J.P. Morgan analyst Joseph Greff has painted a mixed picture for the gaming industry as 2025 approaches. While traditional casino operators, particularly in Las Vegas, face headwinds, the online sports betting and iGaming sectors hold promising potential. His analysis highlights challenges for brick-and-mortar operations and excitement for digital platforms reshaping the future of gaming.
Las Vegas Gaming Operators Brace for Slowdowns
The Las Vegas Strip and local operators could face a challenging start to the new year. Greff singled out major players like MGM Resorts International, Caesars Entertainment, Red Rock Resorts, and Boyd Entertainment as vulnerable to stagnating revenue and margin pressures. Despite high-consensus estimates, he noted a lack of catalysts for growth in the near term.
- Revenue Challenges: Top-line growth is slowing, and operators must contend with tough year-over-year comparisons through Q1 of 2025.
- Long-Term Outlook: Greff sees medium-term potential for these companies, even if short-term dynamics remain unfavourable.
Interestingly, while acknowledging a lack of immediate triggers for growth, Greff doesn’t predict sustained negativity for Las Vegas operators, suggesting a stable but subdued trajectory.
Macau Gains Momentum Amid Policy Changes
Macau’s recovery appears more robust, buoyed by policy shifts aimed at boosting tourism. China’s National Immigration Administration has announced significant changes starting in January 2025:
- New Visa Policies: Residents of Zhuhai can apply for weekly Macau visits, while Hengqin residents gain unlimited entry within a year, with restrictions on stay durations.
- Economic Impact: These changes are expected to bolster the mass market segment, which has lagged behind premium recovery trends.
Las Vegas Sands is positioned to benefit most, according to Greff, thanks to its Macau operations and ongoing renovations. In contrast, competitors Wynn Resorts and Melco Resorts & Entertainment are expected to trail behind Sands’ growth trajectory in the region.
iGaming and Online Sports Betting: The Stars of 2025
While brick-and-mortar casinos navigate challenges, the iGaming and online sports betting sectors are emerging as standout growth areas. Greff’s forecast paints a picture of rapid expansion and rising engagement:
- Projected Growth: Combined online sports betting and iGaming revenues are expected to grow nearly 20% in 2025.
- Key Drivers: Enhanced product offerings, including advanced parlay capabilities and in-game betting, are drawing in new and returning customers alike.
- Market Expansion: States like Missouri could join the fold, contributing to incremental growth alongside increased penetration in existing states.
The North American market is projected to reach $42.1 billion by 2030, with sports betting contributing $26 billion and iGaming $16.1 billion. Such figures underscore the immense potential of digital gaming.
Key Upgrades and Ratings: Winners and Losers
J.P. Morgan has adjusted its ratings for several notable gaming stocks, reflecting these evolving dynamics. Here are some highlights:
- Penn Entertainment: Upgraded to Overweight, with a year-end 2025 price target of $27. Investments in retail growth projects are beginning to yield returns, and there’s optimism about ESPN BET’s future performance.
- Gaming and Leisure Properties, Inc. (GLPI): Upgraded to Overweight, with a price target raised to $54. Strong dividend yields and built-in rent escalators make this a stable, attractive option.
- DraftKings: Reaffirmed Overweight, with a price target increased to $53. The company continues to dominate the online betting space with superior product capabilities and strategic customer acquisition.
- Las Vegas Sands: Reaffirmed Overweight, with a price target raised to $62. Renovation disruptions in Macau are nearing completion, positioning Sands for growth in 2025.
In contrast, operators heavily reliant on Las Vegas, such as MGM Resorts and Caesars, are navigating tougher paths, weighed down by slow revenue growth and margin challenges.
Regulatory and Taxation Uncertainties
Higher tax rates have become a point of contention for investors, particularly after Illinois proposed a hike on operator gross gaming revenue (GGR). However, Greff downplayed the likelihood of widespread increases, citing limited legislative momentum in states like Massachusetts and New Jersey. This provides some reassurance for scaled operators, who are better equipped to handle regulatory shifts.
Long-Term Predictions: Sustained Growth Ahead
Looking beyond 2025, Greff foresees steady expansion in gaming markets across the U.S. and Ontario:
- CAGR Projections: A 10% compound annual growth rate is expected for sports betting and iGaming from 2024 to 2030.
- New Market Potential: About 1% of the U.S. population is predicted to gain access to legal iGaming annually starting in 2026.
DraftKings, with its strong competitive positioning and product innovation, is poised to lead this growth. Meanwhile, companies like Penn Entertainment and Las Vegas Sands are pursuing strategies to maximise their share of emerging opportunities.
