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Overview: An investor's guide to the casino industry

PART:
1 2 3 4 5 6 7
Part 3
Overview: An investor's guide to the casino industry PART 3 OF 7

Why the casino industry’s growth trend continues

Casino industry’s growth trend

Even though casino expansion is cannibalizing existing market revenues, the growth trend doesn’t appear to be slowing down. State legislatures continue to view gaming as an easy way to earn a significant amount of taxes. In 2012, state gaming tax revenues increased by 8.5%—or $661.4 million. The state gaming tax growth rate continues to outpace the overall gaming revenue growth. New states have imposed high gaming tax rates of net revenues.

Why the casino industry&#8217;s growth trend continues

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The above chart shows that casinos are back on-top. Revenues climbed to an all-time high in 2012. Commercial and tribal casinos generated ~$65.8 billion in 2012. This was higher than the previous peak of $63.6 billion generated in 2007.

It’s important to break the 2012 revenues down by the segments. The commercial gaming industry generated $37.4 billion in 2012. The tribal gaming industry generated ~$28.4 billion in 2012.

Gross gaming revenue (or GGR) refers to the wagered amount net of winnings that’s returned to the players. It determines the earnings of a casino, racetrack, lottery, or other gaming operation before taxes, salaries, and other expenses.

Recently companies like Las Vegas Sands (LVS), Caesar Entertainment (CZR), Boyd Gaming (BYD), and MGM Resorts (MGM) have significantly outperformed the market. Exchange-traded funds (or ETFs) like the VanEck Vectors Gaming (or BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) track the leisure companies.

Tribal gaming expansion

Tribal gaming has also continued to expand. Tribes continue to see gaming as a way to generate revenues. Gaming improves the overall quality of life within their respective nations. In 2012, six of the seven National Indian Gaming Commission (or NIGC) regions added a new casino. Numerous tribes reinvested in their existing facilities. They expanded the gaming floors, hotels, restaurants, or resort amenities like golf courses and spas.

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