Direct Answer
Casinos generate gross gaming revenue (GGR) from the mathematical house advantage applied across card games, slot machines, and table games. EBITDA margins of 30-40% on the gaming floor are among the highest in hospitality, but capital intensity (resort development costs $1-10 billion) and regulatory licensing requirements create high barriers to entry. Online gaming (iGaming and sports betting) is the high-growth segment, disrupting traditional land-based economics.
Casino Revenue Model: House Edge and Gross Gaming Revenue
Casino revenue derives from the mathematical house advantage in games of chance. Slot machines return 85-98% of wagers to players, keeping 2-15% as gross gaming revenue (GGR). Table games (blackjack, roulette, baccarat) have lower house edges (0.5-5%) applied to much higher individual wagers. The law of large numbers ensures actual results converge to theoretical hold percentages across millions of decisions.
GGR is gross gaming revenue before promotional allowances (complimentaries, match-play offers, free play credits used to attract and retain gamblers). Net gaming revenue subtracts promotional expenses; both metrics are reported. Gaming revenue is highly predictable in aggregate (the house always wins the expected percentage) but volatile in short periods when a small number of high-stakes bettors ("whales") can move quarterly results meaningfully.
Non-gaming revenue (hotel rooms, food and beverage, entertainment, retail) is significant at destination resorts: about 76% of MGM Resorts' Las Vegas Strip net revenues in 2025, versus about 25% of Las Vegas Sands' net revenues from its Macao and Singapore resorts. High-spending gaming visitors cross-subsidize the resort amenity infrastructure, making hospitality revenue dependent on gaming traffic even when reported separately.
Land-Based Gaming: Las Vegas, Regional, and Macao
Las Vegas Strip is the most profitable gaming market globally on a per-establishment basis, anchored by MGM Resorts, Caesars Entertainment, Wynn Resorts, and Las Vegas Sands. Strip properties combine high-margin gaming with premium hotel, entertainment, convention, and F&B revenue. The Strip benefit from air route connectivity that makes Las Vegas accessible to gamblers from across the US.
Regional US gaming (riverboats, racetracks, tribal casinos, and commercial casinos outside Nevada and New Jersey) serves local and drive-to markets. Regional margins are typically lower than Las Vegas destination properties, but local market monopolies or duopolies provide pricing stability. Boyd Gaming, Churchill Downs, and Penn Entertainment are major regional operators.
Macao is the world's largest gaming market by revenue, a Special Administrative Region of China where casino gaming is legal. Las Vegas Sands, MGM China, Wynn Macao, and Galaxy Entertainment compete for the premium gaming business from mainland China high rollers. Macao gaming revenue is highly volatile, as Chinese government policy (visa restrictions, enforcement of capital controls) directly affects traffic. The 2020-2022 COVID restrictions devastated Macao operations; recovery through 2023-2024 was strong but below pre-pandemic peaks.
Online Gaming: Sports Betting and iGaming
Sports betting was legalized in the US following the 2018 Supreme Court PASPA ruling, allowing individual states to authorize sports wagering. As of 2025, over 30 states have legalized sports betting, creating a large addressable market. The online sports betting market is dominated by DraftKings and FanDuel (Flutter Entertainment), with BetMGM (MGM/Entain), Caesars Sportsbook, and Penn Entertainment's theScore Bet as secondary players; Penn's ESPN BET branding ended on December 1, 2025, and DraftKings is now the official sportsbook of ESPN.
Online casino gaming (iGaming: slots, table games played online for real money) is legal in fewer states (New Jersey, Pennsylvania, Michigan, Connecticut, West Virginia, Delaware, Rhode Island and Maine, per DraftKings' 2025 annual report) but generates higher margins per player than sports betting. Sports betting margins (hold rates of 7-8%) are thin compared to slot machine hold (10-15%); iGaming more closely mirrors land-based slot economics.
Customer acquisition cost (CAC) has been the critical profitability challenge for online operators: massive promotional spending (deposit bonuses, free bets, free play) to acquire players in newly opened states resulted in years of EBITDA losses at DraftKings and Caesars Digital. The market has shifted toward profitability focus, with promotional spending declining as markets mature and operators build loyal customer bases.
Major Players: MGM, Sands, Caesars, DraftKings
MGM Resorts International (MGM) operates 30+ properties across Las Vegas (Bellagio, MGM Grand, Aria), the US, and Macao (MGM China). Its BetMGM online joint venture (with Entain) provides digital exposure. MGM has monetized its real estate by selling properties to Vici Properties (a gaming REIT) and leasing back, reducing capital intensity while retaining operational exposure.
Las Vegas Sands (LVS) is the most Macao and Singapore-concentrated major, having sold its US Las Vegas properties (The Venetian and the Sands Expo) for about $6.25 billion in a sale that closed in February 2022, to focus on the Asia Pacific market. Its Singapore integrated resort (Marina Bay Sands) is one of the most profitable gaming properties in the world per square foot.
Caesars Entertainment (CZR) is the largest US casino company by number of properties, with 50+ locations across the country plus Caesars Palace Las Vegas. Its Caesars Rewards loyalty program is among the most valuable assets: tens of millions of members provide a database for targeted marketing and direct customer relationship.
DraftKings (DKNG) is the leading pure-play online sports betting company, achieving profitability milestones in 2024 after years of investment in new market launches and promotional spending. Its daily fantasy sports heritage gave it an existing customer base when sports betting legalized.
Investment Considerations: EBITDA Multiple, Leverage, and Market Maturation
Gaming companies trade on EV/EBITDA multiples (enterprise value divided by EBITDA), reflecting high depreciation that makes P/E less useful. Las Vegas Strip operators have historically traded at 12-16x EBITDA; online gaming operators trade at premium multiples reflecting growth expectations but often lack positive EBITDA, requiring revenue or gross profit multiples.
Leverage is structural in gaming: the high EBITDA margins and predictable cash flows support significant debt loads. Many operators used sale-leaseback transactions (selling real estate to gaming REITs like Vici Properties and GLPI, paying rent) to monetize assets while retaining operations, creating sale-leaseback rent obligations that are a fixed cost regardless of gaming performance.
Gaming regulatory risk is significant: operating licenses can be revoked or denied for regulatory violations, and regulatory changes (tax rate increases, expansion of competitor licenses) affect earnings. The accelerating legalization of sports betting and iGaming state-by-state is both an opportunity (new markets) and a threat to existing market participants (new competition in previously concentrated markets).
FAQ
What is gross gaming revenue (GGR)?
Gross gaming revenue (GGR) is the total amount wagered by players minus the amount returned as winnings. It represents the casino's "take" before operating expenses. A casino where players wager $100 million and receive $95 million back in winnings has GGR of $5 million (5% hold). GGR is the primary top-line metric for gaming operators, equivalent to revenue for most businesses. Net gaming revenue (NGR) subtracts promotional allowances (bonuses, free play credits, comps) to arrive at revenue after marketing costs.
What was PASPA and how did its repeal affect gaming?
The Professional and Amateur Sports Protection Act of 1992 (PASPA) effectively prohibited sports betting in states other than Nevada, Delaware, Montana, and Oregon. In May 2018, the Supreme Court struck down PASPA as unconstitutional in Murphy v. National Collegiate Athletic Association, freeing individual states to legalize sports betting. Since the ruling, 30+ states have legalized sports betting, creating a market that reached $120+ billion in annual handle (total wagers) by 2024. The ruling created a new billion-dollar industry for operators like DraftKings and FanDuel and significant tax revenue for participating states.
Why did online sports betting companies lose money for so many years?
Online sports betting companies (DraftKings, Caesars Digital) spent heavily on customer acquisition costs (CAC) when new states legalized: large sign-up bonuses, deposit matches, and free bets were offered to attract bettors before competitors could. In a winner-take-most market, early customer acquisition was prioritized over near-term profitability. The investment thesis: high-CAC customers have multi-year lifetime value (LTV) if retained, making initial losses recoverable over time. As markets matured, promotional spending declined, and the major operators (DraftKings, FanDuel) achieved EBITDA profitability by 2024-2025 on the strength of retained player bases.
What is a sale-leaseback in gaming and why do casinos use it?
A gaming sale-leaseback involves a casino operator selling its property (land and buildings) to a gaming real estate investment trust (REIT) like Vici Properties or Gaming and Leisure Properties (GLPI) and then leasing it back under a long-term triple-net lease. The casino operator receives a large lump sum of cash (the sale price) while retaining operational control of the property. Benefits: monetizing real estate value without disrupting operations, using cash to pay down debt or fund growth, and maintaining a gaming-operations focus rather than real estate ownership. Risk: the lease creates a fixed rent obligation that is senior to equity and continues regardless of casino performance.