The fourth-quarter earnings season is now over and we may have more questions raised than answered.
There are several reasons for the uncertainty, starting with a new U.S. president who from moment to moment—literally in many cases—says conflicting things, with his only consistency being a compulsion to insult others from news reporters to fellow heads of nations.
Trump leaves many wondering whether to take him seriously but not literally, as his supporters do, or literally but not seriously, as his opponents do.
Regardless of where one stands on Trump’s ultimate success or failure the one certainty is that he has created uncertainty. The big fears are recession and reignited inflation. The big hopes are that he rights a U.S. economy jeopardized by the easy but flawed feel-good-now policies of his predecessors.
So that is the environment that the gaming industry has to deal with but can’t control.
All of that aside, gaming has its own uncertainties.
One big question is how brick-and-mortar casinos will fare. The industry has been built upon the assumption that Las Vegas will grow forever and that new and continually liberalized regional markets are a growth investor’s dream.
But Las Vegas growth might not be as dynamic as in years past, whether because of diving consumer confidence or Trump’s rhetorical war on Canada will keep away numbers of Canadians, the city’s biggest international feeder market.
Casinos also face rising costs thanks to more expensive labor contracts added to general inflation.
The response to date has been to raise fees on customers while cutting back services. Initially, such actions, many taken in response to Covid, dramatically raised profit margins and casino executives swelled with pride at their accomplishments. But that cycle has now passed, and the more imminent question may be whether giving customers less while charging them more is a wise growth strategy.
For the big Las Vegas casino operators one answer for growth is to go elephant hunting: MGM Resorts in Japan, Wynn in the Middle East and Las Vegas Sands (LVS) in South Asia, as examples.
Whether any or all of their multibillion-dollar projects will pay off is yet to be seen, though we should know more about Macau for LVS this year as its seemingly perennial projects finally come to completion, and in a couple years for Wynn in Dubai.
Regional markets appear split: digital gaming is growing double-digits, but at the cost of cannibalizing the mostly mature brick-and-mortar businesses.
Of course, some of the brick-and-mortar operators also run digital operations, though with mixed results. At this point, there is a nascent but growing belief that Penn Entertainment should get out of its ESPN Bet deal and focus digitally on iGaming. Caesars, as perhaps a case in point, is steadily progressing on making digital a significant contributor as it focuses on profitability, not market share.
Digital today appears similar to regional gaming a generation ago. Underlying growth drew a lot of players and now clear winners have emerged, namely pure plays like Flutter and, though not yet as bottom line oriented, DraftKings.
The biggest digital winners might not be the operators, but rather the data companies that serve the whole industry, from gambling operators to regulators to sports leagues.
As of this moment, Sportradar stock is soaring on strong earnings. Genius Sports likewise has had a strong run since reporting fourth-quarter results.
There is legitimate question about whether legislatures and regulators will rein in iGaming in various jurisdictions, though the bias remains for growth. But one thing is certain, in any environment, data will be in demand.
