We’re far enough into the fourth-quarter earnings season to get some sense of where things are going for the gaming industry in 2023.
But the answer for the brick-and-mortar world is that we still don’t know.
The trends seen in the previous quarter still hold true—better customers are still showing up. Las Vegas bookings for both individual customers and corporate business are still strong. The big Las Vegas events calendar for the next 12 months remains the calendar.
There is cautious optimism that regional markets can maintain their good health. Macau is rebounding nicely as China reopens. Companies continue to improve balance sheets and reduce leverage ratios in the best way—cutting debt.
However, companies in other consumer-discretionary industries are issuing cautious guidance, even reducing sales and earnings forecasts. The Fed appears determined to continue raising interest rates to slow the economy if not throw it into reverse. That raises reason for concern that the good times in gaming could come to an end later this year. After all, what’s bad for retailers and realtors can’t be good for craps tables and slot machines.
However, in a dynamic world, there is always good news somewhere. In gaming, the good news is in the digital realm—online sports betting and iGaming.
Participants in that space appear to be finally showing that they have learned that they can capitalize on the industry’s rapid growth and potentially enormous market without abandoning economic common sense.
Consider:
- DraftKings, the poster child for being, well, a child, is showing signs of more mature and chastened management.
- Caesars, always promised to be the adult in the room when it comes to promotional spending, is proving it.
- Media companies like Catena and suppliers like Kambi are demonstrating they can grow in a healthy way too.
DraftKings has continued to raise its financial guidance as it has cut promotional costs with the result that being EBITDA positive is now on the horizon.
Caesars continues to hold to its position that iGaming will produce 50 percent-plus margins on investment over time.
For those companies, and a number of others in the online space, the surface is just being scratched as markets mature and with big new jurisdictions like Ohio and Massachusetts in their infancy.
As always, each company is its own story and must be examined individually. But the overall point is that, while brick-and-mortar industries worry about recession, online gaming operators are in a period of sustained transformational growth.
In some ways, this time is analogous to the late 1990s, when the great enthusiasm over gaming’s geographic expansion in the U.S. had been washed out by money-losing revenue growth.
That period ended in an era of consolidation (Harrah’s, Penn National as examples of acquirers) and survivors fit to grow (think Ameristar, Pinnacle).
It should be noted that that era coincided with the dot.com bust that led to an overall bear market. However, even in that period, gaming stocks rose.
We suspect we are at or near the same stage in regard to digital gaming in the U.S., and, like then, the overall market could decline if a recession comes while the well positioned gamers rise.
