Sports Gambling Outlook
THE LONG TIME OUT IN SPORTS GAMING:
Winners & Losers
(Visitors are turned away from the entrance to the MGM Grand in Las Vegas, which was closed by Gov. Steve Sisolak’s orders on March 17.)
The coronavirus pandemic has thrown the country into a personal and financial abyss like none other witnessed by generations of Americans, from the bombing of Pearl Harbor to the terrorist attacks on New York City and Washington, D.C., from cliff-diving days on Wall Street to periodic years of recession.
COVID-19 has virtually shut down businesses across the globe. It’s an unparalleled situation and we must help each other as much as possible to prevail over these unforeseen challenges.
How the United States and other countries rebound from this crisis is as good of a guess as the final death tally resulting from the virus.
Few industries have been hit harder than gaming, which took a two-fisted slam from closures of casinos and suspended sports seasons and cancelled sporting events.
Despair begets hope, and with it comes opportunity. In states that have seen tax revenue plummet as millions of Americans self-quarantine at home, spending only on necessities, legislators may be open to fast-track approval of legalized sports gambling.
Howard Jay Klein, gaming analyst and publisher of The House Edge casino investment site, sees a burst of sports betting legalization across the United States in the aftermath of the virus.
“It will be driven by officials desperate to replenish the disastrous depletion of state coffers by the virus pandemic,” Klein said on Seeking Alpha. “It will benefit from the starvation diet sports bettors are now subsisting on until play resumes. Once the spigots are open, we see sports betting moving to 24 states from its current 14 within the next year and a half.”
Interest in legalized sports betting began ramping up following the U.S. Supreme Court’s 2018 landmark decision in Christie v. NCAA, which struck down the Professional and Amateur Sports Protection Act.
Michigan and Illinois launched regulated sports betting in early March, then had to suspend operations due to the virus, losing out on the NCAA tournament, the Masters and NBA playoffs.
Klein believes Caesars Entertainment (CZR) and Eldorado Resorts (ERI), which had agreed to a merger prior to the virus outbreak, are poised to benefit from legalized sports betting. They had good positioning with sports betting partners before the virus hit, and the new company will become a national player in the space, he said.
However, the $17.3 billion merger could be jeopardized by the coronavirus fallout. Caesars stock has dropped 52 percent from a year ago to $6.46 as of April 2, while Eldorado is down 82 percent to $10.67 over the same period.
Caesars furloughed 90 percent of its domestic workers in the wake of Nevada Gov. Steve Sisolak shutting down the Strip on March 17. For the first time in Nevada history, casinos went dark.
U.S. unemployment claims skyrocketed to 10 million in March, and many people and small businesses are relying on the government’s $2.2 trillion coronavirus relief package to get through the coming months.
With all casinos and hotels in Las Vegas and many other regions on lockdown at least through April 30, industry stocks have been slammed, down 50 percent to 80 percent. Many of the players are resorts or hotels that are highly leveraged, although many have slashed variable costs.
Following conversations with casino industry executives, we estimate that total operating expenses are down to 25 percent to 30 percent of pre-corona levels.
The operators with the highest leverage have suffered the most and many may be part of the list of beneficiaries of the $21 billion relief package requested by the industry. Meanwhile, they are on the hook for massive debt payments.
While sports gamblers desperate for action occupy themselves with nontraditional activity – betting on Turkish soccer, virtual horse racing, table tennis, esports and even weather conditions – the estimated $150 billion global market opportunity awaits the “green light” and could be a major rebound play for investors to benefit from pent-up demand.
South Point hotel and casino owner Michael Gaughan isn’t so sure about the impetus of the economic downturn on legalized sports betting.
“Only God knows what other states will do,” he said. “I don’t think this will speed sports gaming up.”
South Point was handicapping sports for six Indian casinos for a fee, and the sports book has implemented betting from mobile devices and in-game wagering, Gaughan noted.
The longtime Las Vegas casino owner is not bullish on the gaming industry, which has seen stocks drop across the board.
“But there are some gaming stocks that are undervalued at this moment that might be worth buying,” he added. “Sands? Boyd? Nobody really knows where we are going.”
Next report: Early risers: top picks for 2020-21
Sports Gaming Alpha Portfolio (12/31/2019 - 4/6/2020)
Singular Research Staff
Tags: Latest Updates