Where Do We Grow from Here?
Is gaming a long-term growth industry? Look for clues in economic, social and geographic trends.
The old saying is that demographics are the future.
A perhaps related axiom is that economic growth comes from only two sources: population growth and increased productivity.
That puts us into an interesting economic outlook that isn’t getting much attention in the general business press or from analysts: We are fast heading into an era of population decline and aging societies, combined with accelerating computer-driven leaps in productivity.
These phenomena get attention on their own. There are stories, for example, about European and Asian populations declining and aging countries moving towards a day when obligations to retirees will strain the resources of working generations. And there are stories about computer-driven productivity (read AI and soon, quantum computing) threatening mass numbers of jobs.
Rarely, however, are the two phenomena combined in efforts to understand their potential effects on stock investments. They should be.
And they should especially be understood by investors in oh-so-discretionary businesses such as travel and leisure and, for our purposes here, gaming.
One reason for the somewhat relaxed attitude by investors towards these changes is that they appear to be working out over long periods of time. Why worry about a decade or two from now when the next quarter’s earnings reports are just days away?
But the future has a way of creeping up fast. Just ask all those still-jobless college graduates who not long ago majored in computers, certain that coding assured a secure and prosperous career.
We’re accustomed to gaming being a growth industry. Whether it’s due to the proliferation of regional casinos in the United States, the emergence of international gaming centers like Macau and Singapore, or the explosion of online gambling almost everywhere, gaming has grown and grown.
Even today, we see new forms of gaming such as predictions markets, big new jurisdictions like Brazil, and the ever-greater reach of online gaming everywhere combining for continued growth.
Yet there are limits. In the U.S., brick-and-mortar growth has slowed and is now measured in year-over-year increments of 1 percent, 2 percent and 3 percent. In reality, that’s shrinkage when you factor in inflation running well ahead of those rates.
Macau, even with many multibillion-dollar capital investments by its six gaming concession holders, is struggling to grow gaming revenues year-over-year, and it appears hopeless that the city will return to the pre-Covid numbers of 2019 anytime soon—if ever.
There is also backlash. The regulatory tightening of online gaming in Europe is the prevailing trend there. Even emerging Latin America can de-emerge, or at least that could be the case in ballyhooed Brazil, where the government is having second thoughts about its recent legalization of online gambling.
In the U.S., the media is increasingly filled with stories about how damaging and addictive online gaming, specifically sports betting, has become. The tone is to write about young men gambling away as though they’re a lost generation. It won’t take too many such stories before some state legislature pulls in the reins. And in a copy-cat political world, that could lead to a wave of restrictions throughout the country.
But all that aside, the biggest determining trend may be demographic.
Not all that long ago, it was common for casino executives to speak enthusiastically about the aging of that great demographic bulge, the Baby Boomers, into their prime disposable income (and thereby gaming) years.
Well, that trend is ending as the youngest Boomers reach retirement age and older members of the cohort are dying off.
And younger generations won’t rise to replace them. As evidence, it wasn’t long ago that colleges were a boom industry. Today, an increasing number of colleges are closing for the simple reason that enrollments are falling thanks to the birth dearth of recent decades.
There are lots of reasons for Macau’s lack of growth. But how much of it is the declining populations of its biggest feeder markets like Japan and South Korea? And that’s a trend that will only accelerate, at least for the next 20 years, even if having babies comes back into fashion, which it isn’t doing anywhere in Asia.
And we haven’t yet explored the potential for AI to disrupt the historic pattern of young adults growing into money-earning older adults.
Of course, there are ups to go with the downs. The population of China, for example, may be declining, but with only 400 million of its 1.4 billion people at a Western middle class standard of living, plenty of economic growth potential remains.
Most of all, there’s one huge exception to the world’s demographic trend: Africa.
The youthful continent has years of population growth ahead. A population of around 1.4 billion today is expected to reach 2 billion by 2050. And individual national economies are growing 4.5-5 percent a year, on average.
The gaming industry is right there in the middle of that growth. South Africa’s Sun International, long a brick-and-mortar leader on the continent, has ambitious online plans.
Super Group Ltd., a successful international online gamer, is making big bets on Africa, and it’s paying off. The continent already provides SGHC with nearly half of its business, and its African revenues and EBITDA are growing over 20 percent a year.
For the more daring, Stockholm-listed penny stock GiG Software is buying the profitable African business of London-listed evoke plc.
In summary, the easy days of gaming growth may be over in much of the world, but it’s a big world with still plenty of big opportunities.
Frank Fantini is publisher emeritus of Fantini’s Gaming Report. Reach him at [email protected].
