Gaming Stocks Dropped 7% Last Month, the Weakest August Since 2019

Summary:

• J.P. Morgan’s Politzer said gaming stocks fell an average 7% in August, underperforming the S&P 500’s 3% gain.
• Regional operators such as Penn Entertainment, Red Rock Resorts, Boyd Gaming and Churchill Downs now look attractive.
• Truist Securities’ Barry Jonas said the Ninth Circuit ruling against Kalshi could encourage additional state restrictions.

J.P. Morgan analyst Daniel Politzer explained that gaming stocks covered by the firm fell an average of 7% in August, significantly underperforming the S&P 500, which gained about 3% during the same month.

The serious drop turned the month into the sector’s weakest performance for August since 2019.

Politzer argued that a number of factors reportedly triggered the weakness. The list included lower summer trading liquidity, macroeconomic concerns, higher interest rates and uncertainty surrounding the gaming sector.

The expect also referred to the impact of the conflict involving Iran. However, despite the recent decline, Politzer reassured of opportunities noticed among regional casino operators, amid investors getting ready to head into the conference season.

Politzer emphasized Penn Entertainment, Red Rock Resorts, Boyd Gaming and Churchill Downs for their relatively stable fundamentals that have become disconnected from recent stock-market performance.

J.P. Morgan’s opinions comes as analysts continue to reassess gaming stocks following a challenging period for the sector. Politzer has continued to maintain coverage of major casino operators, including Penn Entertainment, Boyd Gaming and Red Rock Resorts.

Growing Legal Uncertainty for Kalshi

Truist Securities analyst Barry Jonas put the focus on the legal battle surrounding Kalshi following the Ninth Circuit ruling against the prediction-market operator in its dispute with the state of Nevada.

The ruling basically prevents Kalshi’s sports prediction contracts to reach the state and could encourage other states to take similar action.

Jonas noted that the decision creates a split between the Ninth Circuit and the Third Circuit, which previously reached a different conclusion in the New Jersey dispute. That growing disagreement could ultimately increase the possibility of the U.S. Supreme Court taking up the issue.

The legal question is significant for both prediction-market companies and traditional sports-betting operators.

New Jersey has already asked the Supreme Court to determine whether states can regulate sports contracts offered by prediction markets such as Kalshi, arguing that state gambling laws should apply.

Jonas estimated that a definitive resolution could still take anywhere between 10 and 22 months.

The uncertainty has also attracted investor attention to companies including DraftKings and Flutter Entertainment. Both stocks rallied following the Ninth Circuit decision, according to Jonas, who said the companies could see additional upside if they continue navigating the changing regulatory environment.

Jefferies analyst David Katz also examined how money could be distributed across the prediction-market value chain, suggesting dedicated exchanges could capture roughly 65% of explicit transaction fees.

Market makers can also generate revenue through bid-ask spreads, rebates and liquidity incentives, although those returns can be considerably more volatile.