Investing in the Gambling Industry: Smart Choice or Losing Bet?

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Some have called it the best kept secret of the financial markets while others simply believe that the house always wins when it comes to gambling. So, is the gambling industry worth investing in or is the hype all a red herring? Like most investment dilemmas, the answer is somewhat complex.

The traditional powerhouses of the gambling world, Las Vegas and to a lesser extent Atlantic City have experienced a relatively rough few years. Some believed that the economic downturn would actually spell a boon for the gambling industry in the belief that in troubled financial times ‘sin’ always wins and people are more likely to speculate through gambling. However, this has proved largely to be a false equation and as a result, companies based almost exclusively in Nevada for example, have not prospered as they would have hoped. And with plenty of cash tied up in resort add-ons such as hotels, the traditional gambling model might not offer the best investment prospect.

However, there is a new location on the traditional casino map and it is making quite a splash. Macau is a special administrative area of China and the only area in the country where gambling can thrive. And the crowds are certainly flocking, with little sign of slowing down. US-based Wynn Resorts for example has sensibly diverted much of its presence to Macau and is now looking like a promising investment. The same can be said of Melco Crown Entertainment which operates exclusively in Macau.

Of course an even bigger factor in the overall future of the industry is the huge online casino market that currently exists. The federal ban on online gambling in the United States is being circumvented where possible, with New Jersey leading the way. Having said that, it will probably take some time before online gaming starts to take significant chunks out of the traditional North American casino market. In Europe though, it is a completely different story. Numerous online gambling companies are competing fiercely for a very strong market, offering a dizzying range of games and betting options. Traditional bookmakers such as William Hill have made the successful transition online while retaining their historic land-based operations too. It is worth noting that casinos with a strong online presence tend to have particularly strong cash flows and so the prospects of plenty of dividends are high. Established online giants such as 888.com are keen to spread their wings and have begun to operate in Spain which recently liberalised its regulations. The company is set to pounce on the American market as it opens up.

Another potential area of the growth in the gambling industry is the development of mobile gambling. Due to the ever-increasing development of smart phone technology, it is entirely possible to play virtual casino games and bet on sporting events directly from a hand-held device. With mobile traffic accounting for a growing percentage of online activity, there is every reason to believe that mobile gambling is the next lucrative area of the industry.

There is unquestionably plenty of promising investment opportunity when it comes to the gambling industry. However, like any market, there are question marks over the future too. It is difficult to know for example how tax and legal regulations will evolve in this relatively nascent industry. Nonetheless, investment in a gambling company with a strong online market share and an eye towards innovation is likely to be a smart move.

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