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Last week, the World Health Organization declared COVID-19 a global pandemic.
In China, where the novel coronavirus originated, life is slowly starting to return to normal. In the United States and many parts of Europe, however, the number of cases is still growing exponentially.
The western world underestimated the threat, but the financial consequences of stopping the spread are now becoming fully apparent. Financial markets, initially slow to react to the spread of the virus, have crashed dramatically in recent weeks.
Gaming industry stocks have been hit harder than the overall market almost without exception. Land-based gambling has dropped sharply as people voluntarily stay home, while state and local governments are increasingly forcing their casinos to close in an attempt to combat the spread.
Most recently, the sweeping decision by sports leagues to suspend their seasons has caused a massive downturn in sports betting.
The outbreak was first identified in December and on the radar of the mainstream media within a couple of weeks.
Even so, markets were on the rise until the first cases began to appear in Europe late in February. Since then, composite indices have dropping at an alarming rate — a few single-day rallies notwithstanding.
That final week of February was the worst so far, with the Dow Jones dropping more than 10%. Since then, however, volatility has increased. In the past three weeks, we’ve seen the four best and five worst days in stock market history. Anything could happen at this point.
Last Thursday was, at the time, the worst day in history for the Dow Jones in terms of point losses. It was the fourth worst by percentage, beaten only by Black Monday (October 19, 1987) and two consecutive days during the Great Crash of 1929.
Things might have been worse if not for a “circuit breaker” implemented following that 1987 disaster.
As with those earlier instances, Thursday’s losses were quickly followed by a partial recovery.
The plunge looks like it will continue, however, as Monday began with a sell-off that caused trading to be halted at the New York Stock Exchange for the third time in a week.
It ended up setting a new record for the worst absolute loss for the Dow Jones in history. It came second to Black Monday in percentage terms but was worse than any single day in 1929.
As of Monday’s close, the Dow Jones is down about 29% since the start of the crash on Feb. 24.
In the midst of the sell-off, several prominent gaming companies opened up to investors about what recent events mean quantitatively. Here are a few of the statements released Monday:
The story is fairly similar for each of them.
All are working under the assumption that professional sports will resume late in the summer. Given that, Flutter says it stands to lose between £90-110 million in earnings. William Hill’s estimated loss is similar at £100-110 million, while GVC expects to lose £130-150 million.
Things could go worse if sports remain on hiatus for longer, but that’s not the only additional risk.
Horse racing has continued in the UK, albeit behind closed doors, and retail betting shops have been allowed to remain open. If both of those shut down, each of these companies could be losing an additional £25-50 million per month.
No one is being spared entirely, as all major gambling companies have fared worse than the overall market average. It has, however, been worse for some than for others.
So far, geography has been the most important factor. MGM Resorts International began its fall earlier than many of its competitors, for instance, due to the closure of its properties in Macau in February. Company stock fell 22% in the final week of the month, while the worst was yet to come for European bookmakers.
Even now, companies doing most of their business in Europe have generally been harder hit than those focused on the American market. That may change, however, as the virus’s rate of spread in the US has been alarming.
Other important factors include the balance of online versus land-based products, and sports betting versus other verticals.
Although it hasn’t released specific predictions yet, The Stars Group claims to be in reasonably good shape because so much of its revenue comes from online poker. Its share price and that of Flutter are moving in near-lockstep because of their upcoming merger, however, so it’s impossible to tell how convinced investors are.
It’s hard to find a company involved in the gambling industry whose stock is beating the market. Using the Dow Jones drop since Feb. 24 as a benchmark (-29%), there are a few which are close.
888 Holdings and Las Vegas Sands are among the gambling companies least affected, each down around 35%-36% over that period. Flutter and The Stars Group also did comparatively well in that they’ve retained more than half their value, something few competitors can say.
Surprisingly, Diamond Eagle Acquisition Corp. has beat the market ever so slightly. It’s down only 28%. It isn’t technically a gambling company yet, though it’s slated to take over SB Tech and DraftKings this year.
At the other end of the spectrum, many big names have now lost two thirds of their value — some as much as three quarters.
Eldorado Resorts, which has been selling off some of its own properties to fund its upcoming purchase of MGM, is down an eye-watering 79%. And Penn National, which has taken an aggressive approach to US sports betting market, is out 76%.
Business-to-business companies have taken a particular beating. IGT and Scientific Games are both down more than 60%, while slot machine manufacturer Everi is down 81% — much of that during a late-day sell-off on Monday.
Here are some of the biggest names in the gambling industry, along with how hard they’ve been hit.
|Name||Symbol||March 16||Since Feb. 24|
|Dow Jones (Index)||^DJI||-13%||-29%|
|MGM Resorts International||MGM||-34%||-66%*|
|International Game Tech.||IGT||-14%||-60%*|
|The Stars Group||TSG||-20%||-47%|
|Las Vegas Sands||LVS||-18%||-35%|
|Diamond Eagle Acquisition Corp.||DEAC||-5%||-28%|
* Accounting for dividends