For investors in gaming stocks, this period might be described as the shoe that never drops.
The Fed keeps raising interest rates and dire predictions of recession follow, but the recession doesn’t come.
Gaming revenues in some regional markets dip and investors hold tight waiting for the precipitous drop. But it doesn’t come, and important markets like the Las Vegas Strip and Macau surge.
Sleuths sniff through data for underlying weaknesses not shown in overall numbers, but the overall numbers continue to hold up.
Higher interest rates are supposed to take money out of the stock market as investors and savers seek safe returns in everything from bonds to money accounts, yet stock prices continue to hold up.
Approaching it from the other side, would-be bears search for ominous omens in rising wages, labor shortages, supply chain disruptions and just plain overall inflation, yet all of these obstacles seem to be met and overcome in the near term.
The talking heads of CNBC predict a hard landing for the economy, then a soft landing, to now, in many of their cases, perhaps no landing.
It’s all reminiscent of the old adage that you can make a prediction and always be right as long as you don’t put a number or a date to it.
We’re confident about one thing: At some point, there will be a recession and consumer discretionary stocks like gaming will drop. But we won’t put a number or a date to it.
TALKING ABOUT IMPENDING GLOOM
There’s something else we won’t put a number or a date to, but we’re confident will happen—regulation and laws that constrain the growth and profitability of legalized sports betting and online casinos in North America.
Understand, the operable word is constrain, not stop or reverse. More states will continue to legalize and recently opened states will ramp up.
There is a future for growth in revenues and especially in profitability as markets mature and promotional spending is reduced.
But, as readers of this space know, we think the old expression that trees do not grow to the sky applies to sports betting and iGaming.
The most recent examples of this trend are Ontario’s decision to bar athletes, active and retired, from sports betting advertising and of using celebrity endorsers who may appeal to minors.
Here, a bill in Congress would ban sports betting TV commercials.
And in the U.K., where public attitudes might long have settled on sports betting, the Social Marketing Foundation says the public mood is right for tougher regulation, in part citing a 2019 survey in which 29 percent of respondents said sports betting ought to be banned, not just regulated.
In this environment, the stealth winners may be the affiliate media companies that can develop and deliver proven gamblers to operators less expensively and controversially than by direct marketing.
REITS: A SOURCE OF CAPITAL
The headline was that for $100 million, Gaming and Leisure Properties (GLPI) is buying the land under the Hard Rock casino being developed in Rockford, Illinois, and will lease it back for 99 years.
But also important is that GLPI will lend up to $150 million at 10 percent interest for the development.
This is another case where GLPI, like fellow gaming REIT VICI Properties, is becoming a bank to finance tenant’s projects. In direct benefit to its primary mission as a REIT, these financings are loan-to-own deals giving them the rights to eventually own the future development.
But at 10 percent interest, it looks like the financing itself can contribute to GLPI’s profitability.
It’s just another example of how, in an uncertain world, the gaming REITs are about as certain as it gets.
