Despite resilience among United States consumers, “The current economic environment is marked by elevated uncertainty, with the combination of tariffs, interest rate policy, and fallout from geopolitical tensions casting clouds.”
That was the thesis of Daniel Politzer, making his debut as lead gaming analyst for J.P. Morgan. He published his findings in a June 23 investor note.
The aforementioned clouds notwithstanding, Politzer deemed the gaming sector an attractive risk/reward scenario for investors. He rated seven gaming stocks as Overweight and was Neutral on four others.
“The gaming sector is rife with risks,” Politzer elaborated, “but potential rewards are high.” He conceded that land-based gambling is facing macroeconomic uncertainty and the prospect of tariffs squeezing consumers in the latter half of 2025.
Furthermore, “Digital gaming is insulated from macro, but instead is navigating regulatory uncertainty and gaming-tax risk, and there’s limited investor appetite for China-exposed stocks (i.e., Macau), given tepid China macro data and geopolitical risk.” That said, Politzer expressed a “relative preference” for regional casinos, followed in descending order by digital gambling, Macau, and the Las Vegas Strip.
Long-term factors of concern were threefold, as Politzer fretted about supply/demand dynamics. New more-conveniently located casinos are one area of worry. Another is an explosion of casino-like gambling alternatives, including gray-market “skill” games, pull tabs, and historical horse racing machines.
Lastly, digital alternatives, including prediction markets, caused some fretfulness. “We believe the Las Vegas Strip’s experiential appeal (which requires operators to spend substantial/ongoing capex) provides insulation from these supply pressures, but it’s hard not to recognize that the (likely permanent) re-rating of land-based gaming operators these past few years largely reflects market saturation,” Politzer elaborated.
“We prefer the more stable drive-to regional casinos (where recent data has been encouraging) over more discretionary fly-to Las Vegas Strip resort properties, where recent data has been mixed and our 3Q room rate survey screens broadly negative,” the analyst explained.
Taking a dissenting view of asset-light strategies in gaming, Politzer chronicled, “The deficiencies of the OpCo model have become more widely appreciated.” It has, he wrote, taken a toll on the valuation of MGM Resorts International and Penn Entertainment and Caesars Entertainment to a lesser extent.
The deficiencies, the Morgan analyst continued, include yearly rent hikes and pressure on cash flow, since new competition adversely affects revenue. Also, real estate investment trusts (unlike casino companies) are unable to sell underperforming assets, tied as they are to long-term master leases. Politzer also frowned on the limited merger-and-acquisition optionality that result when asset portfolios are bound up in leases.
Politzer saw gambling evolving into a new iteration, or “Gaming 2.0” as he called it. The evolution consists in part of land-based casinos facing competitive pressures from igaming and more terrestrial alternatives, as the industry continues to grow. He also perceived a dwindling field of Macanese investors.
Stock multiples have also suffered since 2022, with only Boyd Gaming not trading at a discount to its three-year cash-flow multiple. Penn, Station Casinos, and Caesars were all cited as bearing “modest” discounts. Penn led the stocks for which Politzer had hope. He pointed to its $1 billion in new and expanded casinos, as well as “fading” losses from controversial ESPN Bet.
Station was perceived as a beneficiary of corporate tax cuts, as well as the return on investment from its recent projects. Caesars’s regional properties were said to be a stabilizing influence, as is its profitable digital business, not greatly factored into the stock value.
Sportradar was deemed an “honorable mention.” Politzer said it was his near-term pick among purely digital gaming stocks, due to a combination of fixed sports rights and having 70 percent of its revenues already locked in, shielding it from fluctuations in online sports betting.
