FANTINI ’ S FINANCE
The Musk Factor
The recent election is likely to have impacts on business overall , including gaming , but new financing deals and fears of iGaming expansion are perhaps more notable
BY FRANK FANTINI
Here ’ s a thought : The most important person in the coming year for the stocks of gambling operators may be — ready for this ?— Elon Musk .
Donald Trump has been elected president on a platform that promises higher spending and lower taxes , a recipe for growing federal deficits at a time when the deficit is growing on its own momentum fueled by the interest expense needed to be paid to finance that debt . It is a compounding effect that economists agree is unsustainable . And it is a trajectory that feeds inflation .
It will also result in higher interest rates as debt service crowds out other uses for capital . Already , interest rates driven by the market are rising even as the Federal Reserve Board has begun lowering the interest rates it can control .
The result of this rise has been to dampen prices of many debt-laden stocks and to further put off the reopening of capital markets , meaning fewer IPOs , mergers and acquisitions .
A mini-example of the impact of rising interest rates on certain stocks came on the day after the election . While the stock market rocketed giddily over Trump ’ s victory , the two gaming REITs sank , VICI Properties by 2.93 percent and Gaming & Leisure Properties ( GLPI ) by 3.43 percent .
More importantly , if the federal deficit soars and inflation really takes off , that will force the Fed to raise its interest rates , maybe a lot . That , in turn , could mean an economic recession . In other words , a bad mix of events for an industry that relies on debt and on consumer discretionary spending . This is where Musk comes in . Musk established himself in the election campaign as 1 ) the highest-profile business supporter of Trump and 2 ) a champion of getting the federal deficit under control .
There are all kinds of predictions as to how that could play out . Musk himself has said getting the deficit under control would require an economic haircut for everyone . On the other hand , Trump is a politician who succeeds by keeping constituents happy . Among his favorite ways to achieve that is to cut taxes and to spend — not exactly a deficit reduction formula .
Still , having a deficit hawk as a close adviser suggests there could be some effort to limit an underlying cause of inflation , which could be good for many gaming stocks .
Broader Impacts Normally , quarterly investor conference calls focus on individual companies conducting the calls and on their competitors .
The recent round of third-quarter calls , however , included two that raised issues of potentially broader impact :
• GLPI thinks it might have devised the formula to open Indian Country to real estate investors , and ,
• Las Vegas Sands ( LVS ) CEO Rob Goldstein raised a caution flag on the possible impact of online gaming on the brick-and-mortar casino industry .
Indian Country Investment On his conference call , GLPI CEO Peter Carlino described a method whereby his company can finance buildings constructed on tribal land while securing its investment .
The arrangement did not happen overnight . It took GLPI seven years to devise the structure for investing in a project on land held in trust for the Ione Band of Miwok Indians and to receive National Indian Gaming Commission approval . The deal is a $ 110 million loan to the tribe for construction of Acorn Ridge Casino in California that can be converted into a 25- to 45-year lease . Though the underlying ground is federal land under trust to a sovereign tribal nation , GLPI will own the building .
How extensive such a financing method will spread is to be seen . Executives of GLPI competitor VICI Properties spoke guardedly on its potential during its conference call .
However , if such a deal can be used widely , it can open a vast new market for gaming REITs and other commercial lenders to Indian Country while giving tribes another way to grow their enterprises .
Online Gaming Goldstein introduced the topic of the impact of online gambling when asked about his company ’ s application to build a casino resort in New York .
LVS commits a lot of money to its projects and must take the long view on its investments , Goldstein said in noting the rapid rise of digital gaming as a competitor for gamblers and pointing out that online gaming revenue next year may exceed land-based revenue in neighboring New Jersey .
A few days later , Wynn Resorts CEO Craig Billings expressed the same concerns . He added the potential for what he called “ regulatory blowback ,” implying casino resort operators could be tarnished by the same brush used to restrict any perceived excesses of online gaming .
LVS and Wynn come at the issue from the side of the industry that is least likely to be affected by online gaming — developers of multibillion-dollar integrated resorts that are gamingentertainment-conference destinations .
The greater impact may be on regional and local casinos , for whom a big chunk of customers are convenience gamblers . These operations already face growing competition from route and gray-machine operators , which usually are closer to customers than regional casinos . Online gaming is even more convenient . A customer needs only to pull out his or her mobile phone and gamble away from the comfort of home .
It will be interesting to see how much of the weakness in regional casino gaming has been because of the often-blamed softer spending by lowend gamblers and how much is the longer-term problem of gaming transferred from the local casino to the living room couch .
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .
12 Global Gaming Business DECEMBER 2024