Casino company stocks have historically traded at low valuations compared to their counterparts in Las Vegas resorts and related sectors such as hotels.

Those relatively low valuations have persisted even as the casino industry has been around for decades, and the legislative environment has long since stabilized. In fact, casinos are now part of the economic model, with their lobbyists in state capitals successfully protecting tens of thousands of jobs and many millions of dollars in tax revenue.

Today, a new branch of the gambling industry also has legislative risks. It is online sports betting and casino online gambling.

Not long ago, online gambling was anathema to many, including some members of the gambling industry, such as the late industry titan Sheldon Adelson. It was feared that widows and orphans would go broke from their homes without going out into the light of day.

My, how things have changed. Now, many states are rushing to legalize online gambling. Former opponents, such as major league sports teams, are dropping by to sign marketing deals with gambling companies and even to host and operate sportsbooks.

Gambling companies, eager to establish market positions, are running up huge deficits as they fight to become part of a highly profitable oligopoly once the inevitable industry consolidation occurs.

Investors, elated by the sheer size of the total market they can target, are pouring funds into these money-losing operations.

While physical casino operations continue to receive valuations of seven, eight and nine times actual and proven EBITDA, online players are selling at 10, 20 and 30 times projected revenues and even higher valuations of future EBITDA several years into the future that may never come.

And in a world where revenue-hungry states continue to legalize online gambling, the legislative risk is barely mentioned, if at all.

But the risk is there. And it can be big. Just look at Europe, where countries are cracking down on TV advertising, limiting the amounts of money that can be deposited into players' accounts or lost, limiting ways to access funds and slowing down the spinning of online slots so that fewer games can be played over a period of time.

In some cases, the new restrictions are having a significant negative effect on gambling revenues.

When I raise these issues with gambling operators and even regulators, the responses are that the U.S. is at the forefront of responsible gambling, so the risk of material restrictions being imposed is unlikely.

We’ll see. As a resident of Florida, I do not see much of the promotion of online gaming on TV except in signage at ballparks and arenas and contests sponsored by the likes of DraftKings. However, on a recent trip to the Philadelphia area, where sports betting is legal, I had the opportunity to see sports betting advertising.

I was particularly struck by a PointsBet ad in which an attractive young blonde woman emphasizes the fast service the company offers. Fast, fast, fast is the theme, even fast to bet and fast to win money. The young woman is seductive, and the message is appealing.

It's a good ad. However, as someone who is not a prude when it comes to gambling, I find the ad a bit disturbing.

If it were an ad for quick mortgage loans or car loans, or even payday loans, it might not elicit the same reaction. But I asked myself: is this the kind of appeal we want to make on prime-time television when kids are watching?

Now, I'm not citing this ad to point the finger at PointsBet. They have simply produced an effective ad for a legal product. But it does raise the question of whether gambling advertising will face increased regulation.

The Covid pandemic is fading, and the motivation for states to legalize online gambling as a new form of revenue could fade with it.

In the meantime, new concerns may emerge, perhaps triggered by phenomena such as the fact that calls to problem gambling hotlines quintupled in Michigan in its first few months online.

If this pattern repeats itself and grows as online gambling proliferates, it will worry parents, anti-gamblers and society at large. Then, the kind of restrictions we see imposed in so many European countries could come to the United States.

The message for investors: don't be complacent about legislative and regulatory risk. The total addressable market is only theoretical. It is no more than a mathematical calculation of expected revenues multiplied by population.

Caution, legislative and regulatory risk must be taken into account.