728x90 AdSpace

Latest News
July 16, 2015

Gambling in Recession And Weak Economic Growth

Right now nearly every business channel around the world is talking about Greece/EU discussions with regard to a possible bailout, which would see the financial situation in Greece ease out. Greece is experiencing financial crises and according to reports, there is a possibility of banks running out of cash if Greece eventually defaults the debt owed to the EU, and consequently exits the Eurozone economic membership. On the other hand, a bailout plan will enable the government of Greece to access new lines of credit, which would be crucial for the country’s banking sector.

The uncertainty over what might unfold with regard to theGreek situation appears to be creating panic and fear in the market as illustrated by the current plunge in European equities. The Greek prime minister has been handed a deal by the EU to take to the people of Greece, upon which if not signed then Greece would have to exit the Euro zone.

The new deal features various restrictions and requirements which analysts believe not to be good for the Greek economy, but appear to be the only option for a way forward, if Greece is to remain in the Euro Zone. In fact, there are suggestions that this deal has tougher measures than those Greece rejected in the referendum.

Generally, Greece’s problems began with a recession that has seen it struggle financially over the last five years, and with banks on the verge of running out of money, this is bound to impact various industries in a number of ways.

When there is no money in circulation in an economy, then that means that people’s spending ability is limited. This means that they will have to prioritize on how to spend their money and activities such as gambling are likely to be at the bottom the list.

According to research, the gambling industry has demonstrated low growth rates during recession periods and high growth rates during expansion periods. This is due to the simple fact that people are willing to risk less during recession, than they would during expansion. 

Ideally, gambling is considered a high risk method of making money and thus is more attractive to players when they have enough on the side that they can afford to risk. The table below demonstrates how gambling has fared during differed economic situations over the past, and the signs are clear.




Based on the periods used to come up with the statistics above, Casino businesses such as William Hill Casino saw massive growth during periods of expansion growing by an average of 0.727. On the other hand, periods of recession only attracted a growth rate of about 0.010.

Lottery companies attracted the highest growth rate level during periods of expansion growing by 1.277 times, while recession periods showcased a growth rate of 1.064. Therefore, on both occasions it is clear that Lottery companies averaged a growth rate of more than 100%.

On the other hand, wagering companies grew by 0.079 points during economic expansion periods, but experienced a decline of about 0.368 during recession. As such, it is clear that wagering/booking companies were hit the most during harsh economic conditions as compared to the rest of market segments in the gambling industry.

Overall, the gambling industry grew by 0.295 points during periods of expansion as compared to 0.001 growth reported during periods of recession. The good news in this case is that even during recession, the gambling industry still managed to grow, albeit by a small fraction. The same hardly happens in other industries.

Now, Europe is widely known as one of the hubs of online gambling. This is particularly because one of the leading countries in shop-based gambling, the US, is very restrictive when it comes to online gambling. As such, most players find themselves rooted to EU-based companies.

Over the last few years, the Euro-zone has been struggling economically, and this can be further confirmed by the current situation with regard to bailing out Greece. There is still no clear way out for Greece as it continues to inch towards exiting the EU. This is further going to hit the overall EU economy with uncertainty likely to follow. As such, it might be quite some time before we see resurgence in the Eurozone economy, which means the current slowdown is likely to continue for the next few quarters. So where do gambling companies stand with the current economic conditions in the EU? Surprisingly, they have been doing particularly well given the conditions.  




For instance, William Hill stock price has rallied by about 50 pence to trade at about 400 pence per share over the last twelve months. Nonetheless, it also appears that the events of the last few days may have taken some gas off the stock because it had initially rallied to about 426 pence per share.

It is important to note that this contradicts the trend depicted by US gambling companies over the same period as they continue to experience continuous decline. 



The US Dow Jones Gambling Index is down more than 300 points over the last twelve months. This is despite the US registering significant growth in economy and clear signs that the country could continue on the same trajectory in the coming quarters.

Notice that the US is very restrictive on online gambling and only a few states allow it. As such, it appears reasonable to say that online gambling, which is growing picking up interest fast among gamblers and gambling companies might be playing a key role in William Hill’s rise.

Conclusion

The bottom line is that, from an opinionated perspective, we could argue that even during tough economic conditions, online gambling has helped gambling companies like William Hill Casino to stay ahead, while a lack of the same has seen US gambling companies struggle despite positive economic conditions.

About the Author: Nikolai Kuzentsov (Article Archive Here) is a financial analyst and professional trader. He has extensive experience in stock market analysis, investment research and various assets such as FX, commodities, equities and bonds. Nicolai writes at Nikolaiknows.com.


The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle


  • Blogger Comments
  • Facebook Comments
Item Reviewed: Gambling in Recession And Weak Economic Growth Rating: 5 Reviewed By: EconMatters