Gaming Sector short sellers provide us with an early indication of the market’s choices of winners and losers in response to the SCOTUS decision.

Short sellers are down $70 million in mark-to-market losses in Caesars Entertainment (CZR) as the company announced it will provide nationwide sports betting in states that allow it. CZR’s rally was not just due to long’s bidding up its stock price, but also due to 1.1 million shares of short covering in the name as short sellers were looking to trim their exposure in the third largest short in the sector.

Shorts were also on the wrong side of their Scientific Games Corp (SGMS) bet, down $53 million in mark-to-market losses in the last three days as the firm looks to provide sports betting infrastructure for the new sports books that will open around the country. Churchill Downs (CHDN) will be looking to add sports book infrastructure as it will probably add sports betting venues to its multiple racetrack and casino locations. Shorts were down $29 million in mark-to-market losses as the stock rallied in anticipation of an additional revenue stream added to its product mix.

Short sellers in MGM Mirages (MGM) were spared large losses this week, down only $2.3 million in mark-to-market losses. Shorts may be thinking that the take in their sports book will decline with impending countrywide competition for the sports betting dollar. MGM’s stock price did not move significantly in either direction, but short sellers did increase their exposure in the stock, adding 1.4 million shares of new short sales over the past three days.

Finally, Wynn Resort’s (WYNN) stock price took a hit this week, with short sellers up $11 million in mark-to-market profits, but this was not only due to expected sports book competition like WYNN shares but also continued weakness due to ownership and sexual harassment related issues.

We can expect to see continued movement of short exposure between the “winners” and “losers” of the SCOTUS decision with short covering adding to long buying in stocks such as CZR, CHDN, IGT and SGMS and short selling adding to long selling in stocks such as MGM, ERI and WYNN.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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