Updated: Jul 2, 2021
This article will focus not only on casino stocks but also on stocks that operate in the gambling sector as a whole. Gambling has become ingrained in our society, the act of gambling can be dated as far back as 3,000 BC, which is when the earliest six-sided die was dated. The first casino or gambling house, “The Ridotto”, was established in 1638 in Venice, Italy.
In the 21st century, state, provincial, and national lotteries have collected consumer funds over the years and provided little or no rate of return. It's safe to say that regardless the rate of return, consumers will continue to gamble in different forms, possibly until the end of time.
Types of gambling stocks
There are many different types of gambling stocks out there in the market but not all were created equally. Certain stocks are better suited to ride out market cycles than others. For example, as of December 13th, 2020, most casinos are closed and so there is no revenue being generated at these companies.
However, certain gambling stocks have been able to increase revenue by allowing anyone with a mobile phone to bet on sports lineups. Other companies make money by designing, manufacturing, and distributing scratch and win tickets, prize consultation, and promotional opportunities. All of these companies operate in the gambling industry and compete for your hard earned money but only a few can withstand market cycles. Let's take a look at a few companies below:
Great Canadian Gaming Corporation (GC.TO)
Las Vegas Sands Corporation (LVS)
DraftKings Inc. (DKNG)
Pollard Banknote Limited (PBL.TO)
You may recognize some of these companies and others you might not be so familiar with. I will give a brief introduction to each company, conduct a brief fundamental analysis, and give a recommendation for each stock. We hope that this will give you a basic understanding of some of the gambling stocks that are available to market participants.
Great Canadian Gaming Corporation (GC.TO) – YTD Performance: -15.47%
Great Canadian Gaming Corporation operates as a gaming and entertainment company in Canada. As of March 3, 2020, it operated 25 gaming, entertainment, and hospitality facilities in Ontario, British Columbia, New Brunswick, and Nova Scotia. The company operates approx. 16,000 slot machines, 575 table games, 71 dining amenities and 500 hotel rooms.
Great Canadian derives a large portion of their revenue from their casino operations, when casino's were open in 2019, the company earned $226.5 million on $1.36 billion of revenue (approx. 16.6% profit margin). In 2020, the company's operations were hit hard, they turned a small profit in the 1st quarter before losing $31.4 million in the 2nd and $36.5 million in the 3rd. We expect the losses to widen even further in the 4th quarter.
Even after the pandemic has eased, we expect there to be stricter limits on the amount of people in a casino at any one time. Furthermore, the costs of cleaning materials to disinfect high-touch products are likely to weigh on this company's earnings. At this time we do not see this company as a good investment, however, this company has been on our watch list for a number of years.
Las Vegas Sands Corporation (LVS) – YTD Performance: -17.80%
Las Vegas Sands Corp., together with its subsidiaries, develops, owns, and operates integrated resorts in Asia and the United States. Its integrated resorts feature accommodations, gaming, entertainment and retail malls, convention and exhibition facilities, celebrity chef restaurants, and other amenities.
Similar to Great Canadian Gaming, Las Vegas Sands derives the majority of its revenue from casino operations which means it relies on those establishments being open for business. However, unlike Great Canadian, the company offers one-stop shop resorts that make it their business to keep you on the gambling property for as long as possible. Las Vegas Sands also has the added benefit of having operations in multiple countries which allows it to diversify among different demographics.
In 2019, the company earned $2.7 billion on $13.74 billion of revenue (approx. 19.65% profit margin) Regardless of the added diversification, the pandemic hammered the company as losses of $820 million appeared in the 2nd quarter and $565 million in the 3rd quarter. We expect the 4th quarter to also show a loss, however, the new year may bring new profits as Las Vegas is not requiring visitors to quarantine for 2 weeks, depending on which country you arrive from (casino's are also open). At this time, we do not see this company as a good investment.
DraftKings Inc. (DKNG) – YTD Performance: +368.13%
DraftKings Inc. operates as a digital sports entertainment and gaming company in the United States. The company provides users with daily sports, sports betting, and iGaming opportunities. It is also involved in the design and development of sports betting and casino gaming platform software for online and retail sports book and casino gaming products. The company distributes its product offerings through various channels, including websites, direct app downloads, and direct-to-consumer digital platforms.
DraftKings Inc. has been able to grow its revenue this year, unlike the casino and resort companies. Revenue hit a record $132.84 million in the 3rd quarter, up from a mere $70.93 million in the 2nd quarter. However, the company lost $161.44 million in the 2nd quarter and a record loss of 347.75 million in the 3rd quarter. Even in 2019, the company lost $142.73 million on $323.41 million of revenue. We do expect more losses in the 4th quarter of 2020 and even in the 1st quarter of 2021 but we like the company's prospects to increase revenue in both quarters.
The company's business could become attractive to us if a significant portion of revenue becomes generated by the design and development of sports betting and casino gaming software business. DraftKings has a real opportunity to be the one-stop shop for white label mobile gaming and betting solutions, a very lucrative market in our opinion. In addition, on its current platform, there are games that have nearly a 50% chance of doubling your money, much better odds than a traditional casino or lottery ticket. At this time, we do not see this company as a good investment but we did add the company to our watch list in 2020. If the company manages to turn a profit, even a small profit, our outlook would likely change to a buy.
Pollard Banknote Limited (PBL.TO) – YTD Performance: +29.35%
Pollard Banknote Limited, together with its subsidiaries, manufactures and sells a range of gaming products and services for the lottery and charitable gaming industries. The company designs, manufacturers, and distributes instant tickets (scratch and win), as well as offers related services. In addition, it provides licensed games, various solutions for licensed games, and publicity and promotional opportunities. To go further, the company also engages in the interactive digital games and website development; and internet-based gaming businesses.
Of all the companies listed in this article, Pollard is the only one to return a profit in 2020 during the pandemic. In the 1st quarter the company lost $1.26 million before swinging to a $9.21 million profit in the 2nd quarter, followed by a $13.15 million profit in the 3rd quarter. In 2019, the company earned $22.02 million on $397.84 million of revenue (approx. 5.5% profit margin). The company's ticket printing and gaming services business is profitable and it has been for the last 4 years as repeat customers for scratch and win ticket are good to bank on.
With odds to win something on a scratch and win ticket at 1 in 3.50 there is a good chance that you will win, although you are unlikely to recover the cost of the ticket. The high chance of winning something is what keeps customers coming back which means more design and printing business for Pollard, especially during the holiday season. The only drawback to Pollards business is its thin profit margins, everything has to go just right for the company to make money, luckily there is not much to go wrong in the printing business. Pollard did manage to post a record quarterly revenue of $116.64 million in the 3rd quarter this year, we expect another record in the 4th quarter. At this time, we have a neutral rating on the stock, and we have held this stock in the past.
These are a few of the stocks in the gambling industry, however, there are many more in operation in the market. We hope that this list has helped educate you on the different business models within the gambling industry. Some business models are more profitable than others, some are more recession resistant than others, and of course some are more pandemic resistant than others. In our opinion, the most attractive business models moving forward are those that cater to our mobile devices.
This article was written for educational purposes only. Banting Court Capital Management Inc. is not responsible for any losses suffered by taking action on what has been written in this article.