You’ve heard all the phrases such as “the house always wins”, most likely when you are having a losing streak. The odds of winning at popular games like roulette and blackjack are never in your favor. When you win, you’re of the few that can boast such a claim.
But even though you know you’re going to lose, there’s just something about the thrill of the game that keeps you coming back for more. Maybe it’s the prospect of winning big, or perhaps you just love to take a risk.
There is one aspect to the casino industry that isn’t that much of a gamble though: betting on the house in the stock market.
After you’ve seen how the following gambling trends are responsible for driving the massive profits casinos seem to generate year after year, you may wish to add some gaming stocks to your own portfolio.
1. Macau: The Gambling Capital Of The World
Las Vegas is the most famous place in the world for all things gambling. The bright lights and massive casinos along the Strip are well-known - but Vegas is far from the world’s biggest gambling destination.
That title belongs to Macau, the biggest driver for casinos stocks in the world. While gambling is illegal in mainland China, Macau is considered a special administrative region, allowing tourists and residents to gamble.
The investing community may be familiar with Macau’s rise to the top, but the size of its market is still astonishing to even those with years of experience.
In 2017, Macau generated fewer visitors than Vegas (32.6 million visitors compared to 42.2 million) and the Chinese state has far fewer casino properties than Sin City (40 compared to 161).
However, while Las Vegas generated $10 billion in gaming revenue that year, Macau made over $33 billion. This is the only relevant statistic that matters to investors. Over the years, more and more people have been travelling to Macau to gamble and see what it’s all about. The 2017 gaming revenue increased by $5 billion compared to the previous year, while there was also a 21% increase in the first quarter of 2018. Between then and now, two brand new casinos have opened in Macau with a few more in the latter stages of construction.
The majority of business comes from Chinese residents, with 87% of visitors coming from either Hong Kong or mainland China. This suggests that China’s economic growth is connected to visitor income in the region. Further, Chinese VIPs are particularly important to Macau’s business. It’s estimated that they generate more than 50% of the entire gaming revenue themselves.
Now, with all this considered, there are only six licensed casino operators in Macau that an investor should focus on, namely MGM Macau (MGM) , Wynn Macau (WYN), Sands Macau (LVS), SJM Holdings (SJMHF), Melco (MLCO) and Galaxy (GXYEF).
2. Legalized Sports Betting In The US
Sports betting has largely been illegal in the US. However, May 14, 2018, was a landmark date in the industry. As reported by the Guardian, “the supreme court ruled 6-3 to strike down the Professional and Amateur Sports Protection Act. The 1992 law barred state-authorized sports gambling with some exceptions...
“...One research firm estimated before the ruling that if the supreme court were to strike down the law, 32 states would probably offer sports betting within five years.”
As such, each state now has the opportunity to regulate sports betting, both online and offline. And as predicted, many are ready to do so already.
For example, Pennsylvania has already passed its own sports betting rules a year in advance. In fact, Pennsylvania has been waiting for legalized gambling for a while, with online giant PokerStars offering its online poker platform to PA residents on November 4, 2019.
So, what’s the biggest reason for change? It’s really: increased tax revenue. Lucian Marinescu, partner at Online Casino Gems, explains why:
“With sports betting being legal, casinos can expect to see large amounts of money regularly wagered on the country’s biggest sports such as the NFL and the NBA. As such, winnings from these activities are classed as earnings and therefore deemed as taxable. So the next time you go to the casino and celebrate a win, the IRS will be right there beside you. After all, any you make from sports betting means they also get a small piece of the pie.”
For casino stock investors, however, the most important thing is the money generated for the sportsbooks.
And with sports betting available on a mobile device, there’s no need to own a multi-billion dollar casino to make money. With that being said, expect MGM, Wynn and other large casinos to make their presence felt in this space.
3. Growth Of Gambling In Japan
The final trend that makes casino stocks worth in is the growth of the gambling industry in Japan. At present, this does not have much of an impact as the previous trends, but it’s certainly one for the future.
In December 2016, the Japanese government approved gambling in casinos and they have been working hard to regulate the industry. However, fears over gambling addiction are preventing this from moving forward. If these fears can be put to rest, there is a huge opportunity for casinos to invest in Japanese properties.
The latest figures show Japan has a population of over 126 million. Japan also has a thriving economy, so there is great potential in this market. Of course, it also remains to be seen how the Japanese government plans on taxing gambling winnings.
Nevertheless, the prospect of another gambling market to invest in has got investors very excited indeed.
Conclusion
These three trends are very important for investing in casino stocks. Not only will they add to their respective economies, but also line the wallets of their investors.
When you sit at the blackjack table, you know that will lose more often than you win. In the case of betting on the casino’s stock though, that is an entirely different gamble worth making.
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