Casinos and other iterations of legalized gambling are leading the way during the current economic bounce-back from the pandemic, according to Deutsche Bank analyst Carlo Santarelli.
“Over the better part of the last 12 months, the gaming segment, including not only casinos, but also lotteries and horse racing, has materially outperformed broader recreational spend trends, taking a considerable share of the lost spend in venues like amusement parks, movie theaters, concerts, and live spectator sports,” Santarelli said in an investor note.
Gaming is even outstripping the banner year of 2019, when the Bureau of Economic Analysis reported that $109 billion was spent in casinos, part of a larger $142 billion splurge on legitimate gambling channels. This year, since March, gaming has outpaced its 2019 rate by double digits in most states where casinos are legal (Illinois and Pennsylvania among the few exceptions).
Despite the big splurge on gambling and dining, “aggregate recreational spend, including gaming and dining, only turned positive in May, when compared to 2019,” Santarelli continued, “while recreational spend excluding gaming and dining has remained down over 20% in each month in 2021.” He noted that broader recreational spending is growing and will continue to do so, but the mix has definitely shifted in the gaming industry’s favor.
Between April and July 2021, Santarelli estimated, $18 billion in recreational spending shifted from traditional entertainment toward casinos, sports betting, and their ilk. He predicted stiffer competition for the discretionary dollar in 2022, saying that gaming’s reaction to this dynamic “will be interesting to watch.”
From 2016 to 2019, Santarelli wrote, gaming represented between 10.2 percent and 10.7 percent of discretionary spending, dipping to 9.9 percent in 2020, when only internet gaming and online sports betting were available during the worst months of the pandemic. In the following year, “Casinos and other forms of gaming benefited from not just considerable consumer liquidity, but also closures/extended re-openings in adjacent industries that traditionally compete for the consumer recreational dollar,” spiking to just over 11 percent.
Annual casino spend as a portion of overall recreational spending also spiked to 8.5 percent from 2019’s 7.3 percent. By contrast, lottery spending peaked at 2.5 percent in 2020. “Since March,” Santarelli wrote, “spend on gaming has grown, on average, 12% monthly, versus the corresponding months in 2019, materially outperforming broader recreational spend. … Within gaming spend, casino gaming has outperformed modestly (+13% monthly average gains versus 2019), as growth, relative to 2019, reached its year to date peak of +18% in July.”
During the third quarter of 2020, gaming spend — presumably driven by online gambling — grabbed 10.6 percent of overall recreational expenditures, as compared to 2.9 percent for amusement parks, concerts, movie theaters, and spectator sports. This dynamic remained basically unchanged for the balance of last year.
Looking ahead, Santarelli mapped out an economic landscape in which all major channels of recreational activity are back to normal. Yet non-gaming spend remains “largely subdued.” Non-gaming spend is down almost 63 percent. Include gambling in the mix and the decline shrinks to 21.7 percent. Gaming spend in July raced 15.6 percent ahead of 2019 (17.8 percent in land-based gaming venues) and constituted 11.3 percent of overall recreational outlays.
“Said differently, on an annual basis, the mix shift in July represents an $18.0 [billion] annual shift in spend into the gaming segment from other recreational channels,” Santarelli concluded.
