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Overview: An investor's guide to the casino industry

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Part 5
Overview: An investor's guide to the casino industry PART 5 OF 7

Must-know: The casino industry’s key revenue drivers

Key revenue drivers

Gaming revenues are more volatile than consumer staples. Customers in markets outside of Las Vegas usually travel short distances to reach casinos. This is a major component of casino revenue. How much money gamblers bring is determined by their discretionary income.

Must-know: The casino industry&#8217;s key revenue drivers

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The above graph shows the revenue that top casino players earned in 2013. Las Vegas Sands (LVS) is at the top of the list. It’s followed by SJM Holdings and MGM Resorts (MGM). However, revenues for companies like Boyd Gaming (or BYD) and Pinnacle Entertainment (PNK) are lower—compared to its other peers. Exchange-traded funds (or ETFs) like the VanEck Vectors Gaming (or BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) give investors exposure to the leisure industry.

Key revenue drivers

The casino industry’s key revenue drivers include:

  • Location – A location has to be near the target market. This is essential for any casino to be successful. Casino venues must be convenient to get to. They have to be relatively close to major population centers, transportation hubs, and border crossings.
  • Transportation infrastructure  A well-developed transportation network is important for a casino to grow. Las Vegas is successful because its airport can deliver over 20 million visitors to the city every year. The regional highway network connects the city to southern California and Arizona. Singapore’s casinos have been able to increase tourism by double digits. There’s a modern international airport located within a 20 minute drive from the center of the city. Also, the city’s rail and bus system can quickly transport visitors and residents the casino destinations.
  • Gaming technology innovation  Technological innovation has played a key role in casinos’ growth. It has contributed to the gambling sector’s growing popularity. Kirsten Clark is the Director of Marketing for Shuffle Master (SHFL)—the top specialty casino game provider. She sees two key drivers for growing participation in casino gaming—a resurgence in table game popularity and introducing multiple content delivery systems.
  • Disposable income  Increase in disposable income is a significant revenue driver for the casino industry. Key metrics include credit balances. They indicate future fixed payments. They also indicate changes in the cost of food, gas, power, and shelter.
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