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Traditionally centered in Las Vegas and its legendary Strip, the casino industry at one time was viewed as “recession-proof” by its proponents. This perception led to oversaturation, disappointing returns on investment, and numerous bankruptcy filings in the core Las Vegas market.

As the new reality has taken hold in recent years, the industry’s leading operators have been attempting to diversify their focus away from Vegas-centered gaming. Three primary growth drivers are seen as the industry’s future: regional operations, overseas operations and online gambling. ...

...Regional gaming has been proliferating in recent years, driven by states and municipalities that view the construction of new casinos as a way to stimulate the local economy, add new jobs, and help overcome government budget deficits. As a result, the barriers to entry, which for many years has limited new supply to specific locations or to specific groups such as Native Americans, are gradually being lifted.

The latest casinos being opened throughout the midwest and south are increasingly similar to Vegas-style resorts, giving consumers similar amenities in their backyard without having to travel to Nevada. ...

...Overseas gaming has recently received plenty of Wall Street attention thanks to the success story of Macau, a.k.a. the “Monte Carlo of the Orient”. Macau, a small peninsula off the mainland of China and just a short ferry ride from Hong Kong, is the only part of China where casino gambling is permitted. Macau’s aggregate gaming revenues are expected to grow 12% to 15% annually over the next five years, far higher growth than anticipated in the U.S. market. ...

...Of course, seeking potentially high revenue growth is only part of the story. Today’s operators face huge fixed costs to build and operate a new casino, as well as the competitive pressures to update and expand their facilities, and merge and acquire other operators in a highly competitive environment. It’s the main reason why so many industry players end up highly leveraged, and also why so many industry observers discuss the significant unlocked potential of online gambling. ...

...The casino industry offers plenty of speculative potential, but also a host of meaningful risks, from regulatory to economic to oversupply. For those willing to roll the dice on casino stocks, choosing how to invest largely comes down to which of the three potential avenues of growth seems like the best bet. ...
 


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