Casino Real Estate and Online Betting: The Two New High-Rollers in Gaming

The gaming industry - once defined by the glitter of casino floors and the whirl of slot machines - has morphed into something far more intricate and multi-dimensional. The days when gambling was limited to Las Vegas, Atlantic City and a few resort destinations are long gone. Today, the industry is undergoing a transformation driven by the rise of real estate investment trusts (REITs) like VICI Properties (VICI) and Gaming and Leisure Properties, Inc. (GLPI) and the explosive growth of online gaming and sports betting. These dual forces are reshaping how the world approaches gaming, creating a new financial and technological frontier that caters to physical and digital audiences.

We used to think of gambling as a simple transaction—people walk into a casino, drop their money, and hope for fortune’s favor. But now, the industry is far more complex, and understanding it requires a look beyond the operators managing the games. Today, we must also consider the landlords who own the casinos and the new wave of companies turning every smartphone into a virtual betting terminal.

It’s Not About Getting Lucky

Let's be clear—gaming’s future isn't just about who runs the roulette tables or poker tournaments. It's also about who owns the land those tables sit on. Real estate, once a secondary concern for casino operators, has become a powerhouse business in its own right. Enter VICI Properties and Gaming and Leisure Properties, Inc., two behemoths once spinoffs that have turned the ownership of casino properties into a cash-generating juggernaut.

VICI Properties spun off from Caesars Entertainment (CZR), is now one of the largest real estate holders in the gaming world. We're not talking about a few Vegas hotels; we're talking about a portfolio that spans coast to coast, with assets ranging from Caesars Palace to the MGM Grand. In 2023 alone, VICI's revenue surged by 35.8%, largely thanks to its aggressive acquisition strategy. They’re not just snapping up casinos either - VICI has diversified its revenue streams beyond traditional gaming activities, scooping up assets like Bowlero bowling centers and the Chelsea Piers complex in New York. This strategic move into broader leisure properties helps attract a broader demographic of consumers while also providing insulation from future dips in its main casino business.

And then there’s Gaming and Leisure Properties, Inc., the quieter but no less significant counterpart. Formed as a spin-off from Penn National Gaming (PENN), GLPI owns properties across the country, leasing them to some of the biggest casino operators. These long-term leases ensure that the tenants (the casino operators) are responsible for virtually all expenses, from taxes to maintenance. Rent escalation clauses are also baked into lease agreements, which means GLPI and VICI sit back and collect steady rent checks, giving them a predictable revenue stream that’s less volatile than the ups and downs of daily gaming activity.

Casino REITs Outperform Parent Company (Post Spin-Off)

Source: Morningstar. As of 9/30/24. Past performance is no guarantee of future results.

Able to Go All-In from Almost Anywhere

But real estate isn’t the only thing that’s changed. The internet has fundamentally reshaped gambling, and the old stereotype of gamblers traveling to casinos is becoming increasingly outdated. Sports media outlets cover the betting odds of every event. With the rapid expansion of online gaming and sports betting, the action has moved from the neon-lit Strip to the palm of your hand.

Companies like DraftKings (DKNG) and FanDuel (FLUT) have exploded in popularity, capitalizing on loosening regulations around sports betting in the United States. Now, you don’t need to travel to a brick-and-mortar casino to place a losing bet on the New York Jets. You can do it from your couch, car, or while waiting in line at the grocery store. This seamless integration of technology and gambling is no longer the future - it’s the present.

Global Online Gambling Market Size (2017-2029)

Source: Statista. As of 8/26/2024. Past performance is no guarantee of future results. Estimates are for illustrative purposes only and are not intended as predictions or projections of future results.

These companies’ success speaks volumes about the gaming industry's future: a mix of fast, mobile, and constant engagement. The global online gaming market is expected to hit $134 billion by 2029, and the convenience of betting on mobile devices is a huge factor behind this surge.

Physical Meets Digital

The symbiotic relationship between real estate and online gaming makes this transformation even more intriguing. Casino operators are increasingly partnering with online platforms to offer both physical and digital experiences. For example, a person might visit a casino owned by VICI Properties, play a few rounds at the blackjack table, and later that night, log into DraftKings to place a bet on a hockey game. Likewise, gaming incentive programs have also moved towards digitizing their strategy. In the traditional casino, high rollers and hot hands would often be rewarded with free cocktails, complimentary credits, or even residency at the resort if they flaunt their deep pockets. These positive feedback loops have re-emerged in digital sportsbooks through profit boosts, bonus payouts, and even tickets to major events!

These partnerships allow casinos to remain relevant in an increasingly digital world. By offering both in-person and online options, they capture a wider demographic of gamers, from high rollers who enjoy the atmosphere of a casino floor to the younger, tech-savvy crowd who prefer the convenience of an app.

Building The Stack

The most attractive aspect of this new gaming paradigm is the stability it offers to investors. Casino REITs, like VICI and GLPI, benefit from steady income through long-term leases, providing high dividend yields. REITs are a unique fund structure – to qualify, a company must have most assets invested in real estate, with at least 90% of its income being paid out to shareholders as dividends. Unlike traditional casino operators, who face daily fluctuations in gaming revenue, these REITs operate under a relatively low-risk business model. Even during economic downturns, tenants are contractually obligated to pay rent, ensuring a consistent revenue stream. This stability is reflected in performance, with REITs outperforming casino operators by 40% over the last three years.

On the other hand, online gaming companies offer more growth potential. With sports betting legalized in 38 states and counting, platforms like DraftKings are poised for massive expansion. For investors looking for a balance of stability and growth, the combination of casino real estate and online gaming is hard to beat.

Gaming’s Future is Here, and It’s Diversified

A singular model no longer defines the gaming industry. It’s a multi-faceted ecosystem that now includes the physical world of casino real estate and the digital realm of online gaming. Whether you’re an investor looking for reliable income through REITs like VICI and GLPI or seeking high-growth opportunities in online platforms like DraftKings, the gaming industry offers something for everyone.

For investors seeking exposure to the evolving gaming industry, BJK presents a compelling opportunity. This ETF provides access to both the stability of casino real estate through REITs and the dynamic growth of the online gaming market. By investing in BJK, you can tap into the expansion of both sectors, making it an attractive option for those looking to participate in the future of gaming.

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