The glitz and allure of “Sin City” (Las Vegas) is back in full force, according to the latest gaming reports from Nevada, and physical casino companies like MGM Resorts International (NYSE: MGM), Caesars Entertainment (NASDAQ: CZR), Sands of Las Vegas (NYSE: LVS), and Wynn Resorts (NASDAQ: WYNN) could be the beneficiaries. Hungry for excitement, Americans return to baccarat tables, roulette, $ 25 slots and blackjack games. Investors may want to take a closer look at the current situation and why traditional casino businesses could earn more than online gaming companies like DraftKings (NASDAQ: DKNG).
The situation of the game today
The Las Vegas gaming resurrection is in full swing, according to several reports released Sept. 30 by the Nevada Gaming Control Board and analysis provided in an email by senior research analyst Michael Lawton. Importantly, while gambling activity was brutally crushed by the pandemic lockdowns of 2020, current gains also exceed pre-pandemic levels. Lawton noted that “$ 1.2 billion in earnings” in August was “up 22.3% from 2019 and was the sixth consecutive month in which the state recorded $ 1 billion in earnings. monthly play “.
The analyst said some games fell month over month, but July, a “monster baccarat month”, was exceptional. An official gaming revenue press release estimates year-over-year gambling earnings growth in August at 56.9% statewide and 92.2% on the Las Vegas Strip, where many large casinos are concentrated. With figures from August to August 2019, the first eight months of the year are only slightly behind the first eight months of 2019, with sales of $ 2.4 billion in 2019, a hair ahead. 2021’s $ 2.3 billion. Lawton believes full-year transportation could outperform 2019.
What this means for MGM and the others
A surge in liquidity is coming to Nevada as the worst lockdown ends and pent-up demand is unleashed. Much of that bounty will end up in the coffers of casino companies after the long “money drought” of COVID-19 lockdowns. The extra money, in turn, will give Caesars, MGM Resorts and others the capital to further develop other aspects of their business.
One possible use of the windfall, besides deleveraging the debt accumulated during the pandemic, is to expand the business presence in online sports betting and casino betting. DraftKings attempts to acquire Entain (LSE: ENT), which would cut MGM Resorts’ online gambling platform BetMGM to the knees. However, MGM potentially has the contractual power to veto the deal or even buy Entain’s 50% stake in BetMGM, which is tentatively valued at between $ 3 billion and $ 6.6 billion by analysts at Bank of America. Even in the world of digital betting, the big casino operators can afford to challenge specialist companies like DraftKings on their own turf.
Additionally, as Macau experienced a weak September and intrusive new Chinese regulations could slow a rebound there, MGM Resorts is not standing still. He is working on launching a major resort town in the Japanese tourist destination of Osaka after receiving government approval. The $ 10 billion complex will not feature a casino but instead will offer restaurants, entertainment, spas, shopping, fitness, conferences and exhibitions, and tourism “as a world-class destination and gateway for the world to the wonders and rich history of Japan, ”according to MGM CEO Bill Hornbuckle.
Hornbuckle also noted in an Oct. 4 interview with Yahoo Finance that the plan has “considerable” profit potential. Rather than compete with 100 other licensees in the United States, he said, the company will have “the only license to be able to do this activity in this case for 19 million people “, an opportunity which he described as” quite convincing “. THe once again shows the multiplicity of trades of large casino companies as a strength, bypassing the difficulties by refocusing on an opportunity in another market.
Why casino stocks always look like a strong bet
Flexibility is the name of the game for MGM Resorts and other casino and resort companies, and this factor gives them an edge over single-goal sports betting companies like DraftKings. While DraftKings and Penn National Gaming (NASDAQ: PENN) can carve out a niche, they don’t have the leverage or the ability to create a digital revolution in the same way streaming services like Netflix did at the expense of the now bankrupt physical cinema company AMC Entertainment in another area of entertainment.
Having both physical and digital assets gives these businesses the ability to adapt to survive and thrive through various modes and disruptions. Regardless of the short-term temporary upheavals, the outlook for Las Vegas Sands, MGM Resorts, Caesars Entertainment and other leisure stocks appears to remain bullish for the long term. The strong return of gamers and their money to Las Vegas reported by the Nevada Gaming Control Board is part of this positive case.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.