Bracing for Impact: Gambling Stocks in a Recession
Implications of a Potential US Economic Recession on Gambling Stocks' Values Explored
With the ongoing economic turmoil, escalating costs of living, and the world bracing for potential tariff battles, there's a growing sense of impending recession. The tumultuous landscape has shaken up investors, turning their focus towards preparing for the worst.
The S&P 500 shrank by a staggering 8% over the past month, prompting unease among investors, especially in gambling sectors. Let's dive into what may transpire if our fears of a recession come to fruition, focusing on the gambling heavyweight, MGM Resorts International.
P pockets tighten, leisure trips liquefy
A recession looming means that people have reduced funds for non-essentials, such as streaming subscriptions, vacations, and gambling. With job cuts on the horizon, every penny saved is crucial for those striving to afford daily necessities.
The high cost of living currently gripping America magnifies this challenge, as shown by a dismal year-on-year savings rate of 4.6% in January 2024 compared to a robust 19.3% for the same period in 2021.
Brace yourself for fewer faces at gambling hubs like Las Vegas and Atlantic City, areas that historically bear the brunt of recessions. Post the Global Financial Crash in 2008, occupancy rates in Sin City plummeted drastically from 90.4% to 80.4% over a few years. Strikingly similar trends were observed post the Dotcom Bubble burst in 2000.
Gambling companies with significant exposure to these markets won't escape unscathed. Companies like MGM Resorts International, with a sprawling network of 20+ properties across the USA and a dozen on the Las Vegas Strip alone, are particularly vulnerable.
This sprawling empire stretches to properties like the Luxor that require hefty investments for maintenance and upgrades to remain competitive. With MGM shelling out over $2.5bn for its part in developing Japan's first integrated casino resort, it's safe to say that its coffers will be starved in the near future. The company will likely resort to cost-saving measures like hiking parking fees and embracing technology, such as robot vacuums, to maintain efficiency.
Digital fortunes could remain steady
While traditional gambling hotspots may see reduced foot traffic during recessions, the impact on online gambling could be less pronounced. People may choose to trade their expenditure on travel, dining, and accommodations for online gaming, making it an accessible source of entertainment despite tough economic times.
Sizeable online operations can weather economic storms more effectively, a reality that was a distant concept for US-facing casino companies during previous recessions. With Americans reporting more than $150bn in betting activities in 2024, there's no doubt that even in challenging times, sports entertainment will remain popular.
Tumbling tides on the horizon
Gambling-related companies usually fluctuate more in response to economic changes than other sectors since they rely greatly on consumer spending and are often the first to be trimmed from a tight budget.
Negative economic statistics, such as the state of the economy, cost of living, and unemployment figures, trigger relatively larger sell-offs for these companies. A flip side of this coin is that if the economy bounces back, gambling stocks can surge with renewed optimism.
The path forward boils down to staking with companies that demonstrate time-tested resilience through solid fundamentals and a robust online presence. The investment winds can be fickle, but a clear head and strategic planning could help navigate these tumultuous times.
- In the event of a recession, individuals may cut back on non-essential expenses such as streaming subscriptions, vacations, and gambling due to reduced funds.
- With higher costs of living and potential job cuts, every penny saved becomes crucial for many people.
- Traditional gambling hotspots like Las Vegas and Atlantic City may see a decrease in visitors during recessions, but the impact on online gambling could be less significant.
- Companies with significant exposure to traditional gambling markets, such as MGM Resorts International, face vulnerability during recessions due to their reliance on consumer spending.
- Economic indicators like the state of the economy, cost of living, and unemployment figures have a larger impact on gambling-related stocks compared to other sectors, but companies with strong fundamentals and a robust online presence may weather the storm more effectively.
