From Slot Machines to Screens: How to Invest in Casino Stocks

How many times in discussion about investment have you heard people say, “investing in the stock market is pretty much like gambling at a casino? That might be true, but what many tend to overlook is the fact that gambling and investing both involve choice and risk– especially the risk of money with hopes of future profit. However, gambling is usually a temporary activity, while equities investing can last a lifetime. Not to mention there is a negative anticipated return to gamblers, on average and on the long term

Take hard hitters: they follow hunches, patterns and guesses and may lose or win considerable amounts in the short run, yet they are guaranteed to lose money in the long run.

As we know, the stock market works pretty much like a casino in that optimistic investors are often seduced by worthless patterns. The market is also like a casino, one in which many overly cautious consumers stay away, terrified that they might lose capital if stock prices descent.

The crucial difference between stock and roulette is that the stock market is actually a benevolent casino. That means that it is the investors who have the edge – not the house. Another explanation for the new wave of investors: The recent pandemic somehow led to a dramatic surge in retail investors who now play stock changes across the world. According to data, only in Australia, local investors were net buyers of $9 billion of Australian stocks during late February and mid-May. Therefore, these new investors are likely accounting for most of the market’s rebound since last year’s March, and now the gambling market is likely to peak thanks to them.

How Can I Invest in Casino Stocks? 

It wouldn’t be smart to sit down at a poker table without understanding the rules of the game you’re going to play. Likewise, it’s imperative to understand the rules governing the casino industry before choosing to purchase casino or gambling stocks. Before investing in the casino market, make sure you understand:

  • What part of the casino you’re betting on.
  • Know the end customer that will drive demand.
  • Determine if regional dynamics drive demand.
  • Regulators may have more power over your investment than you think.

What part of the casino are you betting on?

Casino companies don’t develop table games or slot machines that are in their casinos; they simply leave that to companies such as International Game Technology and Scientific Games. After years of development, these are the industry’s biggest gambling dealers, building everything from tragamonedas,  shufflers, to slot machines and back-end gaming systems. They also operate in a regulated setting, like casinos themselves, so the business is difficult to disturb from the outside.

In heavily regulated markets like the U.S, players won’t just be able to gamble directly with online-only operators. There will be a casino business that owns the gambling license, and someone else provides the back-end technology as a service to take bets. The International Game Technology and Scientific Games have all built partnerships with casinos to this effect. Whether it’s a brick-and-mortar or online casino, there’s likely a supplier building the game you’re playing and not the casino operator.

Understand the End Customer that Will Drive Demand

Casino businesses have very different demand drivers, depending on how they fit onto the supply chain or where they’re located.

In the U.S, gambling and non-gambling revenue is driven by tourists who visit from around the country and the world. As such, there are hard hitters that help any given resort, but overall, it’s the 40 million guests only in Las Vegas that keep the city running. In Spain, on the other hand, the market is driven mainly by VIPs or high rollers. Almost two-thirds of the region’s gambling revenue comes from tragamonedas games, which creates a market that can ebb and flow very quickly.

Meanwhile, casino suppliers sell to the casino businesses themselves, so their income is in seeing gambling expand worldwide. They’ve made casinos famous in the U.S and Asia over the last two decades, and that’s helped them grow.

The real investment groups ( a final group in casino investing) make most of their revenue from rent payment from casinos, but those rent rates are oftentimes linked to revenue growth at the casino. In the long term, their purpose is to see casino operators successful, even if they aren’t taking the bets themselves.

Determine if regional dynamic drive demand 

Some operators have regional dynamics that determine the failure or success of a casino. Knowing how the surrounding regions will influence your investments is more important than you think.

For instance, when China began to crack down on money laundering and corruption in 2014, it impacted all Macau casino stocks hard. Back then, Macau casino revenue fell nearly to half, and the loss of VIPs was the main reason for the drop.

In the U.S., we’ve witnessed a rapid expansion of casinos across the Midwest and East Coast, which has had an impact on casino operators across the country.

Regulators may have more control over your investment than you think. 

Gambling is one of the most regulated industries globally, and those regulators hold a lot of power over investment. Take Japan; casino regulators decide who wins a concession to build a casino and who doesn’t. However, it isn’t just getting new certificates that is important, novice investors should also watch to make sure casinos are keeping their existing ones, understand how new suppliers and innovation impact their stocks, and make sure the casino they invest in fits their risk profiles.

Casino stocks aren’t for everyone, so you should read both your card and books thoroughly before risking.