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Real Estate, Sports Betting Lead Next Generation of Gaming Stocks

For many years, the majority of the gaming equities scene was primarily ruled by casino shares and, to a smaller degree, by suppliers. In recent years, this has shifted due to substantial input from online sports wagering and property firms. 

In the realm of publicly traded casino landlords, there are only two entities — VICI Properties (NYSE: VICI) and Gaming and Leisure Properties (NASDAQ: GLPI). Those real estate investment trusts (REITs) are offshoots of casino companies. VICI was divested from Caesars Entertainment (NASDAQ: CZR), whereas Gaming and Leisure was carved out from Penn Entertainment (NASDAQ: PENN). 

Their business model attracts numerous investors. Both REITs do not depend on casino attendance or players’ unfortunate outcomes at the tables. Instead, they receive rental payments, and tenants (gaming firms) risk substantial harm to their credit scores if that rent is not paid. Moreover, it is the tenants — not GLPI or VICI — who are accountable for improvements and upkeep at the properties.

"In 2023 alone, VICI'S revenue surged by 35.8%, largely thanks to its aggressive acquisition strategy,” noted Drew Anderson, product analyst at VanEck. “They’re not just snapping up casinos either — VICI has diversified its revenue streams beyond traditional gaming activities, scooping up assets like Bowlero bowling centers and the Chelsea Piers complex in New York.”

VICI is the biggest owner of casino real estate on the Las Vegas Strip and possesses the property assets of renowned establishments like Caesars Palace, MGM Grand, and the Venetian. 

Additional Advantages of Casino Real Estate Stocks 

Gaming and Leisure and VICI provide investors additional possible advantages. The wider realm of REITs is frequently preferred by investors when inflation increases, as seen in 2022 and 2023, since property owners commonly incorporate inflation escalations into leases, which applies to gaming REITs as well. 

Moreover, all types of REITs are sensitive to interest rates, which means their stocks frequently fluctuate in the opposite direction of rates. After a reduction of 50 basis points in September, the Federal Reserve decreased rates by 25 basis points earlier this week. Additionally, there are the long-term leases that gaming firms establish with entities such as GLPI and VICI. This simplifies the prediction of upcoming earnings and cash flow for analysts and investors. 

“These long-term leases ensure that the tenants (the casino operators) are responsible for virtually all expenses, from taxes to maintenance. Rent escalation clauses are also baked into lease agreements, which means GLPI and VICI sit back and collect steady rent checks, giving them a predictable revenue stream that’s less volatile than the ups and downs of daily gaming activity,” added Anderson.

Both VICI and Gaming and Leisure have surpassed Caesars and Penn since they were divested from those casino firms. 

Online Sports Wagering a Leader in Growth 

Following the 2018 Supreme Court decision regarding the Professional and Amateur Sports Protection Act (PASPA), 39 states along with Washington, DC have legalized various types of sports betting, enhancing interest in shares like DraftKings (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT), the parent company of FanDuel. 

Currently, those two firms maintain a duopoly in the US sports betting market, which has surged due to numerous states allowing mobile and online betting, eliminating the need for visits to physical sportsbooks. 

“The internet has fundamentally reshaped gambling, and the old stereotype of gamblers traveling to casinos is becoming increasingly outdated,” observed Anderson. “Sports media outlets cover the betting odds of every event. With the rapid expansion of online gaming and sports betting, the action has moved from the neon-lit Strip to the palm of your hand.”

The chart above shows that online betting is on the rise, and this trend is likely to persist, especially if additional states legalize iGaming along with sports betting.