When you go to Las Vegas, it is best to understand the rules of the games you are going to try. Likewise, before choosing the purchase of casino shares or the purchase of gambling, it is recommended that you understand the rules of the industry.
If you are interested in investing in casinos, you should take the following steps into consideration before making a decision:
- Understanding the part in the casino where you bet.
- You must know who will drive the demand, that is, the end customer.
- Something very important in determining the dynamics of the region that will boost demand.
- Be prepared to allow regulators to take greater control of your investment.
- Understand how suppliers and innovation will impact your stock.
- You must make sure that your casino actions are going to fit the risk profile you have.
- There is a possibility that things go wrong, so you must be prepared to understand that.
Understanding the part in the casino where you bet
The casino games and the machines found in them are not developed by the operators of those casinos, this task is assigned to specialized companies such as ScientificGames (NASDAQ: SGMS) or International GameTechnology (NYSE: IGT).
These providers are the largest in gambling in the industry. They build everything, deep game systems, slot machines, shufflers and much more.
The way operators operate is always done within an environment that is regulated, as in the case of casino operators, which is why from the outside the business is difficult to interrupt.
All these companies want to enter an area that supplies them enough and this area is that of online casino games. These games have been in all the conversations of the industry for decades. And after many attempts, they have made many of the biggest and renowned as PokerStars and the great Full Tilt, now owned by TheStarsGroup (NASDAQ: TSG).
In spite of having many companies that are in this industry, the public puts its attention towards the companies that own the casinos.
Caesars Intenteiment (NASDAQ: CZR), MGM Resorts (NYSE: MGM) and Las Vegas Sands (NYSE: LVS) are the three most renowned casino companies in the world. This gives them great visibility within the stock market. However, there are players like PennNationalGaming (NASDAQ: PENN) and BoydGaming (NYSE: BYD) who are exposed to regional markets such as Mississippi, Iowa,and Indiana. Although they do not attract attention, they generate income that is consistent in the country.
You must know who is going to boost demand
Depending on the way they fit into the supply chain, or depending on where they are geographical, these companies may have different demand drivers.
For example, in Las Vegas, their tourists who go from all over the world are the ones that drive casinos, slots, Fortunium game, and gambling. Although there are big punters that can help at any resort, the vast majority that keeps the city running, are the masses of tourists who visit Las Vegas.
The economy in general, in the United States, has been of great importance for casino owners. In the event of a recession such as 2008, this industry could have very difficult times.
On the other hand, in Macao, which is on the other side of the Pacific Ocean, this market is driven by VIPs or high rollers. Two-thirds of revenues in the region are generated from Baccarat VIP tables. This helps to create a market that can flow and diminish rapidly. Sometimes Macau and Las Vegas serve customers that are different from those who are going to entertain themselves and play games of chance.
Something very important is to determine the dynamics of the region that will boost demand
The failure or success of the casino is determined by regional dynamics. Knowing how the region’s investment impacts your investment is one of the most important things to think about.
An example is the Macau casinos, which were affected in a very strong way when in 2004 China confronted money laundering and corruption. The income of the casinos in the region fell by just half, and the main cause of this fall was the loss of the VIPs. Due to the territory, there was friction between China and Macao.
Be prepared to allow regulators to take greater control of your investment
Regulators can exercise too much power in investment in casinos since they are very regulated companies.
In new casino markets such as those in Japan, these regulators are the ones who decide who will give the concession so they can build a casino.
Thanks to the winning concessions in Singapore and Macao, Las Vegas Sands has achieved massive success over the past two decades; these concessions are what generate much of that company’s assets. On the other hand, Caesars Entertainment cannot win a concession in Asia; it is for this reason that their struggles are due.
Understand how suppliers and innovation will impact your stock
In this casino, industry competition can come from anywhere. That is why you, as an investor, must monitor many factors, even those that you cannot expect. As for the suppliers, these do not pose a threat in the manufacture of table games or slot machines, but you have to be aware of Electronic games A threat may be the providers of electronic games, which could take people out of casinos, to bet on sports and horse racing. Mobile bets sometimes allow the expansion of games by being included in the legislation.