Las Vegas casinos went dark on March 17, and the governor of Nevada has declared all “non-essential” businesses in the state will remain closed for 30-days. Right about now seems like the worst time to invest in the casino companies, right?
Not really.
Investors in the know are already thinking ahead, as to which casino companies are best positioned to weather the storm and make a successful recovery. And that will happen.
The fact is, a new gold rush is heading straight for a savvy investor, and it’s all about sports. Sports betting has been going on illegally forever. However, the 2018 Supreme Court decision to strike down the Professional and Amateur Sports Protection Act opened the floodgates of legalized sports gambling. The fact is, this coronavirus crisis may be an opportunity to get in early on what could be a sure bet.
What we cover
sports gambling is back, and it’s big
Ever since that Supreme Court decision, individual states have introduced legislation approving legal, full-scale sports gambling, with the alluring promise of increased tax revenue. So far, 16 states have legalized sports betting, and 31 additional states are also moving in that direction.
The gambling market is massive, and Thomas Allen, a Morgan Stanley analyst, sees sports betting as the biggest growth opportunity for the U.S. gambling market. According to Allen, legal sports betting revenue was less than $1 billion in 2019, but is expected to grow to $7 billion by 2025. That’s small, compared to the size of the illegal sports betting market, estimated to be $150 billion. The competition to convert illegal bettors to legal bettors will be fierce.
Potential profits are increased by online apps
Early on, MGM Resorts realized the enormous potential of legal online sports betting. At the center of the company’s program was the development of its mobile gambling app, BetMGM. MGM Resorts, has more than 30 years of expertise when it comes to gambling, they partnered with the UK gambling operator GVC Holdings, forming a joint venture, Roar Digital, to develop the gambling app.
BetMGM offers mobile gambling on both professional and college football, and professional basketball, baseball, soccer, and hockey, among many other sports. The BetMGM app can also switch between sports gambling and casino games.
The company rebranded its sportsbooks and also introduced gaming kiosks for fast wagers. BetMGM has also partnered with the Buffalo Wild Wings restaurant chain, Yahoo! Sports, and others to take their mobile sports betting brand to every state where it’s legal.
Yahoo! Sports “is an enticing partnership for BetMGM and Roar Digital, it helps us reach the widest audience possible of engaged sports fans in the country,” commented Roar Digital CEO, Adam Greenblatt. “The Yahoo! Sports digital sports content and app are enjoyed by 60 million users in the US every month, and Yahoo! Fantasy Football racks up 9 billion minutes of user time every year. Together, we offer sports fans a winning combination.”
However, BetMGM’s reach is limited to states where sports gambling is legal. So far, BetMGM has launched in Nevada, New Jersey, Indiana, and West Virginia. It’s not required for users to be a resident of these states, but they do need to be within the state’s borders to use the app. BetMGM utilizes GPS technology to determine exactly where the user is when attempting to place a bet.
The odds of MGM’s survival are good
The COVID-19 pandemic that shut down all MGM properties has hit their stock prices pretty hard. MGM stock is down 73% year to date, and unfortunately, the bottom is not yet in sight. The doubt for MGM, as well as every other casino, is how long the Covid-19 restrictions will last. Fortunately, it looks like MGM has sufficient assets and liquidity to hold on for quite some time.
MGM’s announcement when it closed its Las Vegas casinos indicated the company wouldn’t accept reservations before May 1; that means, the shutdown could be a month and a half at a minimum.
At the same time, revenue in China is beginning to return to normal. MGM properties in China accounted for $2.9 billion of the company’s $12.9 billion in the fiscal year 2019 revenue. That’s 22.5%. In the fiscal year 2019, MGM’s Chinese 19% revenue growth quickly surpassed its Las Vegas growth of 2%. Hopefully, revenue from its operations in China will provide a financial buffer for MGM Resorts in 2020.
Furthermore, the company doesn’t appear to be facing excessive debt overload, any serious liquidity, or other balance sheet problems. According to fourth-quarter 2019 financial disclosures, the company had $11.3 billion in debt and $2.3 billion in cash. Of that debt, none was current at the time and $11.2 billion is long term.
Bet on MGM Resorts
MGM International Resorts already has a lot going for it; worldwide name recognition, top of the line advertising partners, and very deep pockets. It checks all the boxes when competing against other online sports gambling companies such as FanDuel, DraftKings, and others.
However, for now, sports betting has come to a complete stop, as both professional and college teams cancel every event until the Covid-19 crisis has died out. But fans are wondering if the shutdown will ever end. “I promise you, no one on in the world can answer that question,” said Myron Cohen, a global health expert at the University of North Carolina.
The long pause is recognized in the professional sports community. “To look at any period shorter than 60- or 90-days doesn’t make a lot of sense,” said Atlanta Hawks CEO Steve Koonin. “This isn’t going to go away in a few weeks. Recently, the number of coronavirus cases in our city doubled. I think we need to plan for this to last quite a while.”
The good news is, MGM is in a very good position to conquer the sports betting market when sports finally resume. The company is also able to invest tons of capital into its platform. Finally, the BetMGM rates high; BetMGM New Jersey has a 4.5-star rating in the app store, compared to the 2.5-star rating for Caesars‘ sports betting app.
The BetMGM partnerships are also crucial, including multiyear deals with the NBA, NHL, and MLB. MGM has agreed to pay the leagues for their valuable in-game data as well as being called an official partner. By partnering with three of the four major sports leagues, MGM has a valuable presence with consumers who are already deeply involved with these sports. The high visibility of BetMGM through sports advertising makes it very easy to convert bettors as well as those on the sidelines.
However, the NFL is perceptibly absent from the partnerships. That’s because the NFL signed an exclusive partnership with SportsRadar AG for the right to distribute official NFL data to legal sports-betting operators in this country, and internationally. Bettors can still gamble on NFL games with BetMGM, but it’s simply not acknowledged as an official partner.
MGM could very well be in the central position to capture the growing sports betting market, which will be key to helping the company recover financially from the current crisis. If you consider MGM Resorts’ ability to survive a shutdown, as well as the potential of the BetMGM sports betting mobile app, investing in MGM stock at any price below $10 per share is a good buy for any long-term investor.
