Why Morgan Stanley sees NSW’s gambling reform causing headaches for Endeavour

In its latest research note for ASX-listed Endeavor Group (ASX:EDV), Morgan Stanley Research said proposed reform to gambling laws in NSW could hurt EDV’s performance down the line. 

Gambling reform is a hot topic in NSW right now, with stakeholders on all sides enthused by the timing of a state election in March. 

Basic rundown 

NSW Labor opposition leader Chris Minns introduced a NSW gambling law reform platform last week. Minns said that if Labor is elected, the reforms will go ahead. 

Key among those reforms is the move to install 500 cashless gambling machines as part of a trial, and, a proposed move to introduce a mandatory loss limit of up to $1,500 a day. 

If punters lost X amount of dollars in one night, they would be barred from accessing the service for a cool-down period. 

Cashless gambling machines were introduced in a 2021 Crime Commission report which found “pokies” and other electronic gaming machines were being used to launder money. 

Cashless gambling machines would also mean that punters lose less money by increasing the ability to install virtual cash limits tied to accounts. 

The NSW Government has since voiced its support for watered down reforms without being too specific.

Larger trial needed

But Morgan Stanley isn’t so sure. 

“Without a full scale trial, we expect significant industry push back on whether or not cashless gaming will improve problem gambling, given the increased ease of use such platforms offer,” analysts wrote. 

If users did not need to use cash to gamble, Morgan Stanley foresees it is equally likely accounts tied directly to a credit card could actually lead to a higher amount of spend on Electronic Gaming Machines (EGM) per user. 

The investment bank’s research team does posit, however, that cashless gaming might scare off older and more privacy-valuing users, though it notes younger digital natives could be drawn to the slots. 

Loss limits the question for Endeavour 

The main focus is whether or not the NSW government, under whichever banner, will impose loss limits at its cashless gaming trial locations. 

Given Endeavour Groups’ wide reach in hospitality, this is where the value impact on EDV shareholders would start to hit, according to MS. 

“We expect cashless gaming to: i) exclude a cohort of users who are opposed to registered play and ii) reduce spend of high-frequency players, if loss limits are imposed,” Morgan Stanley wrote. 

“At a high level we estimate cashless gaming, with spend limits, could result in a 15-25% reduction in EGM spend.” 

The investment bank does not perceive any cashless gaming trial (or full rollout) taking place in the near-term, with “technology and systems required to implement full cashless gaming not yet commercially available.” 

EDV specifics 

“We estimate a relatively small impact to group [earnings] under a scenario of proposed NSW / TAS reforms,” the bank wrote, citing an upper estimate of -2% loss. 

“But should legislative reforms move nationwide, we could see a scenario whereby ~7%” of earnings could be wiped out by the cashless gaming scheme. 

Time will tell. 

The state of EDV's one year charts