Recent market turbulence triggered by President Trump’s tariff policies has left many industries reeling, but gambling analysts remain cautiously optimistic about the sector’s resilience.
Key Takeaways:
- Gambling industry expected to weather economic uncertainty better than other sectors
- Sports betting positioned to perform well during potential recession
- State-level gambling legalization efforts may accelerate due to economic pressures
Tariff Turmoil and Market Response
President Trump’s recent “Liberation Day” announcement introduced a sweeping new global tariff system, causing significant market volatility. While gambling stocks initially suffered losses, most tariffs have now been paused for 90 days, with a universal 10% levy remaining in place.
Jordan Bender, analyst at Citizens Capital Markets and Advisory, notes that the pause doesn’t fundamentally change the situation for the gambling industry. “Broadly, prices increasing and consumer uncertainty are still a negative backdrop for discretionary spending for the casino sector, whether it actually comes to fruition or not,” Bender explained.
Paul Leyland, partner at Regulus Partners, highlighted a potential silver lining for the industry: “The good thing about macroeconomic risk to gambling is that it really matters to everybody.”
Gambling’s Recession Resistance
Analysts agree that gambling tends to be more recession-resistant compared to other sectors. Chad Beynon of Macquarie Group pointed out that during the last financial crisis, UK digital gambling only fell 1-2%, while US land-based gaming faced an approximately 8% hit.
Bender from Citizens added, “We believe cheap forms of content-driven entertainment, close to home, have demonstrated the ability to take wallet share during a recession.”
Sports Betting’s Strong Position
Sports betting is expected to perform particularly well during economic downturns. Bender noted, “Nevada (a mature market) sports betting handle, excluding the Strip, declined 2% from peak to trough during the GFC, while handle per adult declined 4% peak to trough.”
Long-term Market Impacts
The current tariff policy could have significant implications for company valuations. Beynon explained, “Generally, these stocks trade off free cash flow yields and price-to-earnings multiples. China has been trading at 11 times earnings for some time. The US is trading at 20 times earnings.”
State Legalization Efforts
A potential positive outcome of economic uncertainty could be accelerated gambling legalization efforts at state level. Both Beynon and Bender highlighted this possibility, with Beynon stating, “The biggest times when states have legalised or permitted gaming are around recessionary or deficit periods.”
As the industry navigates these uncertain waters, companies are expected to be more cautious in providing guidance during the upcoming earnings season, potentially leading to some market volatility.
