Sports betting has caused quite the splash. Every state out there, or at least most states, are gearing up to introduce the activity in one form or another. The most common venues to request a license, though, are not committed bookmakers – it’s casinos. However, is it worth placing a bet on casino stocks? We don’t think so.
The Lurking Peril in Casino Stocks
The American Gaming Association (AGA) has posted a brilliant and optimistic report on the progress of the casino industry across the United States. Nothing seems out of order. Out of 24 states where casino operated, 20 were forging ahead with year-over-year results that had gone up between 5% and 35% in 2017.
Amid the general feeling of relaxation and gleefulness, though, there is some reason for concern. Since the U.S. Supreme Court (SCOTUS) has ruled that sports betting is legal and the federal ban is no longer needed, the main players in the industry have seen their stocks fall.
MGM Resorts (MGM), Caesars Entertainment (CZR), and Wynn (WYNN) have saw a dip in their stocks even though revenues have been going up and more customers have been flocking. And yet, the question remains – why would stocks take such a hit? Sports betting offers a great potential for casinos.
The illegal sports betting industry is estimated to be worth $150 billion, according to the AGA. In other words, that is $150 billion which are never placed on mainland bookmakers but are siphoned off by operators who have managed to position themselves well in the offshore instead.
So Where is the Snag?
Sports betting is mainly a conversion ploy. Let’s elaborate. Casinos don’t really put big hopes by sports betting for reasons other than converting people into playing on some of the more lucrative segments of the casino. However, sports betting is likely to transcend traditional casinos and we won’t be seeing as many people flock to the windows of land-based casinos. Instead, sports betting will take place via mobile apps and predominantly online.
In other words, for the best in business to stay at the top of their respective field, they will have to bring their facilities online, and that’s a substantial investment. However, legislation still doesn’t allow this to happen, and gambling online is only allowed in four states presently.
Sports betting is going to definitely reshape the industry in a new and exciting way. However, it’s unlikely to expect those people who wager the cumulative $150 billion to flock to casinos to wager. Rather, they will continue to stick with offshore casinos and sports books until such a time that the online segment has grown in the United States.
For this to happen, though, there will need to be a major change in the paradigm. As casinos grapple to find a way for the future, their stock is likely to continue and take hits. If operators, such as William Hill continue to expand at the same time, the trouble for authentic casinos will get even more serious. Timely adaptation is most necessary.