Can The Gambling Industry Survive?

When one thinks of gambling, the first images that come to mind are of the vibrant, colorful, tall buildings that paint the Las Vegas skyline. The multi-billion dollar industry is as controversial as it is illustrious, and it has made some rich while bankrupting others.

The 21^st century has been characterized by unprecedented technological innovation, and with that has come a change in consumer demands as well. The gambling industry has seen slowed growth in the last few years, and it is doing everything in its power to evolve and find new growth catalysts. However, the main question has become whether these changes have been too little and/or too late.

Is the business of gambling climbing onto its deathbed, or expanding into an even larger beast? Well, let’s take a look at what the major players in the industry have doing to see if their bets will pay off moving forward.

The Newfound Importance of Macau

Although Las Vegas was the epicenter of the gambling industry for decades, recent years have seen an eastward shift towards China’s Special Autonomous Region (SAR) of Macau. In 2002, the Macau government ended casino tycoon Stanley Ho’s monopoly in the region, bringing in competition from major Las Vegas players such as Wynn Resorts (NASDAQ:WYNN) , Las Vegas Sands (NYSE:LVS) , and MGM Resorts (NYSE:MGM) , amongst others.

Since then, these companies have come to derive a majority of their income from Macau. For the aforementioned companies, sales from Macau account for more than each of their respective Las Vegas operations. However, recent changes in the region have caused a decline in gambling activity.

Chinese President Xi Jinping’s anti-corruption efforts have decreased the amount of traffic Macau, since it’s hard to spend your hard-earned illegal cash from behind bars. Wynn CEO Steve Wynn stated in the company’s most recent earnings call that decreased traffic in Macau cost the company $150 million.

A Business Insider article reported that Macau gaming revenue has fallen as much as 50% in recent months, and companies in the region have felt the burn. LVS announced their Q2 2016 earnings report on July 25^th, in which they missed earnings, citing a difficult operating environment in Macau.

The companies believe that the hard times in Macau have bottomed out for now, but some are still mixing things up in order to increase profitability.

Changing the Rules

In a call with investors on Thursday, Steve Wynn said that the company had changed the layout on their floor, moving high-yielding games in high-traffic areas while moving more low risk games to less popular parts of their casinos. The CEO also announced lower winnings odds for their games.

It’s a daring strategy to openly announce that you’ve decreased the odds of customers winning your games, but those changes allowed them to increase profit margins and beat their Q2 2016 earnings expectations, even with a Macau that isn’t pulling its weight right now.

Wynn’s newest Macau location will open on August 23^rd after a few delays, while LVS will open a new location on September 13^th. Although these companies believe that demand is stabilizing in the region, it also isn’t growing, and that coupled with the rise of online gambling could pose a threat as well.

The Rise of Online Gambling

Whereas older generations that wished to gamble did so in casinos, younger consumers are doing so online. In recent years, fantasy daily sports leagues like DraftKings and Fanduel have drawn in over 100,000 players and are each valued over $1 billion. Another new concept is that of skill-based gambling games, which combine both chance and skill in videogame style slot services.

Although these ventures represent a new avenue for the gambling industry, they still fall in the gray area in the slow-moving world of legislation. Online gambling is technically illegal in the United States, but isn’t prosecuted or strictly regulated either. While these companies still continue to operate and generate revenue, a strike down from the courts could destroy them.

Furthermore, these online gambling businesses threaten brick-and-mortar establishments, as many prefer to get their fix from the comfort of their own homes.

Bottom Line

The world of gambling remains as controversial as ever, with many continuing to look unfavorably on the industry. Decreased revenue from Macau coupled with the rise of virtual gambling services put current moguls in an awkward position.

Although outlook appears grim, stabilizing demand and new locations give hope to companies like Wynn and LVS. However, whether they pay off remains to be seen. Things are a bit shaky for the gambling industry, but it appears poised to continue its questionable existence in the years to come.