Bracing for the Storm: MGM Resorts in a Potential Recession Scenario
Impact of Potential U.S. Economic Recession on Stock Values of Gaming Firms
Got a hunch a recession's looming? Let's take a peek at how MGM Resorts International might be affected and what action they might take in response.
Lean Times Ahead for Discretionary Spending
In a downturn, folks' wallets tighten, and they start cutting back on non-essentials like subscriptions, vacays, and gamblin'. Shedding jobs ain't uncommon either, making every coin count for food and shelter essentials.
Already feelin' the cost-of-living squeeze?ances in 2024 show savings rates dipped compared to 2021 — a sign of succumbing to the pressure.
Guess where this leaves fancy spots like Las Vegas and Atlantic City? Fewer touristsMonty, this recession's gonna hurt business in these gamblin' hubs. Remember the crash in '08? Occupancy rates for Sin City plummeted from 90.4% to 80.4% over a few years. Got a whiff of déjà vu after the Dotcom Bubble burst in 2000 too.
Shops with a solid presence in these hard-hit markets bounce around during economic woes. MGM Resorts International, with properties galore across the States, particularly on the Vegas Strip, faces a particularly risky spot in town.
Take the Luxor, for example. The place needs a mighty overhaul just to stay relevant — and MGM ain't exactly got a bounteous budget these days. The company's splurging billions on developing Japan's first integrated casino resort. Stretching those purse strings sure is tough, so they're economizin' at home by swappin' staff with robot vacuum cleaners.
A Shift to Online Gambling?
Though in-person gamblin' typically drops off in recessions, online gamblers might stick around using their travel dough for virtual casino thrills. The affordability and accessibility of online gambling make it an attractive alternative during lean times.
Companies with sizeable online operations might weather this economic squall better. Until 2018, online sports bettin' wasn't a reality for U.S census-facing casino firms amidst recessions. Fast forward to 2024, and Americans are dollin' out over $150 billion on bets. Recession or no recession, sports entertainment keeps people entertained (and spendin').
Preparin' for Volatility
Gamblin' stocks tend to sway more with economic changes compared to other industries. They rely on consumer spending and are an easy expense to chop off if folks are tightenin' belts.
Data showing economic falterin', high livin' costs, and job losses might stir a bigger stock sell-off for gambling firms. But fear not! If those concerns vanish and confidence blooms, stock prices shoot upwards too.
Boils down to stickin' with solid, long-lastin' firms that drive online operations successfully.
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Potential Impacts of a Recession on MGM Resorts International
A recession could cause MGM Resorts International significant trouble due to reduced consumer spending on discretionary activities like casinos. Here are some potential repercussions:
- Reduced Revenue: The company heavily relies on tourism and entertainment spending. Economically challenging times might lead to a decrease in revenue.
- Operational Adjustments: To minimize losses, MGM may need to modify operations, such as workforce reductions, cost-cutting measures, and promotions to entice customers.
- Diversification Advantages: MGM Resorts' diversification of operations, including investments in Macau and other international markets, could protect the company from a U.S. recession.
Impact on Online Gambling Operations
Online gambling can weather economic downturns more effectively due to several factors:
- Cost-Effectiveness: Online gambling offers an affordable means of entertainment compared to expensive in-person casinos, making it attractive even during an economic downturn.
- Less Tariff Exposure: Many online gambling operations face less direct tariff exposure, reducing their vulnerability to trade-related economic pressures.
- Growth Potential: Online sports betting is a sector that could withstand an economic storm relatively well. Investment banks like Stifel view companies in this space, such as FanDuel and DraftKings, as "defensive stocks" due to their geographic diversity and reduced tariff exposure.
Comparison with Other Gambling Operators
Other companies, like Red Rock Resorts, are optimistic about their ability to endure a recession due to their focus on local markets and efficient business models. The resilience of local market-focused operators underscores the importance of adaptability in the gambling industry during economic downturns.
In recession scenarios, MGM Resorts International could face reduced revenue due to decreased consumer spending on discretionary activities like casinos, potentially leading to operational adjustments such as workforce reductions and cost-cutting measures. However, MGM's diversification of operations, including investments in international markets, could provide some protection from a U.S. recession.
Online gambling operators may be more resilient during economic downturns due to their cost-effectiveness, reduced tariff exposure, and growth potential, particularly in the online sports betting sector. Investment banks like Stifel view companies in this space as "defensive stocks."
Companies like Red Rock Resorts, with a focus on local markets and efficient business models, may exhibit greater resilience during recessions, highlighting the importance of adaptability in the gambling industry.
In a recession, while in-person gambling might decrease, online gambling could remain popular due to its affordability and accessibility, providing an alternative means of entertainment. This shift to online gambling could help companies with sizeable online operations, like MGM Resorts International, weather the economic turmoil more effectively.
