8 Sep

Must-know: The casino business model

WRITTEN BY Shawn Bolton

How does it work?

The right location has to be selected before a casino is built. The local zoning laws have to be checked to make sure they will allow a casino in the area. The casino has to register with the city and state. It also has to get the required licenses and employer identification number (or EIN).

The capital that the casino raises could be invested to get gaming equipment like slot machines, video poker machines, roulette tables, poker tables, blackjack tables, craps tables, baccarat tables, chips, cards, and card shoes.

Advertisement is important for a casino. Television and radio commercials draw attention to the casino. Internet advertisements also increase tourism and recreation.

Must-know: The casino business model

The above chart shows how an accurate business plan and enough funding make sure that a casino is established correctly. Generated revenue is used to meet business costs—like license fees, capital expenditures, and wages. The revenue is also used to distribute the free cash flow to the shareholders—through dividends and share buybacks. If there’s any remaining free cash flow, the business keeps it. The business uses it to provide for more growth. It can also use it to meet any contingent liability.

Licensing requirements

Three types of licenses are required to run a casino:

  1. Operating license – This is required to run a casino or offer casino games—for example, running a website that offers poker, roulette, and blackjack.
  2. Personal license  There are two kinds of personal licenses—the personal management license (or PML) and personal functional license (or PFL). PML is for individuals who are responsible for specific areas in the organisation. Casino employees would have to apply for PFL if they are involved in gaming or handling gambling money.
  3. Premises license  This is required to run small or large casino. It’s also required to run an existing casino. It’s issued by the local licensing authority.

Key stocks and exchange-traded funds (or ETFs)

Key players in the casino industry include Las Vegas Sands (LVS), MGM Resorts (MGM), Penn National Gaming (PENN), and Melco Crown Entertainment (MPEL). Exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the VanEck Vectors Gaming (or BJK) track leisure companies.

To learn more, see Why minor revenue changes greatly impact a casino firm’s value.

To access our premium industry primers, company overviews and financial models, please email premium@marketrealist.com. Specify the industry or company ticker(s) you are interested in and a representative will get in touch with you.

Latest articles

In Q3, billionaire investor Leon Cooperman's top five holdings were Fiserv, Alphabet, United Continental, Chimera Investment, and Cigna.

In 2018, 3,503 metric tons of gold were produced globally, 1.8% higher than in 2017. Let's look at the world's top gold-producing countries.

TJX Companies (TJX) reported better-than-expected earnings results for the third quarter of fiscal 2020, which ended on November 2.

Despite Canada's legalization of cannabis a year ago, a StatCan survey found that 42% of Canadians have obtained their cannabis from illegal sources.

On November 11, the NHS (National Health Service) approved two cannabis-based medicines, Epidyolex and Sativex, for use in the United Kingdom.

Roku (ROKU) stock tanked more than 5% on Tuesday during market hours. The company said it will issue nearly 1 million common shares today.