While most of the products and services provided by companies around the world are cyclical in nature, there are very few consumer sectors that provide investment opportunities no matter what business cycle the economy is in. One of those industries is gaming. Regardless of the economic condition, there are always footfalls in a casino or in a betting room. To diversify a portfolio, gambling is one of the interesting sectors to invest in. The industry itself has a strong lobby that would not let it down. It is not necessary to apply for a gaming license or invest in a casino to bet on this sector. The bond market and stock markets provide several options for gaining exposure to the gambling business.
Before we venture into investing, let’s learn some basics about the industry. Gaming involves a large number of gambling activities, such as betting on races and sporting events, casinos, poker, and slot machines. These companies can be of two types: American-style gaming, which is modeled after destination-based gambling, and European-style gaming, which consists of retail betting shops. With the advent of the Internet, a third type of gaming company has emerged that focuses solely on online gaming. This involves both operating platform and software providers as well as gaming host companies that provide gaming products to online customers.
Historically, all forms of gambling activities were considered illegal. There were many illegal operators at the regional level due to the existence of a strong demand in the sector. This led to a change in the perception of gambling activities and governments around the world legitimized gambling by labeling it as a leisure or recreational activity. This resulted in a widespread development of casinos (mainly in the US) and betting shops (in Europe). With the changing of the times, new products were added such as slots, off course bets, telephone bets and ultimately online bets. While most of the countries that allow gambling are silent on online gambling, European countries have been the pioneers in this field. In the 2000s, the UK, followed by Italy and Spain, legalized online gaming, ushering in new types of players in the markets.
Although highly regulated, both physical and online gaming have become lucrative businesses. Investors wishing to enter the gaming industry could invest in some of the companies whose shares are listed on the stock exchanges, for example William Hill. Also, few of the gaming companies have bonds outstanding, providing good opportunities for fixed income investors to gain exposure to this sector. However, the sector is highly regulated, exposed to technological changes, and has high operating leverage. Investors are advised to retain financial advisors who will be able to access these risks associated with the bond, compare it to clients’ risk appetite and provide investment recommendations.