3 Gaming Companies to Bet On

Given their size, reach and resources, these companies could dominate the sports betting industry which is projected to witness explosive growth

Vikram Barhat 7 October, 2020 | 12:51AM
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As lockdown restrictions ease and businesses reopen, professional sporting activities are starting to return to arenas. This bodes well for the sports betting industry that was growing exponentially until the coronavirus threw a wrench in the works.

Legal in the U.S. since 2018, it's difficult to determine the size of the industry, but its growth prospects are undeniable. Estimates of the size of the sports wagering market vary significantly. Independent research firm Gambling Compliance forecasts the U.S. betting market to reach anywhere between US$6 billion and US$8 billion by 2024. The market, according to Morgan Stanley, could be worth U$12 billion annually by 2025.

These gaming stocks are quickly moving to position their businesses to benefit from the burgeoning sports betting market. Given their size, reach and resources, these companies could dominate the sports betting industry which is projected to witness explosive growth on the back of legalization, growth in popularity of international sports events, and advances in online gaming technology.

MGM Resorts International
  Ticker MGM
  Current yield: 0.05%
  Forward P/E: -
  Price US$21.66
  Fair value: US$30
  Value 28% discount
  Moat None
  Moat Trend Stable
  Star rating ****
Data as of Oct 02, 2020

The largest resort operator on the Vegas Strip, MGM Resorts (MGM) boasts 35,000 guest rooms and suites. The Strip accounted for nearly half of MGM’s total EBITDAR in 2019. The company also operates the 56%-owned MGM Macau casinos with a new property that opened on the Cotai Strip in early 2018. A property in Japan is expected to open in 2026.

More recently, MGM has been making a big push into the money-spinning sports betting arena. As part of that move, the company's sports betting platform, betMGM, recently tied up with professional American football team The Detroit Lions and followed it up with another deal with the Las Vegas Raiders as their official sports betting partner.

“In the U.S., MGM’s 21 casinos are positioned to benefit from an estimated US$6.2 billion sports betting market by 2024, generating about 4% of the company's total revenue that year,” says a Morningstar equity report, adding the operators could benefit meaningfully as more states move to legalize betting over the next four years.

All of MGM's 21 domestic properties are expected to participate in this opportunity, says Morningstar equity analyst Dan Wasiolek, who pegs the stock’s fair value at US$30. He projects MGM's domestic revenue to drop 57% in 2020, followed by an 84% increase in 2021. “Over the next 10 years we forecast a 6% to 7% annual lift to MGM's domestic revenue, aided by its T-Mobile arena, professional sports, U.S. sports wagering, and recent renovations,” says Wasiolek.

Caesars Entertainment Inc
  Ticker CZR
  Current yield: -
  Forward P/E: -
  Price US$56.83
  Fair value: US$56
  Value Fairly valued
  Moat None
  Moat Trend -
  Star rating ***
Data as of Oct 02, 2020

Caesars Entertainment (CZR) owns 53 domestic gaming properties across Las Vegas (45% of 2021 estimated EBITDAR) and regional (55%) markets. The firm also hosts 13 international properties. Caesars' U.S. presence roughly doubled with the July 2020 acquisition by Eldorado.

Caesars recently agreed to acquire British-based gambling group William Hill for US$3.7 billion in a large bet on the fast-growing sports-betting market. Acquiring one of the world's leading betting and gambling companies could prove to be a fortuitous move for Caesars as it coincides with the acceleration of gaming legislation and growing adoption by consumers.

“Caesars offers investors attractive exposure to the U.S. sports betting market, with its revenue in this industry expanding to nearly US$900 million in 2024, or around 8% of total company sales,” says a Morningstar equity report, noting this is significantly larger than the US$500 million to US$600 million that rival MGM is expected to garner from the industry in 2024.

As a result of the acquisition of the legacy Caesars business by Eldorado, Caesars holds more than a 10% revenue share of the domestic casino gaming market. “The acquisition roughly doubled the company’s U.S. portfolio to 53 properties, while also lifting its loyalty membership over 60 million from 55 million prior,” says Wasiolek, who recently upped the stock’s fair value from US$53 to US$56, “to account for higher sports betting revenue from the company's California property in 2023 and beyond.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Caesars Entertainment Inc113.84 USD0.74Rating
MGM Resorts International47.57 USD-1.39Rating
Wynn Resorts Ltd91.02 USD0.24Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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