Are Gambling Companies a Good Investment?

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The house always wins, or so the saying goes. But if casinos and sportsbooks are a license to print money, why have so many of them failed, and what does all of this mean for investors?

Countless punters have considered investing in their favourite bookmakers. After all, if you can’t beat them, you join them, but is that a wise decision, or should they be taking their investment elsewhere?

 

Entering the Bookies

Forget about sports betting vs casinos. What really matters is online gambling vs offline gambling.

Brick-and-mortar casinos are never a sure thing. Combining hotel rooms, restaurants, and entertainment venues with gaming floors, these casinos require a huge investment and don’t always pay off.

Donald Trump lost billions investing in Atlantic City casinos, and he’s just one of many business magnates who lost big in the Garden State. Countless others have followed suit in Reno and Las Vegas, and we’ve seen similar failures on this side of the pond.

Opening a betting shop used to be a sure-thing in the UK. These shops were plastered across high-streets from Maidstone to Middlesbrough. They didn’t require many staff, could be operated with minimal security and fittings and were recession-proof.

The problem is, it became clear that these shops were relying a little too much on problem gamblers. Propped up by FOBTs and daily horse racing bets, they fell afoul of strict government guidelines that restricted the size and frequency of bets.

To make matters worse, these locations struggled to cope with the lockdown, and previously reliable brands like William Hill saw their profits plummet.

In other words, offline gambling is not the way to go as it’s just not as reliable as it once was. The world’s biggest casino brands and betting companies are large enough to survive the pandemic, but can they survive the inevitable shift in consumer trends? Can they continue in the face of tightening regulations?

Probably not.

Thankfully, it is a different story with online gambling sites. Sportsbooks saw the same downturn during the lockdown, as all major sporting events were cancelled, leaving punters with nothing to bet on. However, while brick-and-mortar companies were closing the shutters and preparing for hibernation, online sites were shifting the focus to casino games.

 

Scouting the Field

Online casinos saw a huge surge in activity during the lockdown, and that’s not all. These sites were experiencing tremendous growth before 2020, with more and more players gradually turning away from brick-and-mortar locations and toward their computers and devices.

The last few years have witnessed many major mergers, including Paddy Power and Betfair, and seen the rise of cryptocurrency gambling, with bitcoin casinos websites leading the way. These sites, as well as countless other innovations, have helped to create some incredibly powerful and investable companies.

One of the biggest companies in this sector, Bet365, is not publicly listed, but its marketing efforts have helped to elevate the industry on the whole. More importantly, this British-betting brand exists entirely in the online space, and yet in 2019, it generated revenue of nearly £3 billion, proving that the opportunities are there for investors willing to take them.

 

Picking a Winning Horse

The FTSE 250 listed William Hill is usually one of the top picks when it comes to gambling investments. At the beginning of 2020, before the world fell into chaos, WH anticipated that its profits for 2019 would be over £140 million, much higher than previously forecasted. These predictions suggested that the bookmaker was making ground in an increasingly regulated industry, and with Euro 2020 and the Summer Olympics around the corner, it anticipated a bumper 2020.

Of course, both of those events were postponed and WH is now set for one of its worst years yet. The problem is, while it does have an online casino, it is heavily reliant on offline gambling and sports betting. The same is true for Ladbrokes.

Some of the more likely contenders for investment include NetEnt, which is listed on the Stockholm Stock Exchange, and LeoVegas, which is on the Nasdaq Exchange. These companies are heavily involved with online casino gambling, with NetEnt supplying games and software to companies around the world, and LeoVegas offering direct-to-consumer gaming.

One of the best options, however, is Playtech, which is listed on the London Stock Exchange. Like NetEnt, Playtech creates casino games that are licensed to providers. It earns money from all of the casinos that license its games, and it has hundreds of titles to offer.

Playtech is the largest iGaming developer in the world right now, with slot machines, table games, Live Casino software, binary options trading, and even sports betting. It has its fingers in many pies, and as a business-to-business operator, it’s not as reliant on a constant stream of consumers.

Playtech is recession-proof, lockdown proof, and perfectly placed to capitalize when US online gambling laws are relaxed.

 

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