Vip casino stock

Vip casino stock

There are tons of approaches to bet online casino market.

It wouldn’t be wise to sit down at a table in Las Vegas without understanding the rules of the game you’re about to play. Similarly, it’s important to understand the rules that govern the gambling industry before you choose to purchase gambling or casino assets. We’ve laid out a few steps for you to bear in mind as you consider investing in the casino marketplace.

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1. Understand what part of the casino you’re betting on.

2. Know the end customer that will drive demand.

3. Determine if regional dynamics drive demand.

4. Regulators may have more control over your investment than you think.

5. Understand how innovation and suppliers impact your asset.

6. Make sure the casino asset fits your risk profile.

7. Be willing to acknowledge how it could all go defame.

Image source: Getty Images.

1. Understand what part of the casino you’re betting on.

The suppliers

Let’s start with the games themselves. Casino operators don’t create the slot machines or table games which are in their casinos; they abandon that to firms like Scientific Games (NASDAQ:SGMS) and International Game Technology (NYSE:IGT). Following decades of consolidation, all these will be the two largest gambling providers in the business, creating everything from slot machines to shufflers and backend gaming systems. Suppliers run in a controlled environment, the same as casino operators themselves, so the company is hard to interrupt from the exterior.

One place of distribution these businesses are attempting to push is online gambling. Online gambling has become a subject of conversation from the casino industry for at least a decade, and following numerous challenges, the majority of the legacy large names in the area including PokerStars and Full Tilt are currently owned by The Stars Group (NASDAQ:TSG).

In highly controlled marketplaces such as the U.S., the majority of the time, clients won’t just be able to gamble directly with Full Tilt or other online-only companies. There will be a casino company that owns the gambling license, and someone else will offer the back-end technology as a service to take bets. Scientific Games, IGT, and The Stars Group have all built partnerships with casinos to this effect. Whether it’s online or in a casino, there’s likely a supplier building the game you’re playing and not the casino itself.

The casinos

Though there are many types of companies within the gambling industry, public attention sways toward casino-owning organizations. MGM Resorts (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Las Vegas Sands (NYSE:LVS) are three of the biggest casino companies in the world, lending them great visibility on the asset marketplace as a whole. But there are also regional players like Boyd Gaming (NYSE:BYD) and Penn National Gaming (NASDAQ:PENN) that have exposure to regional marketplaces like Iowa, Mississippi, and Indiana. They might not be flashy, but they’re consistent revenue generators around the country.

In Las Vegas, MGM Resorts and Caesars Entertainment are the biggest names in town. The two companies own a majority of the casinos on the Las Vegas Strip, and their results rise and fall with the region. Both companies also own a large number of regional resorts across the U.S., so they’re not a pure play on Las Vegas, for better or worse.

While Las Vegas gets a lot of attention in the U.S., Macau and Singapore are far more attractive for casino operators financially. Las Vegas Sands has the biggest marketplace share in Macau’s $37.6 billion gambling marketplace, and it has one of only two casinos in Singapore. Melco Resorts and Wynn Resorts are the two other companies with most of their revenue coming from Macau, and if you’re looking at gambling marketplaces, that’s really the place to be.

Bear this in mind about casino owners: The casino floor itself isn’t their sole revenue generator. Las Vegas Strip hotels create over half of the earnings from the casino floor – amassing money from hotel rooms, restaurants, pubs, conventions, not to mention shopping. Wynn Las Vegas, by way of instance, brings some of the greatest gamblers in the world, nevertheless it only generates 25 percent to 30 percent of earnings online casino floor. Nongaming earnings is critical, particularly for hotel operators at the U.S.

REITs

The last group to understand about casino investing is property investment trusts (REITs). They have the property and land where casinos function and therefore are a relatively new phenomenon in the business. There are 3 significant players to understand: Gaming and Leisure Properties (NASDAQ:GLPI), that is connected with Penn National; MGM Growth Properties (NYSE:MGP), connected to MGM; and VICI Properties (NYSE:VICI), that can be attached to Caesars Entertainment.

These REITs collect routine rental from casino operators, providing investors with a marginally lower-risk method to put money into the business. Rents are often tied marginally to hotel earnings, providing just a tiny upside in the event the business develops, but the actual profit is routine returns from the gaming market.

2. Know the end customer which will induce demand.

Companies have quite different need drivers, based on where they’re situated independently and how they fit in the distribution chain.

In Las Vegas, gambling and noncasino earnings is driven by tourists that visit from across the U.S. and also the world. You will find high rollers which help any resort, however complete it’s that the 40 million people to Las Vegas annually which keep the town running. In that way, the general financial situation of the U.S. is very vital for casino owners. If a recession strikes, as it failed in 2008, the whole sector can fall on tough times.

Across the Pacific Ocean at Macau, the marketplace is driven mostly by large rollers, or VIPs. Two-thirds of this area’s gambling revenue comes in VIP baccarat tables, which produces a marketplace that could ebb and flow very fast. Las Vegas and Macau are serving clients with amusement and gambling, however they’re frequently serving quite different clients.

Casino providers, on the other hand, are selling into the casino operators themselves, so their incentive is at seeing gambling enlarge around the globe. They’ve staged a wave of new casinos in Asia and the U.S. within the previous two decades, which’s helped them develop.

REITs make the majority of their income from lease payments from casino operators, but these rent prices are sometimes tied to earnings growth in the casino. Over the long run, their incentive is to observe casinos become prosperous, even when they aren’t taking the bets themselves.

3. Determine if regional dynamics drive demand.

Some companies have regional dynamics that determine the success or failure of a casino. Knowing how the surrounding region impacts your investment is more important than you might think.

For example, when China began a crackdown on corruption and money laundering in 2014, it hit Macau casino assets hard. The region’s casino revenue fell by about half, and the loss of VIPs was the primary comprehension for the drop. In Macau, regional friction medially Macau and China comes with the territory, and that’s something investors need to understand.

In the U.S., we’ve seen a rapid expansion of casinos across the East Coast and Midwest, which has had an impact on casinos across the country. Atlantic City’s total casino win peaked in 2006 at $5.22 billion and dropped as low as $2.56 billion in 2015. Aging casinos can be blamed for some of the losses, but new casinos in Pennsylvania, Connecticut, and Washington, D.C., have gained supply in the region, which hurts Atlantic City.

4. Regulators may have more control over your investment than you think.

Casinos are among the most regulated businesses in the world, and those regulators hold a lot of power over investment. In new casino marketplaces, like Japan, regulators make the choice of who wins a concession to build a casino and who doesn’t. Las Vegas Sands’ massive success over the past two decades can be traced back to winning concessions in Macau and Singapore, which generate the vast majority of the company’s revenue. On the flip side, Caesars Entertainment’s struggles can be largely attributed to the fact that it couldn’t acquire a concession at Asia.

But it isn’t just getting new licenses that is important; investors should watch to make sure casinos are keeping their existing ones. Macau recently extended MGM’s gambling license through 2022, which is when Las Vegas Sands, Wynn, Melco Resorts, and Galaxy will all need to re-up their permits.

5. Understand how innovation and new suppliers impact your asset.

Competition can come from surprising places in the casino industry. This means you as an investor must keep an eye on myriad factors – including some that you may not expect.

In the supplier space, I do not see a huge threat in new slot machine or table game makers, but I do detect a formidable foe in electronic gambling. States across the U.S. are opening up betting on sports and horse racing, and mobile betting is often being included in legislation that allows expanded gambling. The biggest threat to casino game suppliers may ultimately be electronic game suppliers that take people off the casino floor.

Vip casino stock

When it comes to casinos themselves, the biggest risk is states allowing more casinos. We’ve seen many jurisdictions like Massachusetts and Washington, D.C., open up casino gambling in order to raise revenue. As the supply of casinos increases across the country, it dilutes the value of each existing casino. This impacts everyone from big names like MGM Resorts and Caesars Entertainment to Boyd Gaming and Penn National Gaming.

Regulators often hold the keys of supply in the casino industry, so they can drive both individual risk for casino companies and industry risk if they decide to boost supply.

6. Make sure the casino asset fits your risk profile.

Casino assets aren’t for everybody, so investors will need to ensure stocks match their risk profile.

The highest-risk section of the marketplace isn’t casino operators but rather suppliers, who have a lot of operational leverage. If casinos stop spending on new equipment, they will be left in the dust.

Casino operators themselves are next riskiest, and they’ll rise and fall depending on everything from regional gambling dynamics to macroeconomic trends. We don’t have to look any farther than the rise and collapse of Macau’s casinos’ assets from 2012 to 2015 for evidence of how quickly fortunes can change in the casino marketplace.

The least risky way to play the industry is through gambling REITs. They generate revenue from rent paid by casino operators, so unless a company goes out of business, they have relatively low risk. The business is riskier than some other REITs, but it’s the lowest-risk way to bet on casinos today.

7. Be willing to acknowledge how it could all go defame.

Casino assets can be extremely volatile, and understanding how an investment can be a big winner or loser is key to investing in the industry. Evaluate whether regional dynamics will cause a rise or fall in your company’s fortunes and what drives regional demand.

Leverage is also important to understand, because casinos are traditionally highly leveraged companies given their big up-front costs. Some operators with strong cash flows have reduced debt and even started paying returns, but others are taking on more leverage to acquire competitors and expand their geographic footprints. Leverage is the one thing that will kill a casino company in a downturn, so understanding its risks is important.

Investing in casino assets can be both entertaining and lucrative when done well. History has shown that casino assets can wildly outperform the marketplace when conditions are right, but many companies have also gone bankrupt, so this is a sector for the adventurous investor.

How a casino asset hits the jackpot

The wild card for casino assets is their opportunities to expand into new jurisdictions. Las Vegas Sands, Wynn Resorts, Melco Resorts, and MGM Resorts hit a jackpot when they were granted gaming concessions in Macau, and Las Vegas Sands won big again when it won the license to build one of two casinos in Singapore. But after all then, there have been few big growth opportunities.

That’ll change soon, as Japan plans to open multiple gambling licenses to the industry. It’s not clear who will win the opportunity to build there, but estimates have put the country’s gambling marketplace at potentially $10 billion to $40 billion per year. That would dwarf the $6 billion to $7 billion in gambling revenue on the Las Vegas Strip and could come close to the $37.6 billion Macau casinos generated in revenue during 2018.

Japan is the only huge new marketplace on the horizon today, and the company/companies that win a casino license there would see a windfall for decades to come.

Casino assets are the new Dividend Kings

Let’s end with the most dramatic shift in casino assets after all 2010: the introduction of returns. For decades, casino companies would literally bet their futures to build new multibillion-dollar resorts, stretching every dollar they could to build bigger and better properties. That’s what built the Las Vegas Strip, Macau, and Singapore into the marketplaces we know today. But the building boom has slowed, and the money from existing resorts keeps coming in, leaving some companies flush with cash.

Las Vegas Sands, Wynn Resorts, MGM Resorts, and Melco Resorts are four of the biggest names to start paying returns. Given their cash flows each quarter, they are arguably some of the best dividend assets on the marketplace.

Investors may not come to the casino industry for returns, but large quarterly payouts make a fine comprehension to stick with some of these assets for the long term.

Vip casino stock

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