While analysts have feared a gaming-wide slowdown, Jefferies Equity Research analyst Kai Erman reported, indications through March and into April are of merely “transitory weakness.” Erman published his findings in an April 22 investor note.
Erman blamed the February drop in gambling receipts on wet weather and a less robust calendar of events in Las Vegas, which included a Super Bowl a year earlier. Now, however, he opined that enough data was in to show that the depression was only temporary.
“Whilst state-by-state numbers can be lumpy given various maturities of markets and states, we note improved performance from several mature states,” Erman wrote, citing a sequential swing in Pennsylvania from seven percent down to one percent up. With the exception of Maryland, he added, all states that have reported so far are showing sequential increases.
Erman allowed that March is usually a stronger (and longer) month than February, but “given more trading days, the sequential step-up has been more pronounced this year than in 2024.” In 2024, the sequential improvement was 12 percent, this year 18 percent.
The analyst argued that cannibalization of terrestrial casinos by igaming was slowing down. He pointed to an only four percent decline in New Jersey casino revenues, with slot win flat year over year. “This indicates that whilst cannibalization may be occurring between tables or retail sports betting, this is not observable in NJ slots,” Erman concluded.
He also noted that Pennsylvania casinos had improved by a percentage point at a time when igaming was up by 30 percent. He continued to believe that in the three biggest igaming states (New Jersey, Pennsylvania, and Michigan), internet casinos have merely widened the market and physical slots have yet to see any cannibalization.
However, Erman acknowledged that “broader macroeconomic fears” are weighing on gaming, with Aristocrat Leisure lately underperforming the Australian stock market. Historically, regional and tribal casinos were said to be resilient in times of consumer weakness.
Leaving aside the pandemic era when casinos were closed outright, Erman said that gambling receipts had only been down on a year-long basis twice in the past quarter-century (in 2008 and 2009). In ’09, during the Great Recession, they bottomed out at minus three percent.
Erman also pointed out that three-fourths of Aristocrat’s revenues were of a recurring nature, “which we expect to be more insulated against any pullback in casino capex relative to outright sale units.”
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