Up, down, hot, cold: Gaming industry watches as financial markets swing on tariffs
On 2 April, infamously known as “Liberation Day”, Trump introduced sweeping tariff policies impacting US trade partners. These policies included a 10% baseline tariff on all imports as well as steeper, so-called reciprocal tariffs on dozens of countries. In February, Trump had announced tariffs impacting certain goods from Canada and Mexico, which kicked off the now-escalating trade war.
After the Liberation Day announcements, global markets responded with a precipitous multi-day sell-off that wiped out trillions in value.
The S&P 500, Dow Jones Industrial Average and the Nasdaq Composite all fell by 5% or more in back-to-back days to close last week’s trading. Collectively, last week was the worst for financial markets since the onset of the Covid pandemic in 2020.
Gaming companies across the industry were hit hard by the sell-offs. Retail casino operators, both regional and destination, were especially vulnerable, with the stock prices of Wynn Resorts, MGM Resorts, Caesars and others dropping in some cases by 10% or more. Suppliers faced similar declines due to their reliance on supply chains and manufacturing. Online-facing companies fared better but were still generally down 5% or 6%.
Up, up and away
But things changed Wednesday when Trump suddenly reversed course and announced a 90-day pause on the reciprocal tariffs, which were due to come into effect that day. China was the only country not to see a reprieve – its rate was hiked to 145% and, in turn, Beijing enacted 84% tariffs on US goods.
The pause triggered a staggering resurgence that resulted in one of the best single-day market performances in history. All told, the Nasdaq soared 12% and the Dow and S&P climbed back 8% and 9.5%, respectively, on Wednesday.
“I did a 90-day pause for the people that didn’t retaliate, because I told them, ‘If you retaliate, we’re going to double it,’” Trump said, per NBC News. “And that’s what I did with China, because they did retaliate. So we’ll see how it all works out. I think it’s going to work out amazing.”
Optimism appeared short-lived, however, as major indices were again down at least 2.5% at close Thursday.
Reason for stakeholder concern
As a consumer discretionary industry, gaming is always seen as susceptible to economic downturns. Many retail casinos faced their first-ever closures during Covid in early 2020, but supply chain impacts were the longest-lasting. The American Gaming Association (AGA) has again warned of those potential headwinds.
“As an industry reliant upon a global supply chain, we are actively monitoring developments and we are engaged with multiple stakeholders in advocating for continued dialogue with key trade partners that enable the economic growth and impact our industry provides in communities across the US,” AGA’s senior vice president of strategic communications, Joe Maloney, told iGB.
The Association of Gaming Equipment Manufacturers (AGEM) declined to comment. AGEM represents 12 gaming suppliers from around the world and publishes a monthly index of its members’ stock performances.
In March the AGEM Index was at 1,615.74, representing a 9.3% decline year-on-year. All 12 members reported declines, which AGEM said was “among a broader decline for all three major US stock indices amid uncertainty over federal tariff and trade policies”.
Analysts uncertain
The recent market seesaws have made for great business television and fanatical headlines. Yet gaming analysts are for the most part just as perplexed by the macroeconomic environment as the public.
Lloyd Danzig, managing partner at Sharp Alpha Advisors, put it simply: “It is very hard to make predictions about short-term movements in equity valuations at this time.”
“No one really knows how this will end,” said another analyst who responded on the condition of anonymity. “The market clearly reacted to this, we don’t know what’s going on, we don’t necessarily trust that it will continue like this. If it does, it will get for worse for these stocks.”
The analyst went on to add that in times of uncertainty, “Typically for gaming investors, it’s sell now, figure out the answer later when we have some clarity.”
Another analyst posited to iGB that perhaps the toughest part about analysing the tariffs is “how it filters down to wallet share”. The source pointed to the gaming real estate investment trusts (REITs) as perhaps being safer due to their long-term business models.
Digital companies could emerge as winners
The onset of the Covid pandemic was in some ways an economic boon to digital companies, as players in legal online sports betting and igaming states opted to play from home for smaller stakes rather than splurge on retail casino visits (after the venues reopened). That same logic could apply again here. Five years post-Covid, there are also several newly legalised online markets.
One source said that “placing a few wagers on a single game is viewed as ‘low denomination’ versus other forms of entertainment spending habits” so gaming could withstand economic swings better than other sectors.
Danzig noted that while “the market has moved to a risk-off positioning with extra focus on regulatory risks”, sports betting is something that “tends to correlate with high-beta risk-on assets”. Lottery sales could also be something to monitor during such times, he said.
Fantini: Grey market complicates things
Frank Fantini, principal of Fantini Advisors, has analysed gaming stocks through several significant market events, including the Dotcom crash of the early 2000s, the 2008 financial crisis and most recently the Covid pandemic. He told iGB that with the S&P trading at a price-to-earnings ratio above 25x following multiple great years of performance, some could argue that the market was overpriced and therefore a significant correction might have been coming anyway.
However, he posited that this latest market event could be especially worrisome for gamers due to the increase in competitors operating outside state regulations of any kind.
“It seems to me the greatest threat to gaming investors are the creeping kind of grey markets,” he said. The three examples Fantini alluded to – sweepstakes, skill games and prediction markets – have all dominated the industry’s attention of late. Sweepstakes and prediction markets primarily affect online businesses, while skill games have long been a thorn in casino operators’ sides. None of the three appear to be losing momentum anytime soon.
On the topic of casinos, Fantini said regional operators might be better positioned for a recession-type environment.
“I would think that if we have a recession, the regional markets would fare relatively better than, say, Las Vegas,” he said. “Regional markets don’t have as much of a convention business to lose. They also do not rely so much on people spending big on vacations. The other question is how much of this tariff impact is emotional, opinionated? If you’re Canadian, do you really want to go to the US after [Trump] has insulted you by saying you should become the 51st state?”
Matt Rybaltowski contributed to this report.