3 gaming companies to bet on
Given their size, reach and resources, these companies could dominate the sports betting industry which is projected to witness explosive growth.
Mentioned: Caesars Entertainment Inc (CZR), MGM Resorts International (MGM), Wynn Resorts Ltd (WYNN)
As lockdown restrictions ease and businesses reopen, professional sporting activities are starting to return to arenas. This bodes well for the sports betting industry that was growing exponentially until the coronavirus threw a wrench in the works.
Legal in the US since 2018, it's difficult to determine the size of the industry, but its growth prospects are undeniable. Estimates of the size of the sports wagering market vary significantly. Independent research firm Gambling Compliance forecasts the US betting market to reach anywhere between US$6 billion and US$8 billion by 2024. The market, according to Morgan Stanley, could be worth US$12 billion annually by 2025.
These gaming stocks are quickly moving to position their businesses to benefit from the burgeoning sports betting market. Given their size, reach and resources, these companies could dominate the sports betting industry which is projected to witness explosive growth on the back of legalisation, growth in popularity of international sports events, and advances in online gaming technology.
MGM Resorts International (MGM)
Price: US$21.66
Value: 28 per cent discount
Moat: None
Star rating: 4-stars
Data as of 2 October 2020
The largest resort operator on the Vegas Strip, MGM Resorts (MGM) boasts 35,000 guest rooms and suites. The Strip accounted for nearly half of MGM’s total EBITDAR in 2019. The company also operates the 56 per cent - owned MGM Macau casinos with a new property that opened on the Cotai Strip in early 2018. A property in Japan is expected to open in 2026.
More recently, MGM has been making a big push into the money-spinning sports betting arena. As part of that move, the company's sports betting platform, betMGM, recently tied up with professional American football team The Detroit Lions and followed it up with another deal with the Las Vegas Raiders as their official sports betting partner.
“In the US, MGM’s 21 casinos are positioned to benefit from an estimated US$6.2 billion sports betting market by 2024, generating about 4 per cent of the company's total revenue that year,” says a Morningstar equity report, adding the operators could benefit meaningfully as more states move to legalise betting over the next four years.
All of MGM's 21 domestic properties are expected to participate in this opportunity, says Morningstar equity analyst Dan Wasiolek, who pegs the stock’s fair value at US$30. He projects MGM's domestic revenue to drop 57 per cent in 2020, followed by an 84 per cent increase in 2021. “Over the next 10 years we forecast a 6 per cent to 7 per cent annual lift to MGM's domestic revenue, aided by its T-Mobile arena, professional sports, US sports wagering, and recent renovations,” says Wasiolek.
Caesars Entertainment Inc (CZR)
Price: US$56.83
Value: Fairly valued
Moat: None
Star rating: 3-stars
Data as of 2 October 2020
Caesars Entertainment (CZR) owns 53 domestic gaming properties across Las Vegas (45 per cent of 2021 estimated EBITDAR) and regional (55 per cent) markets. The firm also hosts 13 international properties. Caesars' US presence roughly doubled with the July 2020 acquisition by Eldorado.
Caesars recently agreed to acquire British-based gambling group William Hill for US$3.7 billion in a large bet on the fast-growing sports-betting market. Acquiring one of the world's leading betting and gambling companies could prove to be a fortuitous move for Caesars as it coincides with the acceleration of gaming legislation and growing adoption by consumers.
“Caesars offers investors attractive exposure to the US sports betting market, with its revenue in this industry expanding to nearly US$900 million in 2024, or around 8 per cent of total company sales,” says a Morningstar equity report, noting this is significantly larger than the US$500 million to US$600 million that rival MGM is expected to garner from the industry in 2024.
As a result of the acquisition of the legacy Caesars business by Eldorado, Caesars holds more than a 10 per cent revenue share of the domestic casino gaming market. “The acquisition roughly doubled the company’s US portfolio to 53 properties, while also lifting its loyalty membership over 60 million from 55 million prior,” says Wasiolek, who recently upped the stock’s fair value from US$53 to US$56, “to account for higher sports betting revenue from the company's California property in 2023 and beyond.
Wynn Resorts Ltd (WYNN)
Price: US$73.2
Value:33 per cent discount
Moat: Narrow
Star rating: 4-stars
Data as of 2 October 2020
Luxury casinos and resorts operator, Wynn Resorts (WYNN) owns four megaresorts: Wynn Macau and Encore in Macau (China) and Wynn Las Vegas and Encore in Las Vegas (US) The company also operates Cotai Palace in Macau and Encore Boston Harbor in Massachusetts, and has various Vegas projects currently under development. Wynn generates 76 per cent of EBITDA from Macau and 24 per cent from Las Vegas.
The firm is going all in on the sports betting market. It recently rolled out its digital sports-betting platform, Wynn Sports mobile app, muscling its way into the sports wagering playground. The company plans to expand Wynn Sports' digital sports betting offer to Colorado and Indiana in partnership with Scientific Games. More recently, Wynn tied up with GAN, an internet gambling software supplier, allowing the latter to provide the platform for Wynn’s online sports betting and casino gaming.
Longer term, though, the high-end iconic brand is well positioned to participate in the attractive growth opportunity of Macau. “Although the covid-19 outbreak is a headwind to near-term demand in Macau, we see solid long-term visitation and gaming growth for the gaming enclave, aided over the next several years as key infrastructure projects to alleviate Macau's congested traffic continue to come on line,” says Wasiolek, who recently lowered the stock’s fair value from US$112 to US$110, due to lower near-term revenue.