Note: These are just the author’s thoughts, not official investing advice.
Uncertain times ahead
With rising costs of living, ongoing global conflict, and Donald Trump embarking on a battle with multiple countries over tariffs, there are fears that a recession could be on its way.
Several noteworthy financial indicators, like the Dow Theory, have turned negative in recent weeks, seemingly forecasting a downturn in our recent bullish run.
investors are getting itchy feet
With the S&P dropping 8% over the past month, investors seem to be getting itchy feet. Gambling companies, in particular, have been hit hard during this period, so we decided to look ahead and try to predict what might happen if recession fears turn out to be accurate.
Lower discretionary expenditure
A recession leads to people having less money for discretionary spending. This means cutting back on non-essentials like streaming subscriptions, vacations, and gambling. Recessions are often accompanied by job cuts, so every penny counts when someone is trying to keep food on their table and a roof over their heads.
That’s all made even tougher with the high cost of living America is currently experiencing, which is reflected by the annual savings rate of 4.6% in January 2024 compared to 19.3% for the same period in 2021.
The knock-on effect will be fewer visitors to gambling hubs like Las Vegas and Atlantic City, areas that are historically hit hard by recessions. After the Global Financial Crash in 2008, occupancy rates in Sin City plummeted from 90.4% to 80.4% over a few years. A similar trend was seen after the Dotcom Bubble burst in 2000.
Companies with significant exposure to these markets will be at particular risk of downturns. MGM Resorts International stands out due to its 20+ properties across the US, with a dozen on the Las Vegas Strip alone.
This includes properties like the Luxor that need major overhauls if they are to stay viable. MGM is spending upwards of at least $2.5bn for its part in developing Japan’s first integrated casino resort, so its purse strings are likely to be tightened. The company is already increasing parking fees and cutting costs by replacing staff with robot vacuum cleaners.
More of an online gambling reliance
While the demand for in-person gaming often drops in recessions, there might not be as significant of a drop-off among online gamblers. This is likely because people will trade their spending on travel to land-based casinos, food and drinks while there, and hotel stays for gambling from the comfort of home.
significant online operations can weather an economic storm better
Firms with significant online operations can weather an economic storm better. This is something that wasn’t a reality for US-facing casino companies in previous recessions, as online sports betting only became federally legal in May 2018.
With Americans betting more than $150bn in 2024, there will be plenty of appetite even in tougher times, as sports entertainment is always a constant for people no matter how the economy is doing.
Greater volatility
Gambling-related companies are often more sensitive to economic changes than other industries. That’s because they rely heavily on consumer spending and are an easy expense to cut if someone is trying to tighten their belt.
The release of concerning statistics regarding economic performance, cost of living, and unemployment numbers often leads to relatively bigger sell-offs for these companies.
On the other hand, if fears don’t become a reality and there is growing consumer confidence, the opposite effect is also true, with gambling stocks increasing sharply with more positive sentiment.
comes down to sticking with tried-and-tested companies with long-term viability
That means it comes down to sticking with tried-and-tested companies with long-term viability through strong fundamentals and a performing presence in the online sector.
