We’re about to close out the calendar year, which normally is a time of reflection. But reflecting on 2020 isn’t too appealing. At the risk of using too technical a term, this year sucked.
Or at least it sucked if you’re a bricks-and-mortar and/or value investor.
But if your investments had a sports betting or iGaming angle, it was full speed ahead amidst the tempest.
More importantly, 2020 matters mostly for what it can tell us about 2021, because, as investors, the only question is about the future: How can we make money?
Here are some thoughts for the New Year:
- Covid-19. The pandemic will fade and life will normalize, as it does. A complete return to normal, however, is unlikely until 2022. After that, look out—it could be gangbusters.
- The economy. The biggest challenge for President-elect Joe Biden will be to not mess up a good thing. The reality is, pandemic aside, the underlying economy is strong. The big question is whether Biden can resist the pressures from within his party to spend wildly and feed forces that can undermine the economy.
- Las Vegas vs. regional casino operators. The conventional wisdom is that regional markets will recover more quickly than Las Vegas. But that phenomenon perhaps already is largely played out. By sometime in 2021, regional markets will have normalized, and it will be Las Vegas’ growth that continues to accelerate.
By the second half of next year, if stocks are trading on 2022 expectations, Las Vegas-centric stocks might accelerate faster, too.
It’s no secret that I’m a fan of Golden Entertainment. In the environment mentioned above, reasonably valued Golden stock could benefit most as it enjoys the best of three worlds—the return of regional gaming, the Las Vegas Strip rebounding and the continued population growth of southern Nevada.
- Sports betting and iGaming. It’s also no secret that I have more modest expectations on the revenue potential of U.S. digital gaming. However, digital will become a huge market, regardless of whose forecasts prove true.My guess is that the stocks of land-based gaming operators and mixed-product suppliers have already gotten a good deal of the benefit they can expect over the next year or two. The way to go in the near future might be the relatively small pure-play companies focused on profitability that haven’t reached outrageous valuations—namely the soon-to-be-public Rush Street Interactive and Golden Nugget Online.
- My other expectation: As in the early years of riverboat casinos, there are lots of companies entering the space, many with few resources. As in that era, this presents investors with high-risk, high-reward opportunities to find the Ameristars of the digital world. Or to find the new Harrah’s or Penn Nationals, which grew by scarfing up the little guys that couldn’t make it.
- Selling picks and shovels. As with the gold rush analogy, the digital companies that most benefit might be technology providers such as IGT, Scientific Games, or among pure-plays, Kambi and GAN.
- Gaming technology. Slots are not so hot, as the benefits of new casino openings are likely to be offset by operators reducing the number of machines at their properties.
But gaming technology companies still have a bright near- to mid-term outlook as they grow with the digital world for IGT, Sci Games, Intralot and Pollard Banknote as lotteries go online.
Talking about lotteries going online, newly public NeoGames is a name we might soon routinely see mentioned along with its bigger online lottery competitors.
- SPACs are here to stay as a productive way for companies to go public. Matt Davey, whose SPAC Tekkorp is seeking a gaming technology merger, explains the advantages of SPACs in this video interview I conducted recently:
