Despite record earnings for some large casino operators, 2023 is shaping up to be the worst year for North American real-money gaming M&A in nearly three decades.

An environment of high interest rates and tight credit sent the number of publicly announced transactions for land-based casinos and casino hotels tumbling to just eight through mid-November, on pace for the lowest tally since at least 1995, Mergermarket data shows.

“We tried to sell an asset in Las Vegas last year,” said one executive from a global casino operator. “We got a lot of really nice offers that couldn’t get financing due to the credit markets seizing.”

Conditions have improved more recently, the head of another global casino operator said in a fireside chat at last month’s Global Gaming Expo in Las Vegas. Capital markets are “in a much better place” than six- to nine-months ago, Bill Hornbuckle, CEO for MGM Resorts International [NYSE:MGM], told the audience.

Deal volume for casinos sank to USD 1.03bn in the year to date, the lowest level at this point of the year since the depths of the global financial crisis in 2009. In the iGaming sector, which includes online casinos and online sports betting companies, a handful of deals accounted for another USD 650m.

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The casino industry was riding high in 2019, as cheap credit abounded, market observers said. Deal value for land-based casino assets that year exceeded USD 26.6bn, according to Mergermarket figures.

That year also marked an explosion in the iGaming space, as market leaders like DraftKings [NASDAQ:DKNG] and FanDuel began to gain traction amid the expansion of sports betting to more states.

Deal value for iGaming assets reached an all-time high of nearly USD 16bn that year, with roughly USD 13bn contributed by Ireland-based Flutter Entertainment’s acquisition of The Stars Group, operator of Pokerstars online casino.

Transaction value fell sharply during COVID in 2020, but soared again in 2021, when low rates fueled a flurry of casino sales totaling more than USD 18bn, much of it driven by private equity and REIT acquisitions of Las Vegas casino real estate assets.

Deals that year included Blackstone Real Estate Income Trust’s USD 3.8bn purchase of the Aria Resort, and Vdara Hotel and Spa from MGM Resorts; Apollo Global Management’s [NYSE:APO] USD 2.25bn buyout of the Venetian and Hard Rock Cafe International’s USD 1bn purchase of The Mirage Hotel.

By the end of 1Q22, rising rates had put the brakes on many larger transactions, a condition that has persisted into this year.

Gambling on lower rates

While consolidation is likely to remain tepid and capital hard to come by until rates recede, market participants remain bullish on a sector where gamblers keep spending and many of the largest firms continue to generate record revenue and earnings.

“Some people would say it’s somewhat recession-proof,” said Christopher Justice, CEO of Pavilion Payments, which provides payments services to land-based casino and iGaming operators, including cashless table gaming.

Formerly the gaming division of Global Payments [NYSE:GPN], Pavilion was sold in February to private equity firm Parthenon Capital for USD 415m.

“Even now, it’s one of the best years of gross gaming revenue ever recorded,” Justice told Mergermarket.

In iGaming, many sports betting firms that entered since 2019 have shuttered, unable to keep up with the costs of attracting and keeping customers, explained Paul Richardson, a partner at Partis, a UK-based iGaming M&A advisory with mandates from US sellers to find European buyers.

Cheaper money as early as next year should induce private equity, casino operators seeking their own iGaming technology, and other strategics to resume more normal levels of M&A activity, he expects.

“At the moment, I think there are a lot of corporates who are fairly keen not to catch falling knives,” Richardson said.

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