FANTINI’S FINANCE: Reflecting and Projecting

As we approach the end of the year, the time has come to look back at notable developments from 2024 and project ahead to 2025.

FANTINI’S FINANCE: Reflecting and Projecting

We officially have entered into the holiday period. Historically, this is a time when, barring exogenous surprise, stocks behave well and investors start looking into what the new year will bring.

In the U.S., investors will be looking at every announcement, pronouncement, hint and appointment by Donald Trump to try to determine the investment environment for 2025. In addition, concern that inflation could remain stubbornly high and upset chances of lower interest rates jeopardizes interest-sensitive stocks and the outlook for mergers and acquisitions.

But generally, we’ve entered that time of the year when many investors turn to reflection rather than reaction.

In that spirit, here are a few longer-range thoughts:

  • Brick-and-mortar gaming is no longer a growth industry in the U.S. Gaming has reached the stage of what might be called infill – put a casino or two in a state like Nebraska, convert the last riverboats into land-based casinos, complete the buildout of the occasional new jurisdiction like Virginia.

Otherwise, there isn’t much growth. Casino executives on third-quarter conference calls used the term “stabilized” to describe business trends. That is a euphemism for flat. And in a world of three and four percent compounded inflation, flat means effectively down.

  • iGaming is masking the weakness. Combined gaming revenue is rising, but only when factoring in digital.

Deutsche Bank equity analyst Carlo Santarelli says the debate over the impact of digital gaming on brick-and-mortar is over. As he pointed out in a recent note, brick-and-mortar gaming revenue has been basically flat in states with iGaming compared to 8 percent growth elsewhere.

The best recent example might be New Jersey. October brick-and-mortar revenues fell 8.5 percent while iGaming rose 28.1 percent; and online casinos are now bigger than physical casinos as revenue totaled $213.6 million in the month vs. $208.7 million for land-based.

  • But for investors, iGaming remains a mixed bag. Online betting, especially sports betting, has not been a big contributor to bottom lines and many companies still lose money on digital as they fight market share wars.

The poor results extend to the so-called pick-and-shovel plays such as affiliates and game providers, though there are positive exceptions such as Gambling.com and the data providers, Sportradar and Genius Sports.

  • Las Vegas. Can it grow to the sky? The conventional view is that Las Vegas is the exception, but a lot of Sin City’s recent robustness has been built on non-recurring events.

As examples: There was only one inaugural F1 race. This year, the event will be a money-maker, but maybe less so than last year. There will be no Super Bowl in 2025 or later.

We agree that Las Vegas should continue to grow, both in tourist and locals markets, but that growth may be more steady than spectacular.

  • Expansion may not be so expansionary. The legislative story of 2024 was the dearth of gaming expansion. That may prove true again in 2025 and 2026. Indeed, there might even be some retrenchment as states rein in what could be seen as the dangers of online gaming to youths and those susceptible to gambling addiction or abuse.

So there are still states to dream on, like Texas casinos and California iGaming, but don’t bank on them.

  • Over there. The growth excitement is in lands beyond the seas. Brazil opens iGaming on New Year’s. Las Vegas Sands and Genting Singapore are pouring several billions into Singapore expansions. Developers are investing billions in the United Arab Emirates and hope to spend more. Thailand may come calling. South Korea and the Philippines are open for investment. Macau operators invest more and more to keep the government happy.

Obviously, each of these nations present different opportunities and challenges. For now, we’ll simply label them high risk, high reward, and advise caution.

So to what opportunities does this lead? Two thoughts on general areas:

  • Total return may beat growth. Give us tangible returns, as in meaningful dividends accompanied by steady free cash flow growth.
  • Look for gaming tech companies that can help casinos operate more profitably in a slow or no-growth environment, whether through labor costs, operating efficiencies or marketing, whether from electronic and smart tables to cashless to artificial intelligence.

Articles by Author: Frank Fantini

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

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