Is it worth investing in a casino?

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In the gambling industry, there’s one important thing one should always keep in mind: The house always comes out the winner in the end because casinos are businesses. It is simply a matter of survival, if they don’t turn a profit then what is this all been about? The only problem is that when the coronavirus pandemic came, the number of visitors drastically decreased, thus profit could not but shrink.

The good thing is that once countries began easing lockdowns, the clientele returned. According to the American Gaming Association, in the second quarter of 2021, local casinos and bookmakers recorded the highest ever revenue.

To be more precise, gambling and betting revenue increased 26.3% from the same period in 2019 to $13.6 billion. Even though the restrictions were lifted only by the end of June this year, in 19 out of 25 states where casinos are allowed, in the first six months, the revenue of American casinos and bookmakers reached $24.8 billion. For instance, the industry ended the year 2020 with a $30 billion revenue. Does that mean that the gambling industry is finally back?

Since the beginning of May this year, Las Vegas Sands Corp. (LVS) fell 33%, MGM Resorts International (MGM) fell 10%, Wynn Resorts Limited (WYNN) fell 30%, and Melco Resorts&Entertainment Limited (MLCO) fell 32%. Thus, we could say that despite the high revenues, the market fears that the worsening epidemiological situation in the world may negatively affect the number of visitors to gambling establishments.

Alternatively, real estate funds (REITs) that rent out casino premises could be considered. For example, shares in Gaming and Leisure Properties (GLPI) gained 3.11% over the same period. What is the peculiarity of the company? The lease does not include building insurance, maintenance, and repairs, and is tax-free on the lessor’s property. Such contracts are cheaper than a simple lease since the tenant is responsible for all of the above points.

In addition, in order for the tenant to stop rent payments, he must declare bankruptcy, vacate all the leased objects, at the same time begin the procedure for finding a successor in his place and transfer him a gaming license. Upon termination of the contract, the lessee must sell all of its operating assets to the new lessee and transfer its gaming license. It should be noted that currently, the shares of the REIT are 6% from historical highs, which means that the level of risk of a correction is quite high.

Overall, the future of the gambling industry depends on the country’s ability to control coronavirus…

 

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