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Is Legal Sports Betting Boon or Bane for Casino Gaming ETF?

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Sanghamitra Saha
ASGN vs. FICO: Which Stock Is the Better Value Option?
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Things are looking up for Casino stocks and ETFs. VanEck Vectors Gaming ETF BJK has gained about 7.2% so far this year (as of May 14, 2018), beating the S&P 500 (up 1.3%) on a volley of favorable happenings in the space. On Monday, casino stocks jumped on the news of legalization of sports betting in several U.S. states. The casino ETF BJK in fact added 2.2% on May 14 (read: Basket March Madness Gains With These ETFs).

The Supreme Court annulled a federal law that bans sports gambling in a breakthrough decision that allows states to legalize betting on sports. The court ruled 6-3 to invalidate the Professional and Amateur Sports Protection Act, a 1992 law. Per the older law, a person could bet on the outcome of a single game only in Nevada.

Is the New Rule a Mid-Term Harm to Renowned Casino Stocks?

The court's decision now potentially permits legal sports betting in several states like New Jersey, Delaware, Mississippi, New York, Pennsylvania, West Virginia and possibly nationwide. The ruling will end Nevada's monopoly on the sports gambling practice, which earns billions of dollars annually. Some states expect sports betting as a good source of tax revenues, per CNBC.

But since Nevada-based casino operators are likely to lose on the monopoly under the new rule, the likes of Wynn Resorts WYNN and Las Vegas Sands LVS, Nevada-heavy casino companies, saw shares sliding following the Court decision, per CNBC.

WYNN was down 2.1% on May 14 and LVS lost about 0.9%. Instead, companies like Churchill Downs Inc. CHDN and Penn National Gaming Inc. PENN benefited more on the news and added about 4.6% each on Monday.

No Major Threat: Macau & Earnings Are Positives

Major gaming companies like WYNN, LVS and MGM Resorts MGM have wide exposure to China apart from the United States. And a surge in gaming revenues in Macau — a Chinese territory and “the country’s only legal casino hub” — should help these companies tide over the sports betting monopoly issue in Nevada.

Gambling revenues in Macau jumped 27.6% in April and beat analyst expectations of an 18-22% rise thanks to solid demand. April represented the 21st consecutive month of gaming revenue gains.  However, revenues are still off the highs seen in 2014, per Reuters.

Overall, the earnings picture is also positive. MGM Resorts International’s adjusted earnings of 34 cents for the first quarter of 2018 beat the Zacks Consensus Estimate of 31 cents. Total revenues of $2.82 billion surpassed the consensus estimate of $2.80 billion by 0.7% and increased 3.9% year over year. MGM China’s net revenues increased 25% while net revenues from the company's domestic resorts declined 1%.

Las Vegas Sands’ adjusted earnings per share of 88 cents surpassed the Zacks Consensus Estimate of 77 cents by 14.3% and increased 41.9% year over year on higher revenues. Net revenues of $3.4 billion beat the consensus mark by 6.3% and increased 11.7% year over year. The solid performance can be attributed to services across Macao and Singapore operations.

Among the trio, Wynn Resorts seems to suffer more. The company beat on both lines in Q1 but Wynn Macau revenues climbed 11.9%, which fell below our exclusive non-financial metrics consensus estimate of $638 million.

Better to Play Casino ETF BJK?

Against this backdrop, it is intriguing to play the casino gaming ETF BJK as it gives exposure to a wider array of casino stocks, irrespective of location specifics. The basket approach actually minimizes stock-specific risks (see all Consumer Discretionary ETFs here).

The fund holds 45 stocks in total. Galaxy Entertainment (8.3%), Las Vegas Sands (8.1%), Sands China (6.9%), Aristocrat Leisure (6.3%) and MGM Resorts (6.3%) are the top five holdings. The United States has about 42% exposure while China and Australia take the next two spots. The fund charges 65 bps in fees.

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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
 
Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
 
MGM Resorts International (MGM) : Free Stock Analysis Report
 
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
 
Churchill Downs, Incorporated (CHDN) : Free Stock Analysis Report
 
VANECK-GAMING (BJK): ETF Research Reports
 
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