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Online and land-based casino stocks make for an interesting gamble if you’re willing to take the time to research the industry that you’re buying in to. Investors have reported profitable yields on casino stock, particularly those who take the somewhat less risky route of REITS – real estate investment trusts. Early-bird investors that bought in to a casino brand, such as MGM Resorts (MGM) or Las Vegas Sands (LVS), have reaped rich rewards, however; this route is more volatile today – especially with the onslaught of online casinos that are eating into the land-based casino customer base. 

The middle ground for investment as far as risk is concerned is to be found in software suppliers for major casinos, such as Scientific Games and International Game Technology. In this article, we’ll take a look at the various investment opportunities in detail in the hope that you will be able to come to an informed decision regarding where to make the most prudent investment. 

Online Casinos

The rise of online casinos has been meteoric. Gamblers have welcomed this new gambling format with open arms and the industry rakes in billions of pounds every year. Online casinos appear on the horizon on an almost daily basis due to popular demand. These operators fall under the jurisdiction of strict governing bodies and are put under the microscope by specialized websites offering unbiased online casino reviews. It may take some time for a new casino or casino brand to make its mark on the casino landscape, so investing in a start-up is a risky endeavour, however; the rewards for taking that risk could be rich.

Land-based Casinos

The first element to take into account regarding land-based casinos – and this also applies to online casinos – is that many of the big-name casinos are owned by large companies that own and operate more than one casino. MGM Resorts, for example, own a number of resorts and casinos in the USA, China and Japan. Las Vegas Sands and Wynn Resorts (WYNN) also fall into this category. Organisations like these make for good investments due to the diversity of their portfolios. 

December 2019 saw stock prices sit at approximately $32 for MGM, $70 for Las Vegas Sands and $141 for Wynn Resorts with Wynn paying out the highest annual dividend. While these prices are subject to change, these resorts make for a safe investment because they do rely solely on profits generated by the casino floor. Companies like these derive a large portion of their profits from hotel rooms, bars, restaurants, shops and entertainment venues. 

Pros

These large organisations also benefit from the fact that they are not solely reliant on the economic stability of one country alone. Macau, Singapore and now Japan are huge markets for the casino industry and the casinos attract a different type of clientele. Macau generates a significantly larger percentage of profits from gambling on the casino floor due to the number of high rollers that frequent casinos in that part of the world. Las Vegas, on the other hand, relies heavily on tourists looking for all-round entertainment. Having access to both of these markets ensures that dips in the affluence of either economy does not occur. Your investment, therefore, is essentially protected from financial downturns. 

Cons

It’s important to keep in mind that not all that glitters is gold. While investing in any of the companies we’ve mentioned may sound like a no-risk gamble, it is still a gamble. The dividend from stocks in any large company can fluctuate due to the amount of excess profit generated in any one year and this can change. One of the reasons you may experience a dip in dividends is due to a company’s expansion. Large and successful casino corporations are likely to reach further afield into new markets in order to launch new ventures. A company that uses leverage to expand poses a risk to investors for various reasons. A recession, for example, could have a disastrous effect on a company that has stretch itself to thinly. Competition from other successful casino resorts in the area is also likely to make a dent on profits.

Software Providers

Investing in an established online casino brand, such as Playtech (PYTCY), is a more prudent move. Playtech, for example, is a software provider that powers a number of the industry’s most renowned online casinos. NetEnt (NTNTY) and Microgaming (Private) also fall into this category and are household names. A software provider is generally a safer bet than a casino venue because a casino venue is nothing without its games. As long as the software provider you’re planning to invest in has a solid reputation for quality, fairness and innovation it is likely to continue turning a profit. The same can be said for the software suppliers used by land-based casinos, such as Scientific Games (SGMS) and International Game Technology (IGT). The demand for new games may occasionally wane and competition from up and coming software companies is fierce. As an investor, you’ll need to follow the trends closely in order to anticipate a drop in the value of your stock. Overall, however, investing in software companies is a mid-to-low-risk endeavour. 

REITS

As previously mentioned, REITS, or real estate investment trusts, are a potentially lucrative area for investment in stock and the investment is low-risk. As land owners, REITS garner their profits by renting land to casinos. In most cases, the ground rent is supplanted by a deal that sees the rent fluctuate according to the revenue garnered by the casino. The better the casino does the more rent the REITS collects. The main three companies to look out for if you’re considering this area for potential investment are VICI Properties (VICI - Caesers Entertainment), Gaming and Leisure Properties (GLPI - Penn National) and MGM Growth Properties (MGM). The dividends are unlikely to reach the heady heights of dividends from casino stock, but the investment is significantly less risky in the long run and likely to yield consistent fruit.

Evaluating Risk

Whether you decide to purchase stock associated with a land-based casino, an online casino, a software company or a REITS company, there are inherent risks involved. It is imperative that you undertake as much research as possible in order to have a comprehensive picture of the company you’re considering as a potential investment. We recommend a thorough background check in order to understand where the company is coming from, how quickly they’ve moved to expand and how successful they’ve been with each expansion. 

It’s particularly important to have a clear idea of a company’s customer base and how that base could be affected by an economic downturn. Does the casino you’re interested in rely heavily on profits from the casino floor? Are the casino’s clientele high-rollers or holiday makers? Does the casino brand appeal to a broad audience or has it honed in on a niche market?

The region where a company does business is also important to consider. Is it stable? Is it booming? Is the competition healthy or has the market been overrun? How likely is a change in government or legislation to happen that could negatively impact profits? Are government regulators working with local casinos to improve the industry as a whole or are they putting restrictions in place that will hinder business operations?

The Final Word

If you are new to the casino landscape, whether online or land-based, we highly recommend that you seek out the advice of a professional working within the sector. A wise investment in the casino industry can reap plenty of rewards and is certainly worth taking the time to consider whether or not it’s right for you. Never lose sight of the fact that an investment of this nature is a gamble that could go wrong even if it looks promising on paper. We’ve seen plenty of highs and lows in the fortunes of this industry. However, if you move forward armed with knowledge and expert advice, there is every chance of a successful outcome.