18 Jun MGM Resorts (MGM)
Being an avid sports watcher in Australia it would be almost impossible to miss the abundance of advertising dedicated to sports betting. Try and watch any football game in winter, regardless of the code, and you’ll no doubt be inundated with the latest odds for each team, likely first point scorers, and betting specials provided by an ever-growing number of gambling agencies. For good or bad, betting sponsorships have taken over the alcohol and cigarette sponsorships of old. And there’s a ton of money to be made in fleecing punters of their hard-earned cash.
Australia, unlike many other countries, has always held a more relaxed attitude to gambling and sports betting. The practice has been legal since the 1980s, and before that was prevalent, not so legally, as early as the 1810s. Surprisingly, the advent of sports betting has not been as evident in the United States. That is until recently.
In 2018, a victory in New Jersey’s supreme court meant that any state in the US who wished could legalise sports betting. Nevada and a few other select states were the only ones at the time who allowed gambling. Since then there’s been a two-pronged attack from both state and federal legislators to get sports betting introduced across the country. It’s already legal in 22 states, with a further 8 having recently passed legislation that will make it legal in the very near future.
There’s 18 more that have introduced bills that have not been passed, and a further three that are yet to start proceedings. That means there’s a huge slice of the population who currently can’t use these betting sites but will likely have access sooner rather than later. Industry analysts predict that almost 80% of states will have some form of legalised sports betting in the next few years.
The sports betting market has been a saviour of the gambling industry which has been decimated by the coronavirus pandemic. Nevada’s gaming board, the home of US gambling based in Las Vegas, announced recently that gaming revenues in the state dropped by 25% in 2020, a result of travel restrictions and stay at home orders. Fortunately for the bricks and mortar gambling houses involved in the sports betting market, you don’t need to leave your house to gamble online.
Despite sports across the globe shutting down during pandemic outbreaks the online sports betting industry smashed records in 2020. By October, Americans were punting $3 billion per month, with revenue up by 53.5% year on year to $237.5 million. In New Jersey, home of the original supreme court decision, gamblers set national betting records for five months straight, taking in $996.3 million. The global online market is currently worth around $66 billion, with the US only taking up a small portion of that. A study by Fortune Business Insights this year predicted that the online gambling market will grow to generate $158 billion in the next seven years.
DraftKings (DKNG), a recommendation of ours back in November, is an industry leader in the online space. Today’s stock report subject MGM Resorts has, up until now, been a more traditional casino management company. They’re a global entertainment company, owning hotels, casinos, conference centres, restaurants, retail shops and live shows. Their property portfolio is spread out over the US and in the Chinese gambling mecca of Macau, with names under their banner including the Bellagio, MGM Grand, Aria, and Park MGM.
They own more than half of the casinos on the Vegas strip, so 2020 proved to be a tough one for them. But with US vaccination rates at more than 65%, it is hoped the city will be operating at full strength by the second half of 2021. With pent up demand, tourists are likely to visit in record numbers with restaurants, hotels, conferences, and show attendances at full capacity. It is expected by travel analysts that leisure travel will be the first to recover. Closely followed by corporate travel. MGM resorts is heavily reliant on both.
However, the pandemic has seen MGM push hard into the online arena with their BetMGM online app. It’s now the third most used app in the US behind DraftKings and Flutter. According to Bank of America, sports betting will grow by 21% in 2021 and another 25% in 2022, while Morgan Stanley estimate that the US market will grow from $833 million in 2019 to $7 billion by 2025. MGM is poised to take more than their fair share of the pie.
It’s why MGM is such a great play at the moment. It is by far the most affordable of all of the pure online options. It’s an economic rebound play in its hometown of Las Vegas as well as in Macau. While it is also likely to be able to use its brand name and reputation to muscle in on the online sports betting market. In April, management said they expected BetMGM to rake in $1 billion in revenue in 2022. That’s up from the $178 million it took in 2020. That growth is outrageous, and with more states coming online over the next few years the possibilities are huge.
The MGM share price has responded well since the pandemic. It’s now around $10 higher than where it was at the end of 2019. However, I feel there is still a lot of room to grow, with its online sports betting leading the way, and ably supported by rebounds in the casino industry at home and in China. As always buy on any weakness.