U.S. casino and online-gambling revenue is reaching a record high, while Asian gambling hub Macau is languishing—an unexpected turn of fortune
by Jacky Wong, The Wall Street Journal, August 25, 2022
Covid-19 has shuffled the deck of the global casino industry. Macau, the ace before the pandemic, is mired in misery. Across the Atlantic, casinos in the U.S. are seeing record revenue.
Macau’s gambling revenue in July fell 95% year on year to its lowest since records began more than a decade ago. On the other hand, casino gambling revenue in the U.S. hit a record in the second quarter, according to the American Gaming Association.
Gambling revenue on the Las Vegas Strip in the first half of 2022 rose 36% from the same period in 2021. Partly that’s due to a lower base last year, but the first half revenue was also 21% higher than the same period in 2019.
Online gambling has also witnessed spectacular growth: Sports betting revenue grew 63% year on year last quarter, while online casino revenue rose 34%. The pandemic has helped. Many states have also legalized sports betting in recent years.
U.S. gambling stocks, however, are mostly down this year. That reflects the worry that the rebound from reopening will soon be over, as well as risks from a possible looming recession. Bernstein estimates U.S. gambling revenue will drop 3% to 11% in the next recession.
Granted, the record-breaking winning streak will probably end and a recession will dent casinos’ revenue—but shares have also priced in much of these risks. Companies with exposure to the fast-growing online gambling market are even more attractive.
Take MGM Resorts as an example. The company’s revenue last quarter grew 44% year over year, with a particularly strong performance at its Las Vegas resorts.
BetMGM, its online joint venture with British company Entain, had around 20% of the U.S. online gambling market in June, placing it neck-and-neck in second place with DraftKings, according to Bernstein. BetMGM is the leader in online casinos, but it lags behind other competitors like Flutter Entertainment in sports betting. MGM tried to buy Entain in 2021, but the latter rebuffed the $11 billion bid.
And Macau doesn’t loom as large as in the past. The value of MGM Resorts’ 56% stake in its Hong Kong-listed Macau subsidiary is equal to around 8% of MGM’s market capitalization. Before the pandemic, that unit was sometimes worth up to around a third of the parent’s value. With expectations so low already, that could add up to a winning lottery ticket should any positive surprise emerge from Macau.
Investors used to buy companies like MGM, which owns casinos in Macau, for their exposure to the fast-growing Asian gambling hub. But they can now probably buy the company despite its Macau exposure given its strong domestic performance. How the tables have turned.