With Thank-Goodness-2020-Is-Over now well behind us, here are some thoughts for 2021:
- The Biden presidency means that ideologically driven attacks on gaming will end. Specifically, the U.S. Department of Justice will not pursue the last administration’s view that the 1961 Wire Act bans all interstate online gambling.
In other words, the way is clear for states to continue legalizing online casino games, lotteries and sports betting—not that they weren’t acting on that basis, anyway.
Likewise, investors can have more confidence that the iGaming and sports-betting plays that have benefited to date will continue to benefit.
Tribal gaming will also benefit. The Biden administration won’t try to stymie efforts by tribes such as the Mashpee Wampanoags, who want to build a casino in Taunton, Massachusetts. With Native American Deb Haaland as secretary of the Department of Interior, a more friendly government is practically a given.
In addition, a Democratic Congress and the Biden administration are more likely to provide legislation as needed to clarify Indian gaming rights. We might finally get the so-called “Carcieri fix,” for example, which would assure that tribes given federal recognition by the Interior Department will have gaming rights, just as those cited in the 1934 Indian Reorganization Act.
- Covid-19. The pandemic will fade and as it does, life will normalize. A complete return to normal, however, is unlikely until 2022. After that, look out. It could be gangbusters.
There are risks of a mutating virus and obstacles to expeditiously achieving herd immunity. But the chances of more extensive lockdowns should diminish as policymakers have a greater understanding of the harm that universal or lengthy lockdowns create, and as more therapeutics are developed and used.
For investors—many of whom are eager to jump back in ahead of full recovery in the underlying businesses—the greater risk might be understanding if and when stocks get ahead of themselves.
- The economy. The biggest challenge for President Biden will be to not mess up a good thing. The reality is that, pandemic aside, the underlying economy is strong. Whether Biden can resist the pressures within his party to spend wildly and feed forces that can undermine the economy will be the big question.
- Las Vegas vs. regional casino operators. The conventional wisdom is that regional markets will recover more quickly than Las Vegas. However, that phenomenon perhaps already is largely played out. By sometime in 2021, regional markets will have normalized, and it will be Las Vegas growth that continues to accelerate.
By the second half of the year, as stocks trade on 2022 expectations, Las Vegas-centric stocks might accelerate faster, too.
It’s no secret that I’m a fan of Golden Entertainment. In the environment mentioned above, Golden’s stock should benefit as it enjoys the return of regional gaming, a Las Vegas Strip rebound, and the continued population growth of southern Nevada.
Red Rock Resorts and Boyd Gaming will benefit from the same dynamics, with Boyd also benefiting from its geographic diversity and the proliferation of sports betting.
- Sports betting and iGaming. It’s also no secret that I have more modest expectations on the revenue potential of U.S. digital gaming. However, digital will become a huge market, regardless of whose forecasts prove true.
My guess is that the stocks of land-based gaming operators and mixed-product suppliers have already gotten a good deal of the benefit they can expect over the next year or two. The way to go in the near future might be the relatively small, pure-play companies focused on profitability that haven’t reached outrageous valuations, namely recently-gone-public Rush Street Interactive and Golden Nugget Online.
My other expectation: As in the early years of riverboat casinos, there are lots of companies entering the space, many with few resources. As in that era, this presents investors with high risk-high reward opportunities to find the Ameristars of the digital world. Or the new Harrah’s or Penn National, which grew by scarfing up the little guys that couldn’t make it.
- Selling picks and shovels. As with the Gold Rush analogy, the digital companies that most benefit might be the technology providers, such as IGT, Scientific Games, or among pure plays, Kambi and GAN.
Meanwhile, while much attention goes to iGaming and sports betting, there’s another gaming sector to benefit from the digital trends: lotteries.
Currently, nine states have iLotteries. That number is expected to reach 30 or more, much to the benefit of IGT, Scientific Games and Intralot.
Two small companies that have especially benefitted so far are newly public NeoGames and Toronto-listed Pollard Banknote, whose iLottery joint venture already serves four of those nine states.
- Gaming technology. Slots aren’t so hot, as the benefits of new casino openings are likely to be offset by operators reducing the number of machines in their properties.
But gaming suppliers have growth opportunities as they increasingly transform into true technology companies. They will provide more meaningful products and services to digital gaming as cashless gaming puts them into the growing electronic-payments space.
- SPACs are here to stay. SPACs are a productive way for companies to go public. Matt Davey, whose SPAC Tekkorp is seeking a gaming technology merger, explains the advantages of SPACs in this video interview I conducted recently: