Preview: Valuation Lessons Learned From the Gaming Industry

The 2023 edition of the Business Valuation Update Yearbook is out now and captures key changes in regulations, important takeaways from conferences, and last year's most groundbreaking and thought-provoking advancements in BV. The following is an excerpt from Section I: Business Valuation Approaches, Methods, and Entity-Specific Issues.

It’s never a sure bet when you roll the dice at a casino, but one thing is certain: Business appraisers can learn something from the gaming industry—no matter what type of firm is being valued. During a recent BVR webinar, several industry experts gave some fascinating insights into the business of gambling including how these firms operate, the impacts of the pandemic, and the M&A landscape. As we listened, some key concepts emerged that are relevant to any type of business being valued. Here are the most noteworthy.

Recovery differs by LOB. A company may have different lines of business (LOBs) that changes in the economy or regulatory environment impact differently. They may also have very different risk profiles. Many gaming firms have two main lines of business: gaming (casinos) and hospitality (hotels, restaurants, and entertainment). The gaming business is riskier than the hospitality business, and the multiples reflect that. A nongaming hotel has a multiple of 12x to 15x EBITDA, while a gaming hotel has a multiple of 8x to 12x EBITDA. In terms of recovery, gaming recovered more strongly than hospitality because of the lingering restrictions on travel. The year 2021 probably saw a record in terms of gaming revenues but not so with hospitality.

Geography matters. A company in the same industry may have very different revenue characteristics if it’s in a different part of the country. For the gaming industry, Las Vegas sees hospitality as its No. 1 revenue source, not gaming. But, in secondary markets, such as Colorado, gaming is the primary revenue stream. And there are differences within the gaming revenues in the different locales. Las Vegas does 70% of its gaming business with slots and 30% with table games. (Note: The
profitability of slot machines is much higher than table games.
) In Colorado, slots are 90% of its revenue. Near Chicago, at the new Hard Rock casino, there are no table games. Also, what’s going on in the local area will be important. For example, in Las Vegas, the relatively new Allegiant Stadium has drawn more travelers to the area—good news for the industry. And it was just announced that the 2024 Super Bowl will be played there.

It's been a big year for valuation. Catch up on everything you missed out on in 2022 and prepare yourself for 2023 by checking out the Business Valuation Update Yearbook, 2023 edition!