Two American tycoons are betting big on a casino revival

It may seem a surprising time to be betting on the gambling industry, which has been on a painful losing streak. Online gaming has been disrupted by the arrival of “prediction markets” run by firms like Kalshi and Polymarket, which allow punters to bet on anything from sports results to American invasion plans. Meanwhile, bricks-and-mortar casinos have struggled as consumers have grown anxious about the state of the economy. Las Vegas, where MGM and Caesars operate glittering casino-resorts along the Strip, received 10% fewer visitors last year than at its pre-pandemic peak.

Having been dealt such a bad hand, many investors have folded. In the five years up until last week, MGM’s share price had fallen by about 15%; that of Caesars, which is more leveraged and less diversified, had dropped by nearly three-quarters. Messrs Fertitta and Diller, however, seem to have concluded that the market has now reached the bottom.

Are they right? Many in Vegas—admittedly the world capital of optimism bias—believe that the industry is about to turn a corner. The city is “hitting an inflection point” in visitors’ perception of the value it offers, says Barry Jonas of Truist, a bank which recently upgraded MGM from “hold” to “buy”.

Some long-term trends in consumer behaviour also look to be playing out in casino operators’ favour. One is the growing demand for live entertainment, something on which casino-resorts have placed big wagers in recent years. In the early 1990s gambling accounted for nearly 60% of the revenue of resorts on the Las Vegas Strip. Today it accounts for just over a third, as visitors to Sin City splash more of their cash on concerts, sports and various other diversions.

And although online betting has introduced new competition, it also presents opportunities for the gambling industry. MGM and Caesars both have betting apps which they use to acquire new customers, with the ultimate aim of luring them to spend an expensive vacation at one of their resorts. Online gambling is also helping to popularise what was once considered a taboo pursuit. As many as one in six Americans placed a bet on a sporting event last year, twice as many as two years earlier, according to polling by Ipsos.

What will MGM and Caesars’ new owners do with the properties? Following Mr Diller’s offer of $48.30 a share for MGM, the price initially rose to over $51, suggesting the market believed he would have to offer more to clinch a deal (though the price has since fallen back). If he does succeed in taking control, he may keep things at MGM much as they are: Mr Diller’s firm already owns more than a quarter of the casino operator and he has a seat on its board. The media baron, who is busy restructuring the rest of his empire, is said to get along with MGM’s current management.

Mr Fertitta’s acquisition of Caesars, which seems like a surer bet to go ahead, may also bring more continuity than change. The buyers have already said that Caesars’ boss will stay in place. But there may be benefits from tying up with Mr Fertitta’s other properties, encompassing the Golden Nugget chain of casinos and his string of hotels and restaurants, including Morton’s steakhouses and the Bubba Gump Shrimp chain. Visitors to Caesar’s Palace might soon be able to celebrate their wins with a fillet steak—or drown their sorrows in a bowl of gumbo.

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