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Good for Gaming

Last year proved to be a healthy and prosperous year for gaming investors, but what about the worries as we enter 2020?

Good for Gaming

As of this writing, the year is drawing to a close, and U.S. stocks, including those of gaming companies, were about to conclude a healthy 2019.

The Fantini Index of North American Gaming Stocks, for example, is up 27 percent.

The rise about matches that of the broader indices that have danced at record levels, such as the S&P 500, Nasdaq Composite, Russell 2000 and of course, the venerable non-index, the Dow Jones Industrial Average.

This strength has come despite a stream of news and worries that in past times rattled stocks—fear of an oncoming recession, trade war and impeachment inquiries into the president of the United States.

It would not be unreasonable to say there is a complacence that may be the prelude to a comeuppance.

And yet, the statistical evidence shows little sign of the kind of froth that precedes a downfall, no less a bubble to be burst. The most important of them for the gaming industry, where consumer confidence and possession of discretionary income are essential, is employment, and that is booming.

There are other signs of the kind of economic strength to support consumer discretionary stocks: the higher home rental and for-sale housing prices, which seemed to be building to worrisome levels, appear to be slowing. When a report is released that sparks fears, such as a decline in durable-goods orders, the next month brings a bounce-back. Wages are growing, giving purchasing power and parity of wealth to consumers. And while incomes grow, inflation remains below targets, perhaps suggesting the targets are becoming anachronistic and a new balance has been struck between growth and prices in our increasingly technologized society.

Even the national political mood appears sanguine, despite the daily excitement over the latest Twitterverse hullaballoo or viral video or predictions of apocalypse from the talking heads of CNN, Fox News and MSNBC. Opinion polls show basically a public non-reaction to these tempests. Yes, people respond with anger, often self-righteous and hateful, but opinions are barely shaken.

One instance of shaken opinion has occurred—the dramatic drop in support for presidential candidate Elizabeth Warren since she revealed something approaching the true cost of so-called Medicare For All. Apparently, all the anger that spews out in social media and polls about young Americans embracing socialism dissipates in a common-sense reaction to a truly—to use one of the politicians’ favorite phrases—bold plan.

Nor is there sign of a bubble in stock prices, at least not in gaming stocks. Prices might be higher, but they’re supported by better earnings, more efficient management by casino operators and, as mentioned, financially healthy consumers.

Indeed, investors seem to be reacting rationally, in some cases even conservatively, to companies. While stocks overall are up by double digits, companies with profits growing sluggishly have stock prices that have moved sluggishly. For those who stumble, such as games provider AGS, the market has shown it can be punitive, cutting the stock in half despite a sound long-term story. Those are not signs of a bubble.

So what will the new year bring? On the consumer confidence front, 2020 is an election year, a natural time of optimism. The coming year could prove different depending on how the Donald Trump impeachment plays out, but there is no real precedent for a bear market based on impeachment.

A greater threat might be the economy bumping up against labor supply limits and inflation touched off by resultant higher wages, but wages have grown 4 percent in the past year with no apparent inflation.

In the gaming industry, the positive story isn’t just the economy. Mergers and acquisitions are supporting the stock prices of selling companies on higher valuations fed by REITs, while confidence that acquiring companies will slash costs is supporting their stocks.

And, of course, there’s sports betting, the topic of the year in 2019, which promises to be the topic of the year in 2020 too.

Already, 19 states have legalized sports betting, and others stand in the wings. In many cases, they include online wagering that, with the popularity of in-game betting, promises to make sports betting more than the minimally profitable amenity it historically has been.

One potential ramification to look for is legislative and regulatory action if wagering, and especially sports betting, is seen as becoming pervasive and a problem gambling risk. The continuing tightening of governmental policies in the U.K. may serve as an example of what could happen in the U.S., though there’s some belief that American gaming leaders are ahead of the curve in promoting responsible gaming.

Those cautions aside, in the final month of last year there appeared to be a lot of green lights, few yellow ones and perhaps no red lights.

However, before we get too comfortable in projecting a trouble-free 2020, one last thought: The positive conditions described above are the very components of complacence. And complacency can turn fatal.

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