Wynn eyes online gambling growth potential
With New Jersey the latest state to legalize online gaming, the resort company could tap into a tremendous growth opportunity by investing in struggling Atlantic City.
In its recent quarterly earnings, the company reported muted growth in Macau while its domestic operations surged 16%, including some signs of recovery on the Las Vegas Strip (Trefis).
While we continue to believe in the Macau growth story, online gambling can boost Wynn's overall revenues. An economic recovery and higher consumer spending will also aid overall gambling growth in the U.S.
Online gambling in New Jersey
New Jersey legalized online gambling and the regulators plan to go live with the legal intrastate betting sites by the end of this year. Apart from New Jersey, Delaware has fully regulated online gambling while Nevada had legalized online poker since the end of last year.
Unlike Nevada, New Jersey and Delaware legalized most of the Internet casino games. While Delaware intends to only allow residents in the state's jurisdiction to bet on the online sites, New Jersey wants to authorize intrastate betting with other states that legalized online gambling. The New Jersey law requires online casino operators to partner with an Atlantic City casino, and share revenues generated online with the brick-and-mortar establishments.
Interestingly, Wynn had built the Boardwalk's southernmost hotel-casino, which opened as the Golden Nugget Atlantic City in 1980, and was sold for $440 million in 1987. Since then, the property has had six different ownership groups and six different names. Given the state requirement of a local partner, Wynn may try to negotiate with the Atlantic Club and diversify outside the Las Vegas Strip.
How big is the market?
The global gambling market is worth around $417 billion this year and online gaming accounts for a fraction of it. Online gambling is slowly but steadily growing in the U.S. According to research by H2 Gambling Capital, with the exception of lottery and skill-based games, regulated real-money online gambling already generates up to $30 billion in gross wins globally.
If things go according to current expectations, the U.S. is poised to earn gross winnings of over $7.4 billion by 2017, representing around 30% of the global online gaming market with continuous growth expected annually. Clearly, Wynn sees tremendous growth opportunity in this arena and wants to capitalize on it.
The growth in New Jersey
Online gaming revenue forecasts for New Jersey range from $225 million to $1.2 billion in the first year. The average estimate is around $412 million. The growth opportunity is huge for online gambling. Given Wynn's size and cash balance, it would be easy for Wynn to purchase an existing casino in Atlantic City -- which has many struggling casinos. This would not only give Wynn a casino outside the Las Vegas Strip, it could open the door to online gambling that could bring in millions of dollars in the coming years.
While there is still a lot of speculation around Wynn's plans, it will be interesting to see if Wynn manages to get a license in the state and if it decides to partner with anyone in Atlantic City.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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