The global economic uncertainty has stoked interest in online gaming throughout the world, with new and existing users bumping up the numbers playing online.
This surge in demand for gambling and online gaming has helped the performance of the sector on the stock market, and demonstrates how different factors can influence price.
Although the individual performance of each gambling firm and their declared profits will dominate sentiment, there are wider concerns which also play a role. Here’s a closer look at how to understand what’s happening in the world of gaming and how to trade the sector on the stock market.
The US has had a notoriously difficult relationship with gambling, with players forced to accept draconian laws in many of the states. With the exception of Vegas, gambling has received bad press in the US, making it difficult for any change in legislation.
In recent times, the tide had begun to turn with a number of states opting to legalise online casinos and gambling. This hadn’t been possible prior to 2011 due to the interpretation of the Federal Wire Act. However, with clarification from the Department of Justice in 2011, the doors were opened for states to legalise online casino games and poker.
Some of the states were quick to adopt new laws, such as Pennsylvania, New Jersey and West Virginia. Until now the take-up had been slow, with a laborious process in every state which often faced stiff opposition. However, falling taxes and revenue has forced many states to reconsider legalisation of online gambling.
This news was well-received by the stock market with the share prices of gambling firms rising on both sides of the Atlantic.
One sign that there is more confidence in the gaming sector is Entain’s rejection of a takeover bid from MGM. The parent firm of PartyCasino, an online casino platform across seven countries, Entain, has recently ventured into the arena of sports betting which only became legal in the US in 2018. Since its legalisation, 20 states have passed laws to allow sports betting, paving the way for sport book firms to offer their services.
Entain and MGM have been partnered since 2018, with BetMGM launched to offer sports betting and casino play. Combining MGM’s branding with Entain technology, the company has proved to be a huge success. It plans to be up and running in at least 20 states by December 2021.
In a move separate to their ongoing partnership, MGM made a £8.1 billion bid to buy out Entain. The price represented a 22% uplift on the share price of Entain, but it was firmly rejected by the board as failing to properly value the company.
This rejection shows the strength of Entain, and the confidence they have in growing their business. The ex-CEO Shay Segev announced plans last year to double or even triple the size of Entain, using a variety of tech-led strategies.
Therefore, if you're looking for some insight into the market, there are clear signs that gaming has plenty of growth and is only just beginning to bloom in the US, leaving lots of upside to exploit.
By Predrag Milicevic