Coronavirus Wiping Out Value Across Gaming Sector
Coronavirus has taken a dramatic toll on gaming industry equities. Since January 30th (date WHO first declared a public health emergency), publicly traded casino and gaming stocks - save one - are down between 22% (Diamond Eagle Acquisition Corp.) and 88% (Eldorado Resorts). For comparison purposes, the S&P is down +/- 26% over that same time period. The suspension of sports leagues worldwide, combined with governmental efforts to contain the virus (including the mandatory closure of Las Vegas hotel-casinos for 30 days, AGA reports 94% of all commercial casinos are closed), has depressed revenues and earnings across the sector. On Monday, Flutter Entertainment told its investors to expect a loss of at least $300 million in profits as a result of the outbreak.
Howie Long-Short: To be clear, despite the financial repercussions (AGA suggested that as much as $21.3 billion in direct consumer spending could be lost over the next 8 weeks), shutting down the casinos was an easy call. As gaming industry authority Jack Andrews explained, “these are places where 150-200 people gather at a time and they are touching everything. [Gamblers] are hitting buttons. They’re exchanging money. They’re handling chips.” Casinos are a ‘petri dish’ for spreading viruses.
Legal Sports Report’s Adam Candee said that he’s been unable to detect a noticeable discrepancy in the share price declines of mobile and retail gaming operators. While the mobile businesses naturally carry less overhead (and thus should be able to withstand the loss of revenue more easily), "when you’re dealing in sports markets and there are no sports, there’s no product. Companies with a diversified portfolio of holdings and offerings (think: online casino games and non-gaming assets) are the ones best position to ride out the gap in the sports calendar, but the global economy is in a recession [and it’s hurting everyone equally]; gamblers in general might have less appetite to wager because they’re worried about their personal finances.”
Unfortunately for gaming operators, unless the economy recovers quickly those concerns are likely to remain - even once retail locations re-open. Candee said “Delta reported that they’re seeing more cancellations than bookings. When you hear stats like that, it makes you wonder [how long it will be before the gaming sector returns to business as usual].” If there's any reason to believe gaming can weather the Coronavirus, it’s that historically speaking, “people still spend on vices” during times of economic struggle.
The lone 'bright spot' (it's a relative term) within the public gaming space of late has been Evolution Gaming Group (OTC: EVVTY). With gamblers stuck at home, speculation exists that online wagering will experience a rise in popularity over the next several months. If that happens, the Swedish developer of live casino solutions for online casino providers (think: live dealer blackjack) is primed to capitalize on the trend.
While one might assume that M&A activity within the sports betting space would subside while the sports industry is on an unplanned hiatus, Andrews thinks the down economy provides an opportunity for prospective investors and that it's possible transaction volume could actually accelerate. “If you’re a company looking to gain U.S. sports betting market share, [it’s a good time to buy]. There are some really cheap assets to be had.” He cited PointsBet (OTC: PBTHF) - a company with their own technology and market access in 11 states - as an example of an operator primed for the taking. PBTHF “is currently trading at less than they IPO’d at one year ago” ($1.75 vs. $2.00). Candee wasn’t as sure. He thought some potential acquirers might pull back on spending with the market in flux.
It remains to be seen if the sports shutdown slows the pace at which gaming legislation is passed. Andrews said “it’s hard to believe that sports betting would be a priority [for state governments facing public health and economic concerns] and once the [underwhelming] March revenue numbers come out, states may simply decide there is no need to rush [on pushing bills through].” Of course, that assumes legislatures are still in session. Illinois and Missouri have already cancelled sessions and it’s possible, if not likely, others will follow suit.
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