Super Bowl LIX: As the Rest of America "Bets," Here's How We Win
If "The House" always wins, own the House ...
This weekend’s Super Bowl LIX between the Philadelphia Eagles and defending champ Kansas City Chiefs promises some great stories, including:
The opportunity for Eagles running back (and Penn State alum) Saquon Barkley to put an exclamation point on what’s been a personally historic season.
A chance for Kansas City to become the first “three-peat” NFL Super Bowl champ — and for Chiefs QB Patrick Mahomes to move a step closer to that Gold Jacket … and Canton.
And the likelihood that the the 59th Super Bowl will become the biggest-ever (legal) sports betting event in U.S. history.
That’s right: With sports wagering now legal in 38 states, Washington, D.C. and Puerto Rico, legal U.S. sportsbooks are projected to take $1.39 billion in bets on Sunday’s Super Bowl matchup. That’s up 11.2% from $1.25 billion last year, when a record 68 million folks bet on the Big Game.
That meant gambling grew at a rate that was four times the U.S. economy’s 2024 surge of 2.8% and 4.5 times the economy’s 2.5% average of the last decade.
If that doesn’t underscore America’s growing obsession with betting, consider this: If you look at total betting — legal and illegal, including sports-books, pools, squares and “friendly wagers” — an estimated $23.1 billion will get bet on Sunday’s game, says the American Gaming Association (AGA).
The fact is, Americans love to bet. And they love to bet now more than ever before, says the daily business newsletter Morning Brew.
“Since the Supreme Court overturned a federal law prohibiting sports betting in 2018, 38 states have legalized it. Americans spent $14 billion on sports wagers in January 2024, up from $1.1 billion in January 2019,” the newsletter reported. “Some of that is money not going into a Schwab account. Researchers found that in the two to three years that followed the legalization of sports betting in a state, net investments dropped 14%."
WHAT IF YOU “LOST” HOLLAND EVERY SINGLE YEAR
The Supreme Court lit the fuse on legalized wagering. But the COVID-19 Pandemic blew it up.
From $29.98 billion in 2020, the U.S. commercial gaming industry saw revenue rocket 77% to a record $52.99 billion in 2021.
But there’s a “truism” about gambling: The odds are stacked in favor of the casino — known as “The House” in industry parlance.
As the old aphorism tells us, “The House always wins.”
And as “The House” keeps winning, American gamblers will see their losses soar.
In fact, Americans will be losing $1 trillion a year on gambling by 2028, according to recent projections by the World Health Organization (WHO). That’d be like wiping out the annual economic output of The Netherlands — every single year.
And like Morning Brew says, some of that gambling money is coming out of what would have gone to Americans’ investment accounts.
Indeed, a gambling mania — I’ve dubbed it the “DraftKings Mindset” — has infected the U.S. financial markets. Americans who once bought blue-chip stocks (and reinvested the dividends) … and who flowed savings into the ETFs in their 401(k)s … have become trading-transfixed Happy Wanderers who are speculating with options.
Speculating … and losing
Big Time.
WEALTH BUILDER … WEALTH KILLER
You’ve heard me say this … and you’ll hear me say it again.
As investors go … you’re either a Wealth Builder … or a Wealth Killer.
If you’re not one … you’re the other.
There’s no in-between.
Since 2010, one of the biggest Wealth Killers of all is the “Big T” — trading.
And very specifically … options trading ... and especially options speculation.
According to a Bloomberg report with data from the Futures Industry Association, options trading zoomed 478% from 2013 to 2023.
In a report from S&P Global Market Intelligence, researchers found that options trading by retail investors climbed more than tenfold from 2010 to 2020 — from $20 billion at the start of that 10-year stretch to $240 billion by the end.
As we saw with straight gambling, options speculation got even worse during the Pandemic, says Eric So, a professor of accounting and finance at the MIT Sloan School of Management, who researched options trading by retail investors.
“Folks were home and bored and looking for something to do,” Prof. So told an interviewer. “Many people who would normally gamble on sports decided to take their money and gamble in stocks and options. So there was a perfect storm of events that led to retail investors having an outsized role in the markets.”
An “outsized role” … which led to “outsized losses,” says that MIT study: Losing is Optional: Retail Option Trading and Expected Announcement Volatility.
Between January 2010 and February 2021, retail investors lost more than $3 billion, according to that study.
Those losses will continue; indeed, they’ll accelerate.
There are lots of additional possible explanations for this surge.
First, there was all that cheap stimulus money — which folks looked at as “free,” making it okay to “play around” with.
There are also new apps that make options easier to access and simpler and cheaper to trade.
And don’t forget that new mentality — that “DraftKings Mindset” — which “mutated” from online betting to online trading … and that now seems to have made speculative trading “acceptable.”
But “acceptable” doesn’t mean “smart.”
And new “products” like those “zero-day options” are inflicting new damage: A study from Germany’s University of Muenster found that — since May 2022 — day-traders lost $358,000 each and every market day on those small-window, high-risk/high-return trading instruments.
BEFORE OUR GUESTS ARRIVE, HIDE THE SILVER
I’ll grant you: Some retail traders have scored with options.
But it’s a small group.
Heck, it’s microscopic.
A good friend of mine — a former “sell-sider” on Wall Street who has deep knowledge and deep connections related to trading — says options speculation is a “rigged game” in which retail investors are nothing more than an “easy mark” for sophisticated hedge funds and other trading pros.
“Your ‘Wealth-Killer’ theory is correct here, Bill,” my friend said to me (yet again) not long ago. “The vast majority of Mom-and-Pop investors — and I’m talking 99.7% — have absolutely no business going anywhere near options of any type. For retail investors, speculative options are a rigged game … clear and simple.”
It’s only going to get worse — because industry predators are coming for you.
Financial publishers who market to retail investors are getting ready to launch a big new wave of “trading products” — in essence, options newsletters and software and strategies whose “backtesting” is questionable … or outright nonexistent.
These pitch-masters will tell you that their trading “platforms” are innovations that make life better, easier and more profitable for retail investors.
That’s Malarkey. Most of them just paint a bullseye on your back: They turn you into the proverbial “Greater Fool” — and just set you up to take the “other (losing) end” of some smart operator’s moneymaking trade.
In short, they turn you into a Wealth Killer.
So if anybody comes to you with a pitch for an options-trading “product” or “service” or “strategy,” be sure to look down while they’re talking — to see if they have their hand stuffed deep into your pocket.
Because they will.
And that’s a “bet” I’m willing to make.
NANCY REAGAN HAD IT RIGHT
Still want to make a wager?
If you see an options contract … an options product … or some marketer pitching you a “winning trading strategy” … run in the other direction — as fast as you can.
With apologies to Nike Inc. (NKE), and that company’s ultra-classic marketing slogan: “Just … don’t … do it.”
Just say no: If you don’t bet … you can’t lose.
But there’s another option … and it’s an approach that’ll really tick off all these shysters looking to take your money.
In fact, if you tell those folks “no” — and then do what I’m about to tell you — it’ll turn those folks red with rage.
The reason: You’re not just flipping the odds in your favor … you’re kicking over the poker table — and running away with their poker chips.
If you know that options trading is just another form of gambling …
If you know that gambling is a rigged game …
And if you know it’s a game that “The House” always wins.
Then don’t gamble — but own “The House.”
Because that, my friends, is a move for Wealth Builders.
THAT ONE WINNING MOVE
Instead of losing money on options yourself, you can make money from everyone else who trades (and loses money on) options … by grabbing shares of CBOE Global Markets Inc. (CBOE) — the largest options exchange in the world.
CBOE offers options on more than 2,000 companies, 22 stock indices, 140 ETFs — and (in general) generates revenue via transaction fees on all of that.
Not only was the 3.8 billion options contracts traded in 2024 a record for CBOE; it also represented the fifth straight year that options volume on that exchange hit a new high.
This is “Wealth-Builder” thinking: No matter what happens with each options trade — “win, lose or draw” — owning CBOE puts you on the winning side because you’re guaranteed to get a piece of each trade.
Think of it this way: If retail investors view this explosion in options trading as some kind of new speculative “Gold Rush,” then owning the exchange is the Ultimate Pick-and-Shovel Play.
Indeed, the proof is in the results, which you can see in CBOE’s stock-price performance over the last 10 years — which its 257.5% gain has absolutely clobbered the 151.8% gain of the Dow Jones Industrial Average.
CBOE’s SPX options are the mostly actively traded index options in the U.S. market; big institutions use them to manage risk and use them for exposure to the big-cap S&P 500.
And the company just this week announced plans to expand U.S. stocks trading to a 24/5 format, meaning investors can trade stocks round-the-clock on weekdays.
“We continue to hear from market participants globally — particularly those in Asia-Pacific markets like Hong Kong, Japan, Korea, Singapore and Australia — that they want greater access to U.S. [stocks] trading and need trusted venues that offer transparency, robust liquidity and efficient price discovery,” says Oliver Sung, head of North American Equities at CBOE.
And the company is particularly shareholder-focused:
🔵Dividends: Back in August, CBOE boosted its quarterly dividend 15% — from 55 cents a share to the current 63 cents. This is the 14th straight year CBOE has boosted its dividend — and brings the yearly payout to $2.52, a 1.2% yield at current prices.
The company has boosted its dividend at a compound annual growth rate (CAGR) of 12.2% since 2017.
🔵Buybacks: That shareholder “friendliness” — in which the company returned 65% of its adjusted earnings to shareholders — isn’t confined to dividend increases.
It’s also doing buybacks.
In tandem with that dividend boost, CBOE said it will repurchase another $500 million worth of its shares. Since launching its buyback program in 2011 (through June 30 of last year), the firm has repurchased $1.6 billion of its shares — which means its program is accelerating.
🔵Return on Equity (ROE): That good-old profitability metric that tells us how efficiently a company uses shareholder money — was 22.5% over the trailing 12 months. That’s an increase of 50 “basis points” (a half a percent) year over year. And it trounces the industry average of 13.2%.
🔵Cash: At the 2024 midpoint, CBOE had cash and equivalents of $614.6 million — a jump of 13% from year-end 2023.
I love this: All that cash gives CBOE the “raw material” for expansion investments, technology upgrades, buybacks, dividend boosts and more. It also gives the company a nice “margin of safety” to navigate tough stretches.
But the near-term outlook is bullish — maybe super bullish – because of the new administration in the White House, and the escalating uncertainty that we see.
Uncertainty leads to volatility. And volatility in this environment will only accelerate options trading.
There you have it: As options speculation explodes, this is one company that wins — even when traders lose.
It’s “The House.” And we want to own it.
Pass on making those Wealth Killing Super Bowl Wagers.
Make this Wealth Builder move instead.
See you next time;
In this Super Bowl report, we talk about the "betting" mindset that'll benefit the company we spotlighted.
That's one "Trigger."
But in this earlier "Trump Trade" story, we talk about a second "trigger" -- uncertainty.
https://open.substack.com/pub/stockpickerscorner/p/your-investing-need-to-know-for-trump?r=3ftiph&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false