The gambling industry: what's behind the chart

Here’s where Russian and global financial markets stood at the end of last week: asset classes, countries, and individual sectors. One of the laggards that caught my eye was the gambling industry. Its momentum has been gradually improving. Time to buy? Not necessarily. What’s lagging can keep lagging for years. But it’s a good reason to take a closer look at casinos, sportsbooks, lotteries, and prediction markets. And there’s time to do it. Different business models, prospects, and risks.

The tables in the video (in Russian) ended up pretty cluttered, but you know, this is a “working session,” not a sales presentation – deal with it. I won’t bring all of that into the article. The maps, charts, and numbers are in the full episode on YouTube and RuTube.

Asset classes, countries, and sectors

Cash and real estate in Russia remain strong, though both are losing a little steam. By real estate, I mean “paper” real estate – closed-end investment funds whose units trade on an exchange. Bonds are lagging overall. So are foreign currencies – the ruble remains “strong.” Gold is in a deep correction, though it may have started turning around lately. Russian stocks are gradually gaining strength. Last week they even made it into the leading quadrant, then pulled back a bit. I wouldn’t rule out concerns over further efforts to resolve the conflict in Ukraine as part of the reason.

In the U.S., commodities are still leading, but their relative strength is gradually fading. Real estate, by contrast, is gaining strength. That may have something to do with expectations for interest rate cuts. After the recent correction, U.S. stocks have moved into the weakening quadrant. Mainly because of concerns about returns on investments in artificial intelligence. The correction is probably nearing its end. At least I hope so. Bitcoin’s position is gradually improving.

Among global markets, Poland, Greece, Norway, and several others remain leaders relative to the U.S. market (I wrote about this the other day for Finversia – also in Russain only). I track 45 countries in all, including Russia. Incidentally, Russia’s position relative to the S&P 500 is improving too, though it’s still a long way from the leaders.

Sectors. Pharma, biotech, insurance, retail, and food are leading. Oil and gas is still among the leaders too, although after such a big run-up in oil prices, I think there’s little upside left. I’ve been avoiding investments in the oil industry lately. Don’t know whether I was right or not. But oil has corrected now.

Lagging assets

The juiciest opportunities are usually among the laggards. But that doesn’t mean jumping in right away, no “oh, it’s lagging – let’s buy.” You can watch, study, figure out what’s going on, and take advantage when the turnaround starts.

One of those sectors, for me, was gambling. On the map, it’s represented by the BETZ fund. But don’t get hung up on that particular ETF. It’s just a reference point for further analysis.

How the companies make money

Traditional casinos. Pretty straightforward. A big hotel, Las Vegas-style, slot machines, gaming tables. People show up, place bets, and, predictably, mostly lose money. That’s the casinos’ main source of revenue – GGR, or gross gaming revenue. Total wagers minus payouts. They also make money from hotel rooms, restaurants, entertainment shows, and parking. Their main costs are maintaining the buildings and paying staff.

Sportsbooks make their money the same way. They take bets on sporting events through physical betting locations or mobile apps. Costs include taxes, advertising, customer bonuses, and purchasing sports data.

Online casinos – slots, roulette, blackjack, games with live dealers over video. Some companies develop games, set up studios, and run the broadcasts. The casinos buy those services from them. That’s how they’ve divided up the work.

Another segment of the market is slot machine manufacturers and suppliers of sports statistics, odds, and software to sportsbooks. They have a different revenue model – fixed fees or licensing payments, usage-based fees, and sometimes a share of the revenue earned by the operators they serve.

One thing that surprised me about lotteries, for example, is just how much of a government affair they are. Governments can run lotteries themselves, hire contractors for a flat fee or a percentage of revenue, or issue a license to a private company. Interesting logic: people are going to gamble anyway, so why not bring some money into the budget? If you can’t beat ’em – join ’em.

The potential of online gambling

What’s the potential advantage of online casinos? They can run an almost unlimited number of games at the same time. In a traditional casino, you’re physically limited by the space and the number of staff. Online, those constraints are much looser. Which means you can serve more customers at a lower cost per dollar of revenue.

In the U.S., gambling in one form or another is legal in almost every state, but online casinos are legal in only a small part of the country. In Nevada, for instance, only online poker is allowed. And if a casino has a license in New Jersey, it can only accept bets from people physically located in that state – each state requires its own license. Further legalization could translate into higher stock prices.

But there are obstacles too. First, concerns about gambling addiction: everyone has a smartphone in their pocket, and you can play 24/7 without going anywhere. Second, the interests of traditional casinos, which worry about losing customers to online gambling. Although some of those very companies are building their own online businesses. There’s no consensus on this within the industry.

What’s happening in Europe

In 2022, Europe’s gambling market recovered from the pandemic and continued to grow. From 2019 to 2024, its revenue grew by about 3.7% a year. The online segment grew much faster – around 12.4% annually. Its share of total revenue rose from roughly 26% to 39% over the same period. By 2029, that share is projected to reach 45%, with total market revenue of about €149 billion a year.

The picture varies by country. Among major markets, online gambling is most developed in the U.K., where it accounts for more than half of revenue. In Spain, it’s only about 15%. So there appears to be room for further online growth in Europe as well.

Why did the stocks fall, then?

This raises a reasonable question: if everything is developing so nicely, why has the sector fund been falling lately? There are several reasons.

One of them is higher taxes. In Illinois, for example, an additional tax on each online bet took effect in July 2025: 25 cents per bet, rising to 50 cents after 20 million bets in a year. In the U.K., the tax on online casino gaming revenue rose from 21% to 40% in April 2026. In April 2027, the tax on most online sports bets will rise from 15% to 25%.

Another reason is competition from prediction markets such as Polymarket and Kalshi. These offer contracts on the outcomes of various events. The difference from a sportsbook is that the sportsbook acts as our counterparty (it takes the other side of our bet), while a prediction market works more like an exchange, an intermediary between participants. It makes money from trading fees, so trading volume and liquidity matter.

Traditional sportsbooks are being forced to invest in this area. DraftKings, for example, planned significant spending on prediction markets in 2026. Whether those investments will pay off is still unclear, and that worries investors. It’s roughly the same story with investments in artificial intelligence right now: companies are pouring a ton of money into data centers, but whether they’ll earn it back is an open question. Investors, of course, would love everything to be nice and steady, with money coming in every month like a paycheck. But that’s not how markets work.

Another possible reason is Brazil, where a temporary ban on online gambling was introduced in September 2026. Major operator Flutter had to suspend operations in the country and recognize an $873 million asset impairment – things didn’t work out, it happens. Some believe this is temporary and the situation will be resolved. But events like this can certainly make investors nervous.

Regulation of prediction markets

Prediction markets currently enjoy certain regulatory and tax advantages over traditional sportsbooks. They can operate in states where regular sports betting is prohibited, and they don’t pay some of the special gambling taxes (for example, the 51% tax on GGR from mobile sports betting in New York). These platforms are regulated at the federal level by the CFTC. As a result, traditional sportsbooks are at a disadvantage, even though they’re doing, essentially, very similar things.

This reminds me of the situation with financial and investment advisers back home in Russia. Investment advisers have to be registered with the Bank of Russia and comply with the regulator’s requirements. Financial consultants, meanwhile, say they “do something different.” Even though, in practice, they do pretty much the same thing. So their regulatory costs are different too. A similar argument is playing out in the U.S. gambling industry right now.

Michael Burry, for example, believes the current advantages of prediction markets are temporary and regulation will tighten. Legal battles are already underway. It’s reasonable to assume that at some point the rules will change and traditional sportsbooks will be able to regain their competitive position.

Well, we’ll see. There’s potential in online gambling. But there are also taxes, regulation, and competition from new platforms.