Potential Impact of an Economic Downturn on Stock Values in Gambling Sectors within the U.S.

Cautious Times Ahead

Hey there! With escalating living expenses, persistent global strife, and Donald Trump waging a trade war with numerous nations, there's buzz that a recession could be on the horizon.

Different financial markers, like the Dow Theory, have recently turned bearish, hinting at a slide in our robust bull market run.

Investors are getting jittery

With a 8% drop in the S&P in the last month, it seems investors are feeling uneasy. And guess who's taking the biggest hits? The gambling industry, of course. So let's speculate what might occur if these recession fears turn out to be a reality.

Less splurging on luxuries

A recession compels people to tighten their belts, which means fewer luxuries like Netflix subscriptions, vacations, and gambling. Facing job losses during a recession, every penny saved counts, and many will be prioritizing necessities like food and shelter.

That struggle gets even more intense with the high cost of living that's currently plaguing America, as the annual savings rate dipped to 4.6% in January 2024 from a robust 19.3% in the same period in 2021.

Unsurprisingly, this will result in fewer tourists to gambling hotspots like Las Vegas and Atlantic City. These areas were previously battered by recessions, with occupancy rates plunging from 90.4% to 80.4% in the aftermath of the 2008 Global Financial Crisis and the 2000 Dotcom Bubble burst respectively.

Companies with significant exposure to these markets will suffer the most from these trends. MGM Resorts International stands out with its 20+ properties scattered throughout the US, with 12 alone on the Las Vegas Strip.

This list includes properties like the Luxor that require significant refurbishing to stay afloat. MGM is throwing down over $2.5bn for its involvement in Japan's first integrated casino resort, so expect budget cuts to come in the form of premium services trimmed (like replacing staff with robot vacuum cleaners).

Shift to online gambling

While in-person casino visits tend to decline during recessions, online gambling might see less of a dip. This could be due to consumers trading their expenditure on travel, dining, and accommodations for gambling from the comfort of their own homes.

Companies with strong online operations are better equipped to weather economic turbulence. Sadly, this wasn't an option for U.S.-facing casino companies in previous recessions, as online sports betting only became legal at the federal level in May 2018.

With Americans splurging over $150bn in 2024, there’ll be a robust demand for sports betting even during trying times. As entertainment is always a constant in people's lives, regardless of the economy's state.

Brace yourself for volatility

Gambling-related companies are often vulnerable to economic shifts, as they heavily rely on consumer spending and are often the first to be axed during belt-tightening measures.

Such companies become the target of concerns over economic performance, cost of living, and unemployment rates, which typically leads to pronounced sell-offs. Conversely, confident consumer sentiment can cause sharp rises in gambling stocks.

In conclusion, it's all about playing it safe with established companies that boast strong fundamentals and a robust online presence.

In the event of a recession, people might be seen reducing their spending on luxuries such as Netflix subscriptions, vacations, and gambling, which could lead to a decline in the gambling industry.
With the potential economic downturn, investors might increasingly rely on technology for betting, as staying at home for online gambling could become a more viable option than traveling for in-person casino visits.
During recessions, finance and lifestyle choices are heavily influenced by weathering economic turbulence, with companies that have strong online operations being better prepared.
The sports industry, like gambling, may also experience volatility due to the unpredictable impact of economic conditions on consumer sentiment and spending habits.
In this era of unreliable global finance and frequent recessions, it's essential to exercise caution when investing, focusing on companies with solid foundations, strong fundamentals, and a pronounced online presence to minimize risk.