A Rocky Economic Road for Gambling Firms?
Implications of a Potential US Recession on Shares of Gaming Firms
In the face of mounting living costs, global strife, and Donald Trump's trade battles with various nations, there's a growing fear of a looming recession. This economic downturn could take a toll on gambling companies, with the Dow Theory turning negative in recent weeks, indicating a potential bear market. Investors are already growing restless, as evidenced by the S&P's 8% drop over the past month, particularly impacting gambling businesses.
Tightening Wallets and Waning Tourism
A recession usually results in less disposable income for everyday folk, pushing them to cut back on luxury spending like vacations and gambling. Job losses also loom, making every penny crucial for basic needs. Even in the current high-cost-living environment in the U.S., where the annual savings rate plummeted from 19.3% in 2021 to 4.6% in January 2024, the impact would be substantial.
This decrease in revenue from visitors to gambling hubs like Las Vegas and Atlantic City could be detrimental, given that these areas historically struggle during recessions. For example, occupancy rates in Las Vegas dropped from 90.4% to 80.4% post-Global Financial Crash in 2008 and saw a similar decline following the Dotcom Bubble burst in 2000.
Companies heavily invested in these markets stand to suffer the most, with MGM Resorts International being a notable example. With its 20+ U.S. properties, particularly multiple on the Las Vegas Strip, and significant plans for Japan's first integrated casino resort, the company may tighten its purse strings during challenging economic times. In response, MGM has already begun to cut costs by deploying robot vacuum cleaners and hiking parking fees.
The Digital Shift: Gambling from the Couch
While the demand for traditional, in-person gaming may decline, online gambling might see less of a dip. As people opt to save on travel, food, and accommodation expenses, they might shift their gambling funds towards online platforms, allowing them to continue indulging in gaming from the comfort of their homes.
Companies boasting significant online operations tend to fare better during economic storms, thanks to a more stable customer base. This wasn't the case for U.S.-facing casino firms in past recessions, as legal online sports betting only became federally legal in May 2018. Now that over $150 billion is spent on sports betting alone in 2024, even in tougher times, there remains a sizable appetite for entertainment.
Increased Volatility
Gambling-related companies typically display higher sensitivity to economic uncertainties than other sectors since they heavily rely on discretionary consumer spending. Consequently, the revelation of distressing economic indicators often leads to significant sell-offs for these firms. On the flip side, heightened consumer confidence can result in sharp increases in gambling shares.
Despite the challenges and volatility, sticking with reliable, long-established firms with a strong digital presence proves key to navigating the economic ebb and flow.
Sources:[1] MGM Resorts Q1 2025 Earnings Release - marketwatch.com[2] MGM Resorts Q1 2025 Earnings Call Transcript - seekingalpha.com[3] BetMGM Q1 2025 Earnings Release - globenewswire.com[4] BetMGM Q1 2025 Earnings Call Transcript - seekingalpha.com[5] MGM Resorts Revenue Down Slightly in Q1 2025 - cnbc.com
- Despite the downturn in traditional gambling due to economic uncertainties,, online platforms might witness an increase in demand as people aim to save on travel expenses, potentially benefiting companies with a strong online presence.
- Amidst the volatile financial landscape, relying on well-established firms with a robust digital presence is crucial to navigate the economic shifts, particularly for those heavily invested in the gambling industry.
