FANTINI ’ S FINANCE
A Calm Year ?
Views on the financial expectations for 2024
BY FRANK FANTINI
Barring the always possible black swan event , 2024 looks like it might a relatively calm year for gaming .
Covid has played out , inflation may be on its way out . The economy is slowing with moderately negative effect on regional gaming revenues . Land-based gaming in the U . S . is a mature industry with pockets of growth but also pockets of cannibalization as new properties open . Casino operators have gotten both expenses and debt under control .
Online sports betting and iGaming continue to grow , though the pace of growth has slowed , which is just as well in that companies have come to understand that it is time to manage for profitability , not just chase higher revenues and market share as though they are ends in themselves .
While gaming technology and game development are ever-changing , what has settled in is the Big Three — Aristocrat , Light & Wonder and IGT . They have consolidated their leadership . The upstarts have largely become the up-stops . Simply announcing new games and cabinets is no longer a cause for boosting a stock in a market saturated with new products .
The Las Vegas Strip appears to have achieved a new and sustainable level of business volume while more than 4,000 people a month moving into the Las Vegas Valley steadily lift the nation ’ s biggest locals market .
Internationally , we ’ ll learn about the Macau recovery this year . Has it largely run its course ? Is there a new Las Vegas-like paradigm less reliant on high rollers that promises many years of growth ? Will Macau ’ s future be limited by growth of competitors like Singapore and the Philippines ? Will mainland China forever remain a hovering force of both great opportunity and government policy risk ?
Here are some thoughts on these questions and observations .
• Regional casinos . If stock prices have been flattish it ’ s because business has been flattish , with online growth offsetting brick-and-mortar declines in many cases . It ’ s an environment where blocking and tackling become more important , which is an area where Boyd Gaming and Churchill Downs excel . They also have some growth projects to further goose prospects , and BYD lives in the growing Las Vegas locals world , too . From a stock investor ’ s perspective , the most interesting operator is little Full House Resorts , which is very much a highrisk , high-reward play . The stock got beaten down to around $ 5 this year . A price more like $ 15 to $ 20 seems likely a year from now .
• Las Vegas Strip and Macau . We group these markets not because of their similarity but because they determine the prospects for the biggest operators — MGM Resorts , Wynn and Las Vegas Sands sans Las Vegas , and Caesars sans Macau .
As mentioned above , the Strip appears strong and Macau is recovering , but still a question mark as to how big and profitable it can become .
Each of these companies can make a case for its mid- to long-term future but we don ’ t see anything that will particularly move any of them in the year ahead .
• Las Vegas locals . It ’ s hard not to like Red Rock Resorts strategically . The company has a clear growth plan — double capacity in the growing market , continue to develop amenities for the region ’ s growing affluent population , and become even more local by developing smaller properties , as well .
The other pure Las Vegas locals play is Golden Entertainment , long a favorite of ours and a company with growing cash that it intends to return to shareholders as it looks for growth opportunities .
• Gaming technology . As mentioned , this is the era of the Big Three . It ’ s hard to beat their management that , along with their vast resources , gives them nearly unassailable positions .
A case can be made that Aristocrat stock reflects its strength , but that argument can always be made about a great company by investors who end up missing out on long-term growth . And IGT ’ s future is yet to be resolved in some future spinoff or sale of its gaming operations . That leaves Light & Wonder as the best near-term opportunity for investors .
For the coming year , two small companies are interesting , AGS and Inspired Entertainment .
AGS continues to bring out strong new products and the company is focused on its bottom line . A significant rise in the stock price in 2024 is possible as investors learn of , or gain confidence in , the story . Inspired is the Full House Resorts of the games sector . It is highly speculative and , as of this writing , we don ’ t know whether the reauditing of its revenue recognition issues will result in minor adjustments or a serious hit to past and future earnings . But if INSE breezes through that issue , it resumes being one of the potentially best little-known growth stories in the space .
Finally , we really like a couple of the privately owned companies and would eagerly welcome an IPO by Interblock or Bluberi . The former leads the industry in the ever-emerging electronic table game space and the latter has the knack for developing hit slot games despite its relatively small resources .
• Sports betting and iGaming . After the first several tumultuous years of legalized U . S . sports betting , the future is finally here , and it is named DraftKings .
DraftKings and FanDuel clearly dominate online sports betting share , followed by a perhaps fading BetMGM . Everyone else is well behind . And there is little reason to believe anyone will threaten the titans , though Penn Gaming ’ s ESPNBet and privately owned Fanatics will make big runs at them .
Finally , one hedged way to play the space are two brick-and-mortar casino operators that can combine the power of their huge customer databases with their focus on online profitability — Caesars and Boyd .
• Gaming REITs . We can ’ t close out a look into the new year without mentioning two of our favorites — Gaming & Leisure Properties and VICI Properties . They are prudent , have rock-solid tenant bases , are somewhat protected in their leases from inflation , offer modest but nearly certain capital gains , and pay high and growing dividends .
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .
12 Global Gaming Business JANUARY 2024