Here Comes the Judge

The performance of many U.S. gaming stocks in the coming year may have less to do with the industry’s near-term financial results and outlook than with the decisions of judges and legislators.

2026: LAND-BASED STEADY

Much of the industry doesn’t offer excitement to equity investors. Regional casino companies are chugging along steadily like Red Rock Resorts, Boyd Gaming and Churchill Downs. Suppliers are more of a theoretical interest as there are few U.S.-listed names left. Big operators like Caesars and Penn Entertainment are classic value plays—wait and wait and wait for investors to wake up to extremely low valuations being given to secure fundamentals.

Among the biggest casino companies, the future of their stocks might be tied more to their overseas operations than to Las Vegas, despite the general business press’ current obsession with Sin City’s dip in business volumes.

The fact is that Las Vegas will still be here a year from now, and five and 10 years from now. The greater 2026 influences for MGM, Las Vegas Sands and Wynn may be the business and regulatory environment in Macau. Further out, LVS and MGM will be affected by the payoffs of their huge investments in Singapore and Japan, respectively.

For this year, however, it will be interesting to see if investors start pricing in the value of Wynn’s 40 percent-owned $3.9 billion megaresort due to open next year on Al Marjan, the 20,000-hotel room tourism paradise being developed by the United Arab Emirates. At the least, Al Marjan should be a big new contributor to Wynn. And it could become the most successful casino in history given its proximity to Europe, the billions of dollars owned by Middle East oil magnate gamblers and the vast publicity it will receive.

Of course, little may change by this time next year. We might still be biding time in Macau, plugging along in U.S. regional markets and speculating on the prospects for Japan, Singapore and UAE mega-developments.

DIGITAL’S POLITICAL

Let’s turn to digital gaming and the public policy decisions that may encourage, hinder or even squelch its development.

The consensus is: Watch out for red flags, but generally assume that iGaming will continue to grow double digits as an unstoppable wave of history. And prediction markets will proliferate as long as the Trump family has vested interests in the sector.

Those assumptions have almost become complacency. This is where public policy can upset the apple cart.

Modern history is that legislators allow gaming expansion so they can tap politically painless pools of new tax revenue. Add to that the understanding that technological change is more powerful than regulatory constraint, and the accompanying argument that if jurisdictions don’t allow gambling, illegal operators will. The forces of expansion have won repeatedly, for years.

But that could change, and the change could start this year.

Look at public opinion. It’s turning sour on sports betting. Highly respected Pew Research found in an October survey that nearly half of U.S. men under the age of 30—the most likely sports gamblers— now see sports wagering as bad for society. That’s up from 22 percent in 2022.

An NBC poll found that 70 percent of Americans at least somewhat agree that sports betting “lessens the integrity of the game.”

In the U.K., where regulations are becoming more stringent and online taxes raised to punitive levels, a poll commissioned by an anti-gambling advertising group shows 70 percent of respondents favor stricter limits on sports betting advertising and endorsements.

These and a few scare stories about lives ruined by gambling are the material to motivate legislators to crack down on digital gaming, especially when anti-gambling legislation starts rolling and states begin to copycat each other.

However, sports betting and even iCasinos are realities of life and will continue, though perhaps under stricter rules and higher tax rates.

More interesting will be the fate of the so-called prediction markets in the U.S.

At present, companies are rushing in to launch prediction sports betting under the guise that their wagers aren’t gambling, but economic contracts, and state legislatures can’t do anything about them because such contracts are regulated by the federal Commodity Futures Trading Commission.

On the surface, it’s ridiculous that a law designed to allow farmers to hedge commodity prices for their own financial survival allows sports betting.

One should think a court would throw out such prediction contracts in a millisecond.

But I’m reminded of Delaware, when the state’s casinos sought to add table games to their slots-only operations. Delaware’s constitution limits gambling to a state-run lottery and charity bingo. Slots were allowed under the understanding that they were regulated by the state lottery office and game results decided on a bingo sequence in a central computer.

So the state Supreme Court, in taking up table games in the casinos, reasoned that a lottery, in essence, is a drawing and that any card game result is derived from a draw of cards—therefore, voila, table game gambling is legal.

If the vaunted Delaware Supreme Court can so contort reality to reach an apparently sought-after end, so can the judges in federal courts when it comes to prediction contracts.

Then investors will have to decide which among the many companies entering the space will survive to profit, and we’ll likely see a cycle again like the first few years of sports betting in the U.S. that ended with just a handful of operators surviving. Can you spell Kalshi, Polymarket, DraftKings and Flutter? Or the courts could decide that gambling is gambling, in which case the big losers will be those investors jumping onto the prediction market bandwagons today.