Bull & Bear: The New Year Edition

As we head into 2026, we enter a year of perhaps the greatest flux in governmental policy in memory.

Whether it’s the United Kingdom’s draconian increase in online gaming taxes, the arrival of so-called prediction markets in the United States or the varying policy initiatives by Australasian nations ranging from trying to develop the gaming industry for its economic development benefits to cracking down on gaming to combat problem gambling, gaming investors face a changing landscape that challenges their decisions.

At such an uncertain moment, it’s time to check in with our old friends Bull and Bear, who were called in by Quandary in December.

Quandary: Bull and Bear, I’ve called you in today because I’m anxious. I know this is the holiday season and we usually have a Santa Claus rally in the stock market, but I’m just uneasy…

Bear: … And you should be uneasy. Heck, you should be downright scared. Consumers certainly are scared, and consumer confidence is the key to the health of the gaming industry. Then you have all the big trends: a huge and spiraling government deficit, stubborn inflation and interest rates edging up despite the Fed’s latest cut.

Bull: Take it easy, Bear. The fact is, despite all of the surveys about worried consumers, they’re spending money and spending it beyond expectations.

Bear: Don’t be so simple-minded, Four Hooves. Consumers are spending more because prices are higher. The fact is, they’re making fewer trips to stores and buying fewer items.

Bull: But casinos haven’t raised the price of gambling, and regional revenues are up.

Bear: What do you mean? Ever hear of 6-5 blackjack? Parlay bets? Besides, brick-and-mortar revenues are up less than inflation. Growth isn’t keeping up with the rising cost of doing business, which means lower profits, or at least profits growing less than inflation, which means lower value for investors.

Quandary: But haven’t casinos done a good job of restraining costs and protecting margins?

Bear: Yeah. Now you can stay in a dirty room by opting out of daily cleaning services. Or you can walk down boarded-up hallways because restaurants are only open during peak hours. But don’t worry, they’ll slap on resort fees and early check-in fees and fees for breathing their air. Sure makes for a special experience, doesn’t it?

Plus, casinos can cut out buffets—oh, wait, they’ve already done that.

Bull: OK, enough, wise guy. You know all that growling about cutting services to customers is exaggerated. Let’s stay on topic: Casinos can still grow in opportunities like new markets and property upgrades like shifting from riverboats to land.

Bear: I’ll give you that, Bull. But those opportunities are relatively few and are a declining percentage of the overall business. So they just aren’t needle movers for big operators.

Bull: But not online. Revenues there continue to grow double-digits and jurisdictions are expanding. Witness Missouri just going live with sports betting.

Bear: Yeah, and you know what else is expanding? Taxes. There are more than a few jurisdictions considering higher taxes. And the industry keeps paying them and competing to be in high-tax markets like New York. And if you want to see the future, look at the astronomical increases in online taxes in the U.K.

Bull: Yeah, but what we’ve seen is the ability of gaming companies to mitigate the damage, offsetting 50 percent or more of the higher costs.

Bear: Mitigate? Know what that means? It means less bad, which still means bad. Mitigating 50 percent of the hit means still taking 50 percent of the hit.

Bull: Remember, there’s a big world outside of the United States where gaming is growing. This year it was giant Brazil going online. In 2027 it will be the United Arab Emirates as it debuts land-based casino resorts with Wynn. And now the UAE is also planning to allow online gambling.

Bear: Yeah, and the U.K. is implementing punitive taxes; India is cracking down on online gaming; even the Aussies are adopting gaming restrictions; and the Macau government keeps beating up its casinos to pay for non-gaming developments. So, there are international opportunities, but anyone who counts on governments anywhere outside of Nevada to be reliably pro-gaming for the long term is foolish.

Quandary: Bear, you sure make a convincing argument. Are there opportunities somewhere in this space?

Bull: I’ll try for a final word, and it’s yes. There are opportunities. But you have to be selective. Just remember that age-old rules apply for long-term investors: Buy best-of-breed companies with clear growth strategies and opportunities.

They still exist in gaming. Wynn Resorts among destination casino resort operators and Red Rock Resorts among regionals come to mind. Or on the less growthy side is Monarch Casino. And there are others. Look at things from a customer’s perspective.

Ask yourself: Is that a well-maintained property with an upbeat atmosphere where they treat me right? Be a little Peter Lynchish: Buy what you know from personal knowledge. That isn’t complex financial analysis, but it is a starting point to find candidates for that analysis.

Quandary: Bull, that makes me feel better. Now I can get back to planning my New Year’s party.