Gaming is a relatively small and misunderstood industry. That makes it potentially lucrative for investors armed with knowledge.

It possesses many of the traits that legendary investors Peter Lynch and Warren Buffett seek. It:

  • Is riding a wave of technology and global expansion
  • Has significant barriers to entry
  • Is easy to understand
  • Has visible revenue and earnings
  • Is highly regulated providing integrity in its numbers
  • Is not always understood by investors, thus is often mispriced
  • Is part of human nature and will be around forever

We’ll discuss each of these points, but for starters, let’s describe the industry.

Gaming is a global industry that comprises brick-and-mortar casinos, rapidly expanding online betting and is part of the massive and explosively growing casual games industry.

Suppliers to the industry are game developers, slot machine and table game manufacturers and providers of software integral to every aspect of operating casino resorts and online gaming.

There are variations on these themes—race tracks, lottery suppliers, makers of playing cards, etc. But when people talk about gaming, they tend to focus on casino and online gaming operators and the companies that provide their games and software.

All of these companies and industry segments are covered daily in Fantini’s Gaming Report, always focused on the investment and business implications of every material event globally.

The Technology Wave

Technology is changing every industry and gaming is no exception. It is bringing efficiencies and new exciting games to brick-and-mortar casinos. But the exponential growth occurring now and in coming years is online and mobile gaming, the ability to place a bet on a sports contest while it is in progress and the ability for individuals to bet directly against each other. The total addressable market for such gaming is expected to grow from several billion dollars a year to $30 billion to $40 billion in the US alone. And casual gaming is even bigger. In short, gaming is a growth industry.

Barriers to Entry

Just the process getting a license constrains competition. It is a long, intrusive and expensive process. In the United States alone, there are more than 100 regulatory agencies that require separate licensing applications and investigations. It is generally agreed that many companies stay away from gaming because they do not want to bare their financial—and personal—selves to the world.

In addition, many jurisdictions limit the number of casino licenses, creating an oligopoly.

Easy to Understand

Gaming is a simple business. People put money in slot machines or at table games in a casino or online and, in aggregate, receive a lesser amount in return. If a slot machine is programmed to pay back 92 cents on the dollar, it does. As the old adage goes, the house always wins. Plus, it is easy to walk through a casino and gauge its volume of activity, type of customer, physical condition or to walk through the same casino and see how many people are playing whose slot machines.

Visible Revenue and Earnings

In many jurisdictions, casinos must report their revenue monthly, in some cases down to how much was won on 5-cent slot machines and 25-cent machines, or from blackjack or or baccarat. No other industry releases so much financial information so often.

Financial Integrity

With all the watchdog agencies and frequent reporting, quarterly earnings statements are probably more indicative of a company’s financial condition than just about any industry. Further, possessing a gaming license is the essential asset. Gaming operators stay above board not wanting to risk those licenses.

Misunderstood and Mispriced

Despite its simplicity and visibility, it is often misunderstood and mispriced. That presents a golden opportunity for informed investors.

Human Nature

Peter Lynch has said that the best investments are often in things that can be addictive—alcohol, tobacco, chocolate. Gambling is in the same category. It is human nature to take a chance. Risk built America. People love to have fun. And modern casinos are pure entertainment centers with fine restaurants, upscale stores, the best production shows, with celebrities on stage and on the gaming floor.

Fun—and gambling—will never become obsolete.