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The Trump administration’s rollout of policies, including tariffs and drastic spending cuts within its first 100 days in office, continues to cause uncertainty and volatility, even if it is too early to measure the full impact on gaming companies.
“The expectation going into this administration was that it would have a gaming-friendly, business-friendly dynamic,” said David Katz, managing director with Jefferies in New York.
“So far, that appears not to have been the case.”
For example, President Trump has levied Canadian manufacturers with 25 percent tariffs on cars, steel and aluminum. Trump has also instituted a 10 percent across-the-board tariff on a wide range of other goods.
In response, Canadian provinces have banned the purchase of U.S. gaming machines and other lottery technologies. Tariffs have also been placed on a wide variety of U.S. products and services.
“I think there are some very specific things here,” Katz said during a panel on Wall Street's view on gaming industry investment at last week's East Coast Gaming Congress in Atlantic City.
“Number one, you are planning a business,” Katz said. “You are a CFO, and you are writing some large checks … for a three-to-five-year development project. I think, quite frankly, it is hard to do that under the current circumstances.”
Katz told attendees that for someone who works in investment banking, “capital raising becomes super challenging”.
He added that when investors look at a gaming business, they break it into two parts of land-based gaming and digital gaming.
“Historically, regional gaming has been very resilient in macro-economic cycles, and we expected the same to be true,” Katz said. “We are not expecting the 10, 20, 30 percent downside that we may see in other forms of travel and hospitality.”
However, it is digital gaming stocks that Wall Street analysts are currently recommending.
“We don’t believe you need a good quality macro [economy] to be right with sports betting and internet gaming,” the veteran analyst said. “Those are in a nascent stage … so therefore we think those are businesses and stocks that work in a wide range.”
Jacques Cornet, a partner with ICR, said tariffs would negatively impact states and the gaming industry.
”We have heard a lot about tariffs in these last few weeks and the impact on the consumer is certainly going to have an impact on the gaming industry,” Cornet said.
“The other element to be aware of is the trend of reduced funding for states.”
With fewer federal dollars, Cornet said, states are going to need to find funding from other sources.
Some analysts on Wall Street believe the administration’s reduced funding for the states could spur increased legalization of iGaming.
So far this year, a cluster of states have looked to increase tax rates on sports betting to generate additional tax revenue, while in about half a dozen states, iGaming bills have been rejected by lawmakers.
In North Carolina, the state's Senate last week approved a budget bill that would double the sports-betting tax rate from 18 percent to 36 percent. New Jersey Governor Phil Murphy, a Democrat, is similarly seeking to increase the sports betting and iGaming tax rate to 25 percent from 13 percent and 15 percent, respectively.
“That’s something to stay on top of,” Cornet said.
Cornet and Katz were joined on the panel by Michael Wagman, president and managing director of Toronto-based Clairvest Group, and Cameron McKnight, managing director with Capitol One Securities.
Katz expressed frustration with the industry’s digital strategies, with some companies pursuing iGaming amid an overall state-by-state rollout that has not gone particularly well.
He said companies that are opposed to online gaming are just “patently wrong”, adding that any cannibalization in the land-based space from iGaming is a function of customers wanting to gamble online.
“This is where the business is headed and where the growth opportunities are. So, embrace it,” Katz said.
McKnight agreed that iGaming would be good for the whole gaming industry, but he believes that cannibalization of retail casinos does occur when online gaming is legalized.
“Everyone has their own view about what cannibalization means,” McKnight said. “Has iGaming taken away growth from the industry that we would have otherwise seen? Those [states] without iGaming, revenues are up 10 to 15 percent, while in markets with iGaming, revenues are more or less flat since 2019.”
Currently, full iGaming is regulated in Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia. iGaming limited to online poker is legal in Nevada.
“The rollout of iGaming has been a lot slower than we would have thought,” said Cornet, adding that the inability of regulators and the gaming industry to pull together for this opportunity in online casino is hurting the industry and stock prices.
Cornet said the American Gaming Association (AGA) estimates that $338bn is wagered annually with illegal online casinos, compared with the $8.41bn in gross revenue produced by the seven iGaming states.
“That’s a massive, massive miss or opportunity, however you look at it,” Cornet said. “That’s one of the elements where Wall Street is telling the industry, you need to see some traction.”
