In this article, we are going to look a little bit closer at casino stock and other gambling stock. Are you gambling if you invest in these companies or are they a good way to make money on the stock market.
There is no way to give a definitive answer to this question. Some casino stocks are relatively low risk while other companies are to equate with gambling. Some casino stock such as Net Entertainment are well-established companies that are well known for offering good growth and high dividends. Other companies are trying to break into the market and many of these fail making it very high risk to invest in small casino companies.
On this page, we are going to look a little bit closer at how to analyze casino stock to find out if they are high risk or if they are low risk. Low-risk companies can be good investments, and high-risk companies are to be considered lottery tickets. Only invest in high-risk companies if you can afford to lose the money.
Game developers are generally speaking a lot safer to invest in than individual casinos. Game developers license their games to a large number of different casinos and their fate is not tied to the faith of any single company. Large game developers will see their stock value reflect the overall development of the industry as a whole. If more people chose to play casino games online then they tend to benefit even if individual casinos fall on hard times.
Game developers are often stable mature companies that can offer high dividends and good growth. They make excellent low to mid risk additions to any portfolio.
Small game developers are higher risk than more established companies. They can however despite this be very good investments since they generally offer very good risk/opportunity ratio. They are a lot less likely to fail than small casino operators and they can give you a very good return if they grow into a large company. Provided of course they produce innovative high-quality games.
Where is it legal to offer online gambling
The map below shows where it is legal to offer online casino gambling.
Large casino operators
Large casino operators are usually higher risk than game developers as their fortune is tied to their casinos. Large casino operators can despite this be good mid risk investments to include in a diversified stock portfolio.
When analyzing a large casino operator you need to look at the casinos they operate and how large part of their income that is attributable to every single casino. You also have to look at how large a percentage of their income that can be attributed to each individual market. I try to avoid to invest in large casino operators that are very dependent on a single casino or a single market. I do not want an operator to get more than 20% of their income from any individual casino or market. A casino operator that is less dependent on any single casino or market is less exposed to unforeseen risks.
Some large casino operators get a very large percentage of their income from a single casino or market. I do not recommend that you invest in these companies.
Large single casino operators
There are a number of publicly traded casino operators that operates a single large and well-known casino. I generally do not recommend that you invest in these since they are higher risk than casino operators that operates a number of casinos. There is one exception to this. That exception is if the company in question has a very strong brand or if they operate a very high-quality casino. In this case, I might choose to invest a small amount in the stock. I recommend that you invest less than 1% of your portfolio in each single casino operator you choose to invest in.
Small casino operators
Small casino operators are generally very high risk to invest in. Some will survive and grow into large companies but most will fail and die. A low number of companies will neither fail nor succeed.
It is very hard for a new casino operator to enter the market and it takes a lot of skill and money to be able to become a successful casino operator. It is not enough to run a good casino. There are plenty of good casinos around. Players are unlikely to find your casino unless you spend a lot of money on marketing. A new casino will need to spend a lot of money on advertising, pay generous affiliate commissions and offer large casino bonuses to be able to attract new players. You can see how large bonuses casinos offer to attract customers here. It is important to remember that most players will lose their bonus money. If they do then it is not a cost since the casino will never have to pay out any money. Affiliates usually only earn money if they referr players that earn the casino money. They do not cost anything if they do not generate money. Traditional advertising cost money regardless of whether it brings in players or not.
They need to give the player a reason to join their casino rather than a more established casino and the affiliates a reason to promote their casino over other more established casinos. They have to make their casino seem like the most attractive offer for everyone.
It is hard to cover overheads (staff, game licenses etc) and produce a profit when you have very high customer acquisition costs. The customer acquisition cost will always be a higher in a small unknown casino than it is if you run a large well known online casino.
I do not recommend that you invest in small single casino operators. To do so can be very profitable if you chose the right company to invest in but most companies will fail and the chance that you end up losing your money is greater then the chance that you end up picking the right stock and make a large profit.