Casino ROIC
Talked about CZR for an interview and the guy asked me why casinos have historically had low ROIC. My guess is that they require a lot of investment and are only allowed in certain places which leads to suffocating competition. Interviewer just told me was wrong and didn’t elaborate. Can someone explain?
Just speculating but iirc as gamblers get smarter, the house odds are becoming less profitable so that may have something to do it with. Plus id imagine competition from online betting, high opex, political risk from being a vice all contribute. Not too familiar tho so far from certain
Just following up, why did this get MSed? Is he wrong
Very
Expanding a little - the only game where gamblers have gotten “smarter” is BJ, where more people Re familiar with / play basic strategy due to the proliferation of the internet. Also people are more conscious of rake in the poker room. That being said, that’s totally immaterial. Don’t believe idiots like Mikey Manse - no one is beating the house
Based on the most helpful WSO content, here are some insights into why casinos have historically had low ROIC:
High Capital Expenditure:
Cyclical Nature of the Business:
Regulatory Constraints:
Intense Competition:
Maintenance and Upkeep Costs:
Market Saturation:
These factors collectively contribute to the historically low ROIC observed in the casino industry.
Sources: ROIC in LBO, Understanding how to specifically calculate ROIC, DCF Modeling Course ~ Pre-training text.pdf, The Asymmetric Risk Profile: Preparing for the Hedge Fund Interview, The Asymmetric Risk Profile: Preparing for the Hedge Fund Interview
I've never looked at a casino's financials before, but I'll take a guess anyway.
They're asset heavy businesses. They have large real state/hotel and entertainment operations to attract customers. These, while profitable, will be less than profitable than the pure gaming operations.
Casinos will also have large intangibles through consolidation and trademarks and gaming licenses that will be capitalized.
Also speculating but Casino's are asset heavy, have pretty high CapEx, and OpEx, and have to pay insanely high municipality taxes on their post-payout revenues.
Sunt et pariatur ullam perferendis ipsa et et. Beatae quae dolor adipisci placeat ut. Aliquam voluptas modi illum nulla asperiores dolores ad.
Itaque autem rerum commodi ut ipsum earum quo. Quia accusantium saepe expedita alias dolores consequatur sed. Delectus officiis accusamus est ullam quos.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...