"The degree to which online play can offset losses in traditional casino play will be limited"

In a marketing update on the coronavirus pandemic impact on the gambling industry, The Innovation Group (TIG) and Innovation Capital have stated that as sports betting is limited by the number and types of events being held, the surge in live table games and proxy betting via online channels online gaming was an expected development. However, among other findings, the companies have revealed that the degree to which online play can offset losses in traditional casino play will be limited.

Innovation Insights | COVID-19 Impact on iGaming trends, Lessons from Macau Re-openings and Near-term Liquidity Action Items https://t.co/uEoLXHs1tC pic.twitter.com/5YKTXrrFSp

— The Innovation Group (@InnovGrp) March 30, 2020

The companies have updated materials from their March 13 conference call with more recent data and their current perspective on industry impacts. Developments within the last two weeks of covering COVID-19 are noteworthy and have led to changes in their ongoing analysis:

Most notably, since their initial coverage, casinos have closed their doors both in North America and most other jurisdictions. As a practical matter, this removes any question around the short-term revenue impacts on bricks-and-mortar establishments.

Casino properties and corporations are reassessing their current employee status during closures based on emerging national regulatory parameters, which will affect short-term liquidity. Possible state and local regulatory relief is also entering the conversation. However, longer-term strategic matters primarily concerning debt are quickly reaching the forefront.

Measured re-openings in Macau have shown the first signs of the eventual recovery of that market and the industry. Initial trial measures to reduce the risk of latent spread are a work in progress that could inform the overall industry as it moves painfully slowly in that direction.

The near amelioration of new cases in China and leveling off in other regions are beginning to imply different COVID-19 cycle times. These cycles will become the impetus for the modeling exercise The Innovation Group is undertaking to forecast recovery and resulting economic and fiscal impact patterns as data becomes more available.

Online gaming is expected to show notable revenue increases in March. While sports betting is limited by the number and types of events being held, live table games and proxy betting via online channels have new relevance where legal. The surge in online gaming was an expected development but the degree to which online play can offset losses in traditional casino play will be limited.

Enhanced player engagement through online and social gaming channels is a positive way to add more meaningful content to otherwise sober releases from management.

Source: Cap IQ as of 3/27/2020.
(1) Large-cap gaming index composed of LVS, MGM, CZR and WYNN.
(2) Regional gaming index composed of PENN, BYD, ERI, CHDN, RRR, GDEN, TRWH, MCRI, CNTY and FLL.
(3) Gaming REIT index composed of GLPI, VICI and MGP.

• Gaming sector has materially underperformed the broader market
• However, gaming sector has seen a dramatic bounce back in their valuation – more so than broader S&P 500 index
• Resurgence in stocks likely driven by the Passage of Federal stimulus package andInsider buying
• Gaming REITs continue to be least volatile asset class in the sector
• Among high yield credits, gaming sector has been hit the hardest

The companies will continue to monitor developments in the coming days and weeks as COVID-19 is addressed.

See the full report here.