How to Invest in Casino Stocks: Pros and Cons and More

Looking to score big with casino stocks? The house may have the edge when you sit at the table, but investors and casino operators have aligned interests in their stocks. Gambling is big business, and many of the world's largest companies are publicly traded, allowing investors to earn profits from casinos without ever playing a single hand. 

But even the best casinos stocks can be volatile, and COVID-induced closures and restrictions ravaged the industry. 

Are casino stocks a good buy? This article will explain the pros and cons of investing in the ultimate sin stocks.

Overview of Casino Stocks

Gambling has always been a touchy subject in America. Often associated with less-than-savory activity, gambling is only legal statewide in two places: Nevada and Louisiana. However, every state but Utah allows some form of gambling, whether a state lottery, casino or online sports betting.

The questionable regulatory status of gambling can create some confusing situations. For example, some states don't allow casino-style gaming but allow betting at horse racing tracks. Other states allow casinos but restrict sports betting. In New Jersey, you can bet on a horse race at age 18 but are allowed on the casino floor once you're 21. 

Confused yet? 

Investors looking for the top casino stocks must stay on top of state laws and regulations.

The proliferation of online gambling has created another set of headaches for regulators. In the mid-2000s, poker games like Texas Hold 'Em began scoring big ratings on ESPN and other cable channels, leading to an explosion in online poker sites. However, online gambling isn't regulated the same way that physical gambling is at casinos and racetracks. Many online poker sites were offshore books with questionable legal status, and they shut U.S. customers out following the implementation of laws like the 2006 Unlawful Internet Gambling Enforcement Act.

Online gambling remains restricted in many areas, although the legalization of sports betting in 2018 has begun softening the stances of many federal and state regulators. One of the reasons for excitement about casino stocks is this attitude shift from both the public and regulators, which could allow operations to expand into states and territories that were previously inaccessible.

Understanding the Casino Industry 

The global casino industry has seen rapid growth and transformation in recent years. The total size of the global casino gaming market is estimated to be over $250 billion as of 2023. North America accounts for the largest share, followed by Asia Pacific and Europe. Las Vegas is still the unparalleled capital of casino gaming worldwide, with famous casinos like Caesars Palace, Bellagio and MGM resorts twinkling along the iconic Strip.

However, regional commercial casinos and Native American tribal casinos have expanded gambling far beyond Vegas and Atlantic City. New jurisdictions also continue to open up, with sports betting now legal in over half of all U.S. states.

While Vegas' casino industry thrives on tourism and conventions, regional casinos mostly cater to local patrons. They provide an experience similar to Vegas but offer convenience for customers who can't travel or prefer not to. Regional casinos seem to be more resilient and diversified in their revenue flow; however, they may face more competition as more states legalize gambling.

As for tribal casinos, they are often located in rural or remote areas and serve as the primary entertainment source for residents in these regions. Unlike commercial casinos, these casinos typically enjoy exclusive rights to operate within their jurisdiction areas due to various treaties.

A few key factors are driving growth and change in the casino industry.

Legalization and Acceptance of Casinos in New Jurisdictions

Many countries in Asia and Europe have legalized casinos in recent years, expanding the global market. For instance, Macau, once a Portuguese colony, has quickly become Asia's answer to Las Vegas. It's now the world's largest gambling market in revenue, overtaking Vegas in 2007. Macau caters primarily to high-end gamblers from China and other Asian nations, but it's also attracting more and more tourists from across the globe.

Growth of Online and Mobile Gaming

Online gambling has exploded, especially in the wake of pandemic-related closures and restrictions. Traditional casinos have expanded their offerings to include online games, live dealer experiences and mobile apps for betting.

Diversification into Non-Gaming Entertainment

Casinos have broadened their appeal by offering non-gambling amenities like restaurants, hotels, shopping centers, concert venues and golf courses. This trend toward "integrated resorts" has taken off widely in Asia.

Increased Use of Technology

Casino operators are leveraging advanced technology to enhance your experience and streamline operations. Technologies like blockchain, AI and machine learning are being used for everything from customer analytics to predicting game outcomes and developing new games.

Corporate Mergers and Acquisitions

 The casino industry has recently seen several high-profile mergers and acquisitions, such as the landmark Eldorado Resorts Inc. and  Caesar's Entertainment Inc. NASDAQ: CZR  merger, creating the largest U.S. casino company market cap. Such consolidation can create stronger, more financially robust entities better equipped to handle the challenges of an evolving market.

Ways to Invest in Casino Stocks

Investors looking for casino stocks to buy can find shares traded on major exchanges like the NYSE and NASDAQ, including companies with international operations. Stocks in this sector can be broken down based on the following criteria.

Domestic Casino Operators

You'll likely recognize the names of many of the publicly-traded domestic casino stocks. These companies offer physical gambling locations, online casinos and sportsbooks in various states nationwide. Suppose you've watched a single sporting event in the last few years. In that case, you're likely familiar with companies like DraftKings Inc. NASDAQ: DKNG, which started as a daily fantasy sports site but expanded to online sports betting, slots and table games in 2018. 

DraftKings currently operates in 18 states but has no physical locations. Caesar's is a domestic operator with physical locations in Las Vegas, Atlantic City and other U.S. cities, plus online sports betting and casino games.

International Casino Operators

Casinos are also big business abroad, and nowhere do the lights shine brighter than the city of Macau, the special territory located just a short trip from Hong Kong off the coast of China. Macau is commonly known as the "Las Vegas of Asia." Many large publicly traded companies operate casinos there.

Las Vegas Sands Corp. NYSE: LVS has completely shut down U.S. venues and operates solely in Macau and Singapore. Melco Resorts and Entertainment Ltd. NASDAQ: MLCO has several large Asian casinos. Other operators like Wynn Resorts Ltd. NASDAQ: WYNN and MGM Resorts International NYSE: MGM have physical casinos in Macau, Las Vegas and Atlantic City. 

Gaming Technology and Product Makers

Many companies that supply casinos and sportsbooks are also publicly traded. For example, Light and Wonder Inc. NASDAQ: LNW makes gaming systems, technology and equipment for physical casinos and online gaming sites.

International Game Technology PLC NYSE: IGT is a London-based company providing lottery systems and online wagering technology. Also on the technology side is Genius Sports Ltd. NYSE: GENI, which collects data on gambling and sports betting and provides solutions for online sportsbooks and casinos.

Horse Tracks

One of the most celebrated gambling holidays is the Kentucky Derby, held annually on the first Saturday in May at Churchill Downs in Louisville. Believe it or not, Churchill Downs Inc. NASDAQ: CHDN is a public-traded entity that runs racing competitions at multiple tracks and offers online betting and casino games at various locations. Barstool Sports' parent company, Penn Entertainment Inc. NASDAQ: PENN, owns or manages tracks in Kansas, Texas, New Jersey, Pennsylvania and Illinois, and Bally's Corp. NYSE: BALY operates a track in Colorado.

Casino and Gambling ETFs

If you need help deciding which casino stocks to buy, consider buying into the sector through exchange-traded funds (ETFs). The Roundhill Sports Betting and iGaming ETF NYSE: BETZ holds online sportsbooks, physical casinos and gaming system development stocks. 

Another option is the iBet Sports Betting and Gaming ETF NYSE: IBET, launched in 2021 and holds both casino and online sports betting stocks.

How to Invest in Casino Stocks

Looking to add casino stocks to your portfolio? Here's a guide to investing in the gambling industry.

Step 1: Determine the type of exposure you want.

Are you looking to invest in casinos based in the United States only? 

What about companies that operate physical locations versus online table games and sportsbooks? 

You'll need to decide which areas of the industry to invest in and which areas to avoid. Or you could go the ETF route and get broad exposure to the entire sector.

Step 2: Research stocks and build an investment plan.

Constructing an investment plan is your next step. You'll need to perform due diligence on the stocks and ETFs that fit your investing criteria and decide when and how to buy them. An investment blueprint can set groundlines for your positions and prevent emotional trading. Review the companies you want to purchase and ensure they have solid balance sheets, good management and a plan for future growth.

Step 3: Determine how much capital you can invest in a casino.

Putting too much capital into a single investment or stock can be a recipe for disaster. Before buying casino stocks, determine how much capital to devote to your investment. Consider your other investments and personal risk tolerance when deciding on the capital to put toward these companies.

Step 4: Find an entry point and purchase shares.

Once you've got a plan of attack, look for good spots to enter your trade and build your positions. Most casino stocks trade on the NYSE and NASDAQ, so they won't be hard to find. If you're trading for short-term purposes, technical analysis can be a good way to get the best possible purchase price. 

Concepts like support and resistance are useful when searching for ideal entry points, so familiarize yourself with these trading techniques.

Step 5: Monitor your investments and buy or sell based on your parameters.

One of the benefits of buying broad-market index funds is that when you buy the whole market, you don't need to keep track of individual stock prices. 

When buying shares of a particular industry or asset class, especially those as volatile as casino stocks, you must watch your investments constantly. Stick to the goals of your investment plan and sell shares when your profit goals are reached (or if your losses exceed the limit you devised in the plan).

Assessing the Risks and Rewards 

The gaming industry is subject to strict regulation, which can affect casino operations and revenues. Changes in laws or regulations, whether at the state or federal level, can create uncertainty for casinos and impact their stock prices. Controversies like money laundering or match-fixing can also cast a long shadow over the entire sector, leading to enhanced scrutiny and potential fines.

The cyclical nature of the economy takes a toll on casinos. As discretionary spending areas, casinos often see a drop in patronage during economic downturns, as people tend to tighten their belts. During the COVID-19 pandemic, numerous casinos shuttered due to health risks and a dramatic decrease in tourism.

However, if you still want to spin the wheels of the roulette table, there’s a potential for reward. Casino stocks have shown impressive returns during times of prosperity. From a socioeconomic perspective, the casino industry is a job creator, helping to boost local economies. As per the American Gaming Association, in 2023 alone, the industry supported approximately 1.8 million jobs.

Last, the industry's pivot toward online gambling and sports betting could be a game-changer. The internet has brought about an era of convenience and accessibility, translating into a massive demand for online gambling services. Digital platforms allow operators to reach new markets and demographics and expand their user base. Technological advancements like virtual reality can reshape the gambling experience into an immersive thrill ride.

To maximize reward and minimize your risk when betting on casino stocks, maintain a diversified portfolio. This protects your investments from the fluctuations of individual stocks or sectors, ensuring that a drop in one area doesn't wipe out your entire portfolio. Stay informed about industry trends and exercise discipline in your strategy. This is particularly important in an industry where public sentiment and legality shifts can change as quickly as a gambler's luck.

Researching Casino Stocks 

Start with thorough research before investing in casino stocks. This includes understanding the company fundamentals, industry trends, and key financial metrics that can give you a sense of a company's financial health, profitability and growth potential.

Begin by scrutinizing the company's balance sheet. Examine the assets, liabilities and shareholder equity. The cash flow statement can also provide a window into the company's operational health by revealing how much money flows in and out.

A particularly useful metric for casino companies is EBITDA, which indicates a casino's operational profitability, removing the effects of financing and accounting decisions.

The company's debt-to-equity ratio can help you understand how much debt it has compared to its equity. A high ratio may indicate the company is heavily leveraged, which could present a financial risk.

While brick-and-mortar casinos primarily earn money from gaming activities, they also generate significant income from non-gaming sectors such as hospitality, dining and entertainment. 

Don’t overlook this aspect. Diversification can cushion a company against downturns in either sector.

Explore whether the casino has a strong online presence. As mentioned, there's a growing trend of people opting for online gambling and sports betting. A casino with an established online platform or partnerships with prominent online gaming companies could offer a competitive advantage.

Consider how the company is managed. A casino company with robust corporate governance can often navigate regulatory scrutiny and industry volatility more effectively than one without. Look at the management team's track record, strategic vision for the future and how effectively they have implemented past strategies.

Don't forget to compare the company's performance with that of its peers in the industry, but don't only examine the absolute numbers. Also, evaluate how the company's financial ratios stack up against its competitors. This will provide a more nuanced understanding of the company's relative strength within the sector.

Last, assess the dividend history. A consistent dividend payout can indicate a company's profitability and stability, suggesting it can generate enough earnings to distribute to shareholders while still investing in growth.

Identify Promising Investment Opportunities

You may want to focus on top-performing casino stocks with proven track records, or you can scour the market for emerging opportunities in lesser-known enterprises poised for growth.

For the former, public companies like Las Vegas Sands have consistently delivered solid returns over the years, owing to their strong financial health and strategic global expansion. With its numerous high-profile casino resorts in Asia, the company has solidified its status as an industry heavyweight.

That said, technological developments and societal norms also introduce us to new players like DraftKings, which has been showing impressive growth. Its successful integration of sports betting into its online platform has allowed it to tap into a progressively digital market. 

Meanwhile, Stockholm-based Evolution AB OTCMKTS: EVVTY, a leader in live casino solutions, has continued to push the boundaries of online gambling with advancements in virtual reality technology. They offer players an immersive experience that closely emulates the rush of a physical casino.

Navigating Regulatory and Legal Considerations

Navigating the labyrinth of regulatory and legal considerations in casinos is a must-do if you want a slice of the casino pie, from licensing requirements to gaming regulations, compliance issues, and ever-changing laws.

Licensing requirements are one of the first hurdles a casino needs to navigate. Worse, they're often very complex and vary from jurisdiction to jurisdiction. A company's ability to secure and maintain its licenses can greatly impact its operational capabilities and potential profit margins. Whatever company you're interested in, research the stability of its licensing situation and any potential challenges or changes that could disrupt it.

Gaming regulations and a company's ability to comply with them are equally critical. Violations can lead to hefty fines or even license revocation, so pay close attention to any potential red flags regarding regulatory compliance.

Look into the changing legal landscape as well. The legalization of online gambling, sports betting and changes in law for brick-and-mortar casinos can significantly affect the industry. There has been a shift towards the liberalization of gambling regulations worldwide in recent years.

Finally, international laws can also come into play. If a company operates overseas, its operational efficiency and profitability could be affected by foreign laws. Enforcement of anti-money laundering regulations, tax law changes or government policy shifts can all impact the business and the stock's value. If the casino company operates in multiple countries, research each region's legal landscape.

Pros and Cons of Investing in Casino Stocks

Casino stocks have benefits and drawbacks investors should be aware of before purchasing any shares. Here are a few thoughts to keep in mind when building your portfolio:

Pros

The benefits of investing in casino stocks include the following: 

• Growing market: The 2018 legalization of sports betting set off an arms race among new entrants and legacy casino operators to access a growing market. U.S. commercial gambling total revenue topped $60 billion in 2022, setting a new record for the industry.
• Softening legal stance: One of the reasons for the industry's explosive growth is the removal of the stigma regarding gambling. States are opening their arms to casinos, wagering and sports betting in ways not seen in a century, and while regulatory headwinds remain, the outlook from a legal standpoint is bright.

Cons

On the other hand, it's still worth considering these downsides:

• Headache regulations: Each state has its own rules and regulations regarding lotteries, casinos and sports betting, which creates many problems for operators seeking to expand into new jurisdictions. Mindsets might change, but the industry will always cut through red tape at the state and federal levels.
• Changing customer preferences: Physical casinos are losing steam as customers frequently can access table games like blackjack, poker, roulette and craps from their mobile phones. Atlantic City has seen many casinos like Revel and the Taj Mahal close in recent years, with others pleading for tax support to prevent shutdowns. 
• Morality concerns: Casino stocks certainly won't appear in any ESG funds. Betting is a divisive topic, and gambling addiction is frequent and devastating. Animal rights activists have also long targeted horse racing for the treatment horses receive during training and races.

Future of Casino Stocks

Optimism is the word for the future of casino stocks. Now that COVID-19 restrictions have faded, casinos have resumed operating as normal, and gambling laws have become more friendly as states legalize sports betting and allow more physical casinos to be built. 

You no longer have to fly to Las Vegas or Atlantic City to sit at a blackjack table. Companies that can leverage these trends and understand the new regulatory framework will have the most success.

Betting Big Can Have Mixed Results

The casino industry is excited to bring new gambling ventures to the public as regulations become less restrictive, but a bright future doesn't mean a straight path upward. Casino stocks will inevitably have ups and downs over the next few years. Changing customer trends will force casino operators to reevaluate their business models, and current locations in Atlantic City will remain under pressure. You may find it tougher to pick winners in this sector than horses at the racetrack, so research and risk tolerance are important factors to consider when deciding which casino stocks to buy.

FAQs

Here are a few frequently asked questions from investors looking for the best casino stocks:

Which casino stock is best?

The best casino stocks depend on your goals and risk tolerance as an investor. An ETF is likely the safest action if you want broad exposure. However, some companies are better managed than others, so quality research could reveal the outperformers.

Can you buy shares of a casino?

Many casinos are owned or managed by publicly traded companies that trade on the NYSE and NASDAQ. You can't own shares of a particular casino, but you can invest in the companies that run them.

What are the top three gambling stocks?

Picking the top three gambling stocks depends on your point of view and goals as an investor. Consider your investment criteria and decide which factors matter most in your stock research.