According to the latest news in the financial sector, investing in the gambling niche has recently become a hot topic. However, there is a lot of prejudice about games of chance and their providers, so many potential investors consider the gambling market too risky and borderline illegal. No doubt, this restrains some people from putting their funds in casino or betting businesses.
Some countries are yet to legislate gambling activities but the biggest markets, like the US, Great Britain, Canada, Australia, and most of the EU states already have laws to regulate this sector. Besides, gambling is one of the fastest-growing industries in the global market. Undoubtedly, there are many things to consider before putting your money in the business related to games of chance. But the growth potential of the gambling sector is attractive for many investors.
So, let’s take a look at the main reasons to invest in gambling companies and the most common ways of doing so.
Potential of the gambling industry
For the past few years, the gambling market, especially the iGaming niche, has been booming and generating mind-blowing revenues. Obviously, this led to strong competition among the operators. But as the new markets are constantly emerging and the existing markets are also growing, there is still a pretty strong chance to take your place in the gambling market.
Just in the last two years, the online games of chance were legalized Netherlands and Germany, the US has launched its sports betting market, and Ukraine has regulated the gambling sector. Some counties, like Brazil, are planning to regulate games of chance shortly. The African markets are also coming into the global scene.
Business positions in gambling
Before investing in the gambling industry, it is vital to understand that the market is not limited to the casino or betting operators. In fact, the gambling sector has its value chain, which includes:
- operators have very similar offers and are hugely dependent on regulations, so the main value is added by a unique platform and personal brand of a casino. One of the biggest perks is that ops are valued x10-15 of their earnings;
- affiliates are the most volatile in the chain and very unpredictable but have incredibly high margins, and many affiliates work on revenue share deals, which means that they receive stable profits for years to come. However, things can change with the update in ad policies, and they can sometimes embellish their balance;
- online casino software providers are the most sustainable but are priced, and their revenue changes with the percentage of GGR;
- payment providers.
In addition, some companies engage in multiple types of activities, and the value, as well as risk of the investment, is related to this.
Total gross gaming revenue
One of the main reasons to invest your funds in gambling is the high levels of GGR. According to the data provided by EGBA and H2 Gambling Capital, in 2019, the total European gross gaming revenue amounted to €98.6 billion, and the online gambling (or iGaming) market was worth €24.5 billion. This shows the true potential and worth of the iGaming sector.
Moreover, the UK has become the largest European gambling market by GGR. In 2019, 30.1% of total gambling revenue came from the GB. The other major markets were Germany (11.4%), France (9.2%), and Italy (8.7%).
The H2 Gambling Capital research also shows that in 2019, in many European states, the share of online gaming revenue was over 30%, including:
- Sweden – 58.8%;
- Denmark – 54.7;
- GB – 45.3%;
- Finland – 42.6%;
- Slovakia – 39.8%;
- Estonia – 39.1%;
- Lithuania – 37.2;
- Belgium – 36.3%;
- Cyprus – 36.1%.
Spain and Italy had the lowest online share of the total GGR with 11.7% and 10.9%, respectively.
And during the global pandemic, the positions of the iGaming market have only strengthened. One of the recent studies, conducted by H2 Gambling Capital, shows that total iGaming revenue is going to raise about $100 billion in the next five years.
Mobile gaming is also on the rise. As the study shows, almost half (44.1%) of all online bets were placed via mobile devices. And by 2025, this number is going to increase to 58.2%.
Top-4 ways of investing in the gambling industry
Despite the common misconception, investing in gambling is not limited to purchasing gambling stocks. The four most common ways of investing in the gambling industry are:
- support a casino or a sportsbook operator – help a gambling company to grow their business, expand to a new market, or diversify their game portfolio;
- support a game development studio – instead of buying stocks of the company partner with the casino or betting software provider to be at the forefront of the industry;
- invest in gambling advertisers or affiliates, which have become an integral part of the iGaming market as online gambling is on the rise. You can either purchase a stock of an affiliate company, support an agency that specializes in casino businesses, or sponsor a promising live streamer of influencers, which have a partnership deal with gambling ops.
- invest in gambling exchange-traded funds (ETFs), which allow purchasing a collection of assets in one fund and trade then on an exchange like a stock. It is a great way to diversify your portfolio without spending big sums, it also gives exposure to different sectors of the gambling industry, including iGaming, casinos, sportsbooks, slot arcades, etc.
There are also other ways, like investing in a company that develops new technology or a payment solution, which are great to broaden your portfolio. But before making any kind of investment in the gambling market, you should research the market and even hire a professional to do so.
Also, future investors have to understand who is the end customer of the gambling business, as it may depend on the geographical region, type of company, and the services that it offers. Plus, investors need to understand whether the gambling company fits their risk profile. For instance, software providers have a higher risk level than ops. The stock value of casino and betting operators, however, can fall and rise following the macroeconomic trends and local regulations.
Diversify your portfolio
Diversifying the stock portfolio is one of the basic principles for all investors, regardless of the sector you’re putting your funds in. It is also an efficient method to reduce your potential losses.
Generally, gambling stocks are considered one of the most secure types of investment. However, the iGaming market is still relatively new, changes at fast rates, and is heavily dependent on government regulations. So, even the biggest companies can lose most of their value if the country decides to raise the taxes, impose a tight limit, restrict advertising, or introduce a total ban on a certain type of game of chance. So, going all-in and investing just in one gambling operator company, one game studio, or even in one gambling market would be a high-risk decision.
As the gambling industry is huge and is constantly growing, there are a lot of options to pick for your investment portfolio. There are thousands of companies working offline and online across the hundreds of regions, providing solutions for casino, sports betting, horserace betting, esports betting, poker, bingo, slots games.
Casino stocks for investing in 2024
If you are looking to invest in casino stocks, conduct market research beforehand and consider consulting with the professionals. Investment experts claim that the value of the gambling stock is determined by its 12-months trailing price to earning (P/E) ratio. The lower the P/E percentage is, the less you’re paying for each $ of profit. The stock value and market capitalization of the company also shouldn’t be overlooked. According to this ratio, the following casino stocks are considered to have the best value in Q4 2023:
- Golden Entertainment Inc. (GDEN), which owns and runs casinos, resorts, pubs, and distributed gaming;
- Boyd Gaming Corp. (BYD) operates gaming venues across the US;
- Bally’s Corp. (BALY) owns hotels that facilitate casinos, sports bars, and a horse race track. The corporation has also recently obtained Telescope Inc. – a software provider for live events, live streams, and gamified screen experiences.
Detailed infographics for the aforementioned stocks can be found in the chart below. The information is effective for December 1, 2023.
Apart from the value, another thing to consider is the growth rate of the gambling company and the total return over the past 12 months. The following corporations are considered to have one of the highest growth rates:
- Las Vegas Sands (LVS) corporation owns and operates multiple gambling venues in the US, Macau, and Singapore, providing games of chance; share price – $33.98, market cap – $25.96 billion;
- Vail Resorts Inc. (MTN) owns multiple resorts and casinos in the USA and other countries; share price – $329.84, market cap – $13.34 billion;
- Caesars Entertainment Inc. (CZR) runs resorts across the US, poker, casino, roulette, and other games are offered at the premises; stock value – $807, market cap – $17.76 billion.
iGaming laws
Before investing in the gambling sector, you should consider the legal side of the issue and the degree of the regulations. Many countries restrict gambling activities, and some complete outlaw games of chance and their providers. So, before putting your money in the promising gambling company, check whether it has a license to operate in certain markets.
The countries where gambling is legal and regulated are commonly called white markets, while the states where gambling is outlawed are dubbed black markets.
There are also regions with mixed regulations – grey markets. In these countries, the regulators either permit gambling in certain administrative divisions (federal states, administrative regions, etc.) or don’t restrict citizens from playing on the offshore casinos or sportsbooks. For instance, Germany, the USA, Brazil.
Taxes and other expenses in the other issue that can impact your profits from the investment. And as the regulations change, the value of gambling companies and stocks of the whole gambling market can transform as well. Germany is one of the best examples. Recently, a tight deposit limit of €1 000 per player and a 5% turnover tax was introduced by the local authorities. As most of the casino games have a 4% margin, they had to be modified to give smaller payouts. Thus, leading to many German players going to the offshore ops.
So, investing in gambling comes with some risks but it still is a highly profitable market. While many land-based businesses were hit hard by the pandemic, for the iGaming sector it was a time to shine. The revenues of online casinos, sportsbooks, lotteries spiked, and they’re not going down. As there are many ways to profit from this growth, 2024 could be the year to invest in the online gambling sector.
Read more: Best Gambling Payment Providers
