Brace Yourself: Recession and Its Impact on Gambling Industry
Implications of Potential U.S. Recession on Stock Values of Gaming Firms
worrying economic times are afoot, with the rising cost of living, global conflicts, and Trump's never-ending tariff wars stirring fears of an impending recession. To put it bluntly, sh*t's hitting the fan.
The Dow Theory's recent negative stances might spell doom for our current bullish run. Investors are getting restless, and rightfully so. The S&P taking an 8% nose dive in the past month has sent panic waves through the market, particularly towards gambling companies, which have been taking the worst of it. Let's take a look at what might unfold if these recession fears materialize.
Slashed Discretionary Spending
When recession hits, people's wallets start feeling empty real quick. That means they'll be cutting back on luxuries like Netflix, vacations, and gambling. With unemployment lurking around the corner, every penny is crucial for keeping food on the table and a roof over the head.
The staggering rise in living costs isn't doing anyone any favors either. Compare January 2024's annual savings rate of 4.6% to the same period in 2021's 19.3%, and you'll understand why people aren't exactly flaunting cash these days.
The domino effect will hit popular gambling destinations like Las Vegas and Atlantic City hard, just like the recessions of 2008 and 2000 did. In the aftermath of the Global Financial Crash in 2008, Sin City's occupancy rates plunged from 90.4% to 80.4% within a few years.
Companies with a considerable presence in these markets, like MGM Resorts International, will find themselves at the receiving end of a major downturn. MGM, with its 20+ properties across the United States, and especially its dozen on the Las Vegas Strip, will struggle, especially with its plans to invest over $2.5bn in Japan's first integrated casino resort. With a hefty price tag like that, MGM's pursestrings will be cinched tight, and they're already experimenting with cost-cutting measures like robot vacuum cleaners replacing staff.
From Land-Based Casinos to Online Gambling
Even though in-person gambling often takes a hit during recessions, online gamblers might not feel the pinch as much. Instead of forking out cash for travel, food, drinks, and accommodations at land-based casinos, people might stick to their homes for their gambling fix.
Firms with significant online operations tend to fare better in tough economic times. It wasn't an option for US-facing casino companies in previous recessions, as online sports betting only became legal at a federal level in May 2018. With Americans betting a staggering $150bn in 2024, there'll still be plenty of action, even in the lean times, since sports entertainment is always a constant pick-me-up for folks, no matter how grim the economic outlook.
Industry Volatility
Gambling-related companies are notoriously sensitive to economic changes. They heavily rely on consumer spending and are a simple budget-cut target for cash-strapped consumers. A release of unfavorable economic statistics, such as joblessness rates or cost-of-living increases, usually leads to significant sell-offs for these companies.
However, if the economy recovers and consumer confidence soars, the opposite is true, with gambling stocks skyrocketing on the wings of optimism.
In the end, sticking with veteran companies that have strong fundamentals and a robust online presence appears to be the way to go. It's all about navigating these uncertain waters with calm and wise decision-making. So, keep your head above water and your investments safe!
- Given the looming recession, people might reducing their spending on luxuries such as gambling, which could negatively impact companies like MGM Resorts International that have significant presence in land-based casino markets.
- During recessions, online gambling might be less affected as people tend to gamble from home instead of visiting land-based casinos, thus reducing expenses on travel, food, drinks, and accommodations.
- Companies in the gambling industry are highly sensitive to economic changes and may experience significant stock sell-offs following the release of unfavorable economic data like joblessness rates or cost-of-living increases.
- In the casino-and-gambling industry, relying on established companies with strong fundamentals and a robust online presence is advisable as these companies are more likely to weather economic storms and recessions.
