Are Casinos a Viable Investment Opportunity?
Posted by Harry Kane on Sunday, June 11, 2017
When you hear the words ‘casino’ and ‘investment’ in the same sentence, your mind will most likely be instantly drawn to the type of wagers made by professional gamblers in the quest for a viable return.
Given the relentless growth of the UK gambling market and its seemingly limitless potential, however, it stands to reason that virtual casino brands should also serve as viable targets for all types of investor (from those looking to get in at the ground level to others who wish to purchase shares in established companies).
Do casinos still represent a desirable value proposition in the current climate, however, and if so how should you utilise your capital?
Strength in Size: A Key Indicator of Market Growth
To accurately asses the investment potential of casino brands, it is important to first make a distinction between on and offline platforms. After all, the virtual sector (including online casinos and extensions of seminal high street bookmakers) has continued to grow at an exponential rate since 2010, while it now accounts for nearly 33% of the overall market.
We have also seen a huge number of mergers and acquisitions among the biggest hitters in the virtual market, underlining the popular observation that there is strength in size when seeking out investment opportunities. 2015 saw Paddy Power and Betfair join forces to become one of the truly seminal players, for example, establishing a combined market value of £7.2 billion.
Last year, Ladbrokes and Coral also merged to create a new brand force, and one that was worth an incredible £2.5 billion.
These mergers have created a more predictable marketplace, and one that is capable of delivering reliable and incremental dividends for investors. This, in turn, has generated more interest among investors, driving grass roots growth and more competitive share prices. In fact, this may be the only cause for concern among investors, as the share prices associated with online casino brands continue to rise and restrict the potential for bottom line profit.
What About Offline Casinos?
This is a small price to pay for most, but if the higher cost of investment does provide an obstacle what are your alternatives? You could invest in offline casino brands and bricks-and-mortar establishments, of course, but it is important to bear in mind that the number of available outlets is set to decline over the course of the next five years or so. The same principle applies to high street bookmakers, which saw a 1.4% decline in the UK during 2016.
These events have driven down the cost of land-based casino shares, making them a more attractive proposition to some investors. The key here is to select brands and outlets that have sustained their growth during the digital age, while also highlighting those that have diversified into other areas of entertainment and added more viable revenue streams. These may offer superior returns, at least for the near-term.
The Bottom Line
In many ways, investing on virtual casino brands remains a more viable way of making a profit in the digital age, particularly if you are looking to achieve long-term gains. For those seeking near-term gains or more competitively priced shares, however, land-based casinos may offer a more attractive proposition, even though the long-term outlook for this market is a cause for concern.
Make no mistake; however, the UK gambling industry represents a hotbed of opportunity for investors, so long as they are selective and make informed decisions.