The casino industry has been affected by two major developments in recent years, the advent of online gaming and the onset of the COVID pandemic. Both created serious challenges for the industry, but in 2022 the industry recovered after more than a year of lackluster performance.
Hospitality industries, such as casinos, took a hit in 2020 when COVID affected customers’ willingness and ability to travel. But with a vaccine and a recovering economy, consumers have made 2022 the year they get back on track. That attitude has turned casinos into slots, with the industry posting its third-best month (in terms of revenue) in July 2022, according to the American Gaming Association. Indeed, the US gaming industry is poised for a second straight year of record revenue, beginning in September, the association says.
And now online gaming, including online sports betting, is becoming more popular than ever after a 2018 legal change that finally led to more states legalizing sports betting. With the change, online gaming startups like DraftKings and the online operations of established casinos are giving them more ways than ever to reach the gambling public.
Key ideas
- Only seven states allow online poker, while only six allow online gaming in general (as opposed to sports betting) as of September 2022, according to BettingUSA.com.
- Sports betting is permitted in 32 jurisdictions, including Washington, DC, according to LegalBettingOnline.com.
- Through July 2022, US gaming revenue reached $34.3 billion, an increase of 15.5% over the same period in 2021, according to the American Gaming Association.
- For most casinos, online operations are still a small fraction of their total revenue.
- While Las Vegas is often considered the preeminent gaming hub, Macau was six times larger in 2019, though it has suffered under China’s “zero-COVID” policy, according to Public Gaming magazine.
Game Actions to Consider
The following table includes some of the biggest players in the gaming sector, with the biggest operators tending to be focused on Las Vegas and even more so on Macau, China:
| Las Vegas Arenas (LVS) | $29.2 billion | It operates a range of casino-hotels in Asia, including Singapore and Macau. |
| Caesars Entertainment (CZR) | $9.9 billion | It operates dozens of properties across the US, as well as a digital sports betting platform. |
| MGM Resorts International (MGM) | $13.4 billion | It operates major Las Vegas and regional casinos, as well as online and sports betting sites. |
| Wynn Resorts (WYNN) | $6.9 billion | It operates a handful of luxury properties in Macau and Las Vegas, as well as digital sports betting and online gaming. |
| PENN Entertainment (PENN) | $4.9 billion | It operates dozens of properties across the US, including casinos, online gaming, and sports betting. |
| Draft Kings (DKNG) | $8.3 billion | A digital gaming company that enables fantasy sports, sports betting, and online gaming. |
| Melco Resorts and Entertainment (MLCO) | $2.5 billion | A casino company based in Macau, it operates in the Philippines and Cyprus. |
Source: Morningstar, data as of September 14, 2022
las vegas sands is squarely focused on its Asian operations, after selling its Venetian and Palazzo casinos in Las Vegas in 2022. Key Asian properties include Venetian Macao, Four Seasons Hotel Macao, Sand Macao, Parisian Macao and Marina Bay Sands in Singapore.
caesar entertainment it operates about 50 properties in the US and half of its cash flow comes from Las Vegas. Its major casino brands include Caesars, Harrah’s, Tropicana, Bally’s and Flamingo. It owns the US part of William Hill, an online sports betting platform.
MGM Resorts International operates some of the most well-known properties on the Vegas Strip, including the MGM Grand, Luxor, CityCenter, and Mandalay Bay. But it also operates regional US casinos, as well as MGM Macau, as well as sports and online gaming.
Wynn Resorts operates four luxury hotel-casinos, including Wynn Macau, Encore Macau, Wynn Las Vegas and Encore Resort in Las Vegas. The company derives the vast majority of its cash flow from Macau and its expanding operations there. Operates Wynn Interactive, a provider of digital sports betting and online gaming.
PENN Entertainment operates more than 40 regional casinos in 20 US states with traditional casino games. Through its interactive division, it carries out sports betting and other online games. Through its wholly owned online unit theScore and a strategic partnership with Barstool Sports, the company also operates sports betting and digital media.
DraftReyes operates fantasy sports, sports betting and online gaming, and creates sports betting and online gaming software through business-to-consumer and business-to-business units.
Melco Resorts and Entertainment It operates primarily in Macau with Altira, City of Dreams and Studio City casinos, although it has City of Dreams casinos in the Philippines and Cyprus.
And if you’re looking to invest in sports betting, here are some options.
Expansion of legal online gambling
Online gambling has become legal in a handful of states over the past decade, while online sports betting has seen much greater momentum across the country. The table below provides details on which states allow online casinos (a total of six) and online poker (a total of seven).
| Connecticut | Yes | Yes |
| Delaware | Yes | Yes |
| Michigan | Yes | Yes |
| Snowfall | Nope | Yes |
| New Jersey | Yes | Yes |
| Pennsylvania | Yes | Yes |
| West Virginia | Yes | Yes |
Source: BettingUSA.com as of September 2022.
Sports betting is much more prevalent and 32 jurisdictions, including Washington, DC, allow it, according to LegalBettingOnline.com, although New Mexico only allows physical betting, not online.
The expansion of sports betting has been rapid and has occurred in recent years. Prior to 2018, the Amateur and Professional Sports Protection Act of 1992 restricted sports betting to only a few states. In May 2018, the US Supreme Court struck down that law, allowing each state the opportunity to adjust their own laws and legalize sports betting in their jurisdiction if they so wished.
Potential returns in casinos and online gambling
How much should you expect to earn from your casino shares? Well, that very much depends on when you buy them, because they can be quite cyclical, falling faster than the rest of the market going into a downturn and rising faster than the market coming out of a downturn.
For example, if you had bought Las Vegas Sands on September 15, 2017 and held it for five years, your total return would have been about -27 percent, taking dividends into account. However, if he had bought the shares in early 2016, just as the market was worried about a widespread economic slowdown, he could have sold them in December 2017 for 100 percent more.
It’s a similar story for Wynn Resorts and MGM Resorts as well. The cyclical nature of the industry can make life difficult for casino operators, who rely on strong tourism to prosper.
And Draft Kings? As of September 2022, the once-popular stock fell below its debut price of $20 per share in April 2020, from a peak of more than $70 in March 2021.
But how have gaming ETFs fared? The performance could offer a broader view of the industry:
- the VanEck Gaming ETF (BJK) offered a total return of around -8 percent over the last five years, ending on September 15, 2022.
Like individual stocks, this fund has shown considerable cyclicality over the past five years and beyond.
So perhaps the best lesson for investing in casino stocks is to pick your spots, because the market can wipe out years of profits very quickly. If you don’t want to pick individual stocks, choosing one of the best ETFs may be an easier and safer way to go.
Investing in online casinos and gambling in a bear market
Owning online casinos and gambling in a bear market can be tough. Casinos are part of the consumer discretionary sector, which means that consumers will often quickly reduce their spending during recessions or other economic downturns. Because casinos are not a “must have” but rather a “fun”, your business can suffer significantly during a recession.
And a casino’s profitability can drop even faster than its revenue. This is because these businesses require a high fixed cost base to operate. Workers have to man the gaming tables, whether or not customers are coming in, and extensive loans on the property (say, for its hotel operations) mean a casino always has bills to pay. On the other hand, when customers return, the profits start pouring in, seemingly as if they never stopped.
For these reasons, it can be difficult to own a casino in an economic downturn. The stock market will also anticipate the downturn, which means it will be difficult to overcome the rush to sell your shares without having to make a significant reduction in your investment.
That said, when the recession begins to bottom out, casino stocks may be some of the first to recover, even if there is plenty of time left in the recession. And like other discretionary stocks, they can often bounce much higher and faster precisely because they have fallen so far. Therefore, a proven casino operator can be a great place to invest during the next business cycle.
However, in the subsequent recession, casino stocks will fall again, repeating the cycle, meaning that casinos may be a better multi-year operation than a long-term investment.
Editorial Disclaimer: All investors are advised to conduct their own independent research on investment strategies before making an investment decision. Furthermore, investors are cautioned that the past performance of the investment product is not a guarantee of future price appreciation.
