Happy Thanksgiving from GGB; Newsletter Returns December 4


One of the biggest hits stocks have received in several years is a result of the Brexit vote last week in the United Kingdom. It’s had impact, as expected on UK stocks, but also on others that have no exposure in the UK. What’s next?

When the citizens of Britain voted to leave the European Union, they also knocked UK gaming stocks for a loop.

Here’s a sampling of companies and their declines since Brexit as of this writing:

William Hill -14.22 percent

Ladbrokes -13.82

Rank -12.06

888    -10.35

Paddy Power Betfair, though an Irish company that reports in euros, fell 8.62 percent, a reflection of its big exposure to the UK.

Interestingly, big American casino stocks have also been slammed even though they have no material exposure to the UK or the EU:

Wynn         -10.88 percent

MGM         – 7.56

Las Vegas Sands – 5.78

It’s almost as though investors were looking for a reason to scale back on gaming stocks, and Brexit was the opportunity.

Another way to look at the slam is in the gaming indices published by Fantini Research.

Here’s how the indices did on the two days after Brexit compared to broader indices:

Fantini North American -10.02 percent
Fantini World                 – 9.70
Fantini Interactive          -14.15
Hang Seng                     – 3.06 
Dow Jones                     – 4.82
S&P 500                         – 5.32
Footsie 100                   – 5.62
Nasdaq                          – 8.42

Clearly, gaming got the worst of it, with even as removed a sector as North American gaming performing worse than London’s owned Footsie 100.

Gaming stocks outside the UK have since recovered some of their losses but, as seen with the casino big caps above, they remain well down.

So where do we go from here?

The gaming stock declines outside the UK look more like a correction than a cause for worry.

Certainly, for Las Vegas Sands, MGM and Wynn, the opening of their next Macau resorts will have a far greater impact on their stocks than what happens in Britain.

To date, new Macau casinos have not lived up to hopes that they would both stem the decline in gambling revenue and light a fire under the mass-market business, drawing tourists in the same manner as Las Vegas.

Indeed, Melco Crown’s StudioCity, seen as the poster child for the new approach, has so disappointed that the company that boasted the new property had no VIP tables is now thinking of adding them.

LVS and WYNN say they will be different.

LVS says the Parisian, with its half-size Eiffel Tower, will be immediately iconic and will draw tourists just like Venetian attracted them to its canals.

WYNN expects Wynn Palace to be a true palace that will be the first choice of the affluent and the high rollers.

We’ll see soon with Wynn Palace opening in August and Parisian in September.

MGM Macau will open early in the first quarter and the hope there is based in large part on scale—the property will more than triple MGM’s capacity in the market.

British stocks are another matter. Certainly, whatever happens to the pound sterling could distort financial results.

But operationally, UK gamers might not be affected as their online operations are technically headquarters outside of Britain.

One fly in that ointment could be Gibraltar. It isn’t part of the UK, but it is a British protectorate. If the EU decides Gibraltar must leave with Britain, it could force UK online gamers based there to relocate their headquarters.

Only one UK online company—Bet365—is headquartered in Britain and surely will have a decision to make.

Otherwise, the real question of effects of Brexit on UK gaming companies might have to do with the state of the British economy. And that, Brits effectively said by a 52 percent to 48 percent vote, is something they have confidence in.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.