Leaving Las Vegas: How Online Gambling Companies Have Coped with COVID-19

Las Vegas isn't about gambling. Las Vegas is all about the atmosphere it has created to facilitate gambling. Gambling can be done anywhere in the world, but Las Vegas is a uniquely entertaining destination to do it. Because of the city's status as a global tourist destination, the pandemic has hit Las Vegas particularly hard. Air travel into the city is at 40% of the normal rate for this time of year and the vast majority of those planes are at reduced occupancy levels.

Las Vegas Sands, the largest casino operator in Las Vegas and the company that owns and operates its famous Venetian and Palazzo properties, released its earnings report for the second quarter on July 20 showing a 97% decline in revenue from last year. Las Vegas Sands casinos were forced to close for two of the three months comprising Q2. The company is dependent on large conventions to drive in food, beverage, hotel, and entertainment money for much of its revenue and conventions will be virtually impossible for the foreseeable future. The casino giant's stock (NASDAQ: LVS) is down over 33% from near record highs prior to the pandemic. Caesar Entertainment (NASDAQ: CZR), owner of Caesar's Palace in Las Vegas is down a similar amount. What these casino companies have in common is that they both have very little presence online and have suffered because of it. Internet gambling companies have far outperformed their in-person based peers during 2020 because they are not destination based and because they can change their gaming offerings much more easily.

In direct contrast to Las Vegas Sands and Caesar is Penn National Gaming. Penn Gaming's stock initially plummeted upon news of casino closures due to COVID-19: from $37 all the way down to $4. Since its bottom in March, the company's stock has steadily risen back up to and past its pre-pandemic levels.

Why is Penn Gaming's stock climbing while the other gambling stocks have stayed down? Penn Gaming operates almost exclusively outside of Las Vegas, choosing to focus on more local traffic for their casinos. People may not be ready to fly like they were before the coronavirus spread, but they are willing to drive. The gambling company has re-opened 37 of its casinos in 17 of the 19 states in which it operates. Meanwhile, Las Vegas Sands only operates the Venetian and Palazzo (2) in the United States and both are located in a single city. Penn's sheer number of regional based casinos has helped it to spread out risk presented by different states' respective approaches to the pandemic and to outperform other gambling stocks since the pandemic put them off course. A focus on online gaming and sports betting has also been a part of that equation.

Online gambling has become incredibly popular during the pandemic as gamblers look for places to get their fix with many physical casinos closed. Delaware casinos, a state where online gambling is legal, reported an increase in revenue of more than two-thirds in March compared with the previous year. New Jersey and Pennsylvania have seen similar increases as well. The online gambling market as a whole is expected to grow at an annual rate of 11.2% until 2030 as more and more states legalize the business. This estimate was made prior to COVID-19 pushing much of our lives online, so it is likely a conservative one. Penn Gaming's company was uniquely positioned to roll with the punches of a casino shutdown as they already have online offerings of many casino games such as slots, poker, and horserace betting. The company's CEO, Jay Snowden, also said in a Q2 interview, "we are taking steps to connect our land-based casinos to our sports betting and icasino products to offer customers a compelling incentive to consolidate play across our various platforms." Investors have responded positively to Penn's commitment to online gambling by indicating that they want a piece of the company that could come to dominate the market.

Another online gambling company DraftKings, famous for its sports gambling and fantasy sports app, IPO'ed on the New York Stock Exchange earlier this year. The company's stock price has more than doubled since its April IPO upon the return of live sports. Despite having just made its debut on the market, the company already has a larger market cap than both Caesar's Entertainment and MGM Resorts.

It is clear that investors believe that the future of gambling does not lie in Las Vegas, but in the palms of our hands. Penn National Gaming, DraftKings, and other online present gaming companies have had the flexibility required to succeed while others haven't during the pandemic and will continue to thrive due to the growth of online gambling. This is an example of how innovative companies can overtake slow-to-change giants in any industry. As the number of states in which online gambling is legal grows, so will its market. Gambling isn't leaving Las Vegas, but the city does have competition.