There is much intrigue in Washington over who will replace Jerome Powell as chair of the US Federal Reserve when his term ends in mid-May, and the gaming industry will be watching the central bank’s transition closely.
The seeming consensus in economic and political spheres is that the new chair, whether it be nominee Kevin Warsh or whomever else, will usher in interest rate cuts to facilitate President Donald Trump’s economic agenda. Trump appointed Powell during his first term in 2017, but the two clashed over the Fed’s reluctance to lower rates in the years following the Covid pandemic.
Gaming stakeholders have experienced a chilly relationship with Trump’s federal financial policy thus far in his second term. The Commodity Futures Trading Commission embraced prediction markets since he took office, and Trump announced plans to enter the sector through his Truth Predict platform.
Additionally, his “One, Big Beautiful Bill” from last year included a tax provision that caps deductions for gambling losses at 90%. Federal lawmakers from gambling states have scrambled unsuccessfully to undo that potentially massive change for gamblers.
But unlike those developments, a change in the Fed’s approach could benefit the gaming industry because lower interest rates could help with debt, borrowing, mergers and acquisitions and ultimately stock prices.
“Stocks move for two reasons, simplistically: estimate revisions, so numbers getting better, the consumer getting better, GDP growing, that’s one part. Then the second part is the valuation multiple, and as rates come down, that should result in higher multiples,” Macquarie head gaming analyst Chad Beynon told iGB.
Many gaming stocks lagging as rates creep down
Better multiples and valuations would be welcome for gaming, which has not enjoyed the same success as the broader US stock market of late. All three major indices — S&P 500, Dow Jones Industrial Average and Nasdaq Composite — hit all time-highs in the last year and are still within reach of those records, but many gaming stocks languished.
Several big names from various industry sectors saw share prices fall sharply in the past 12 months, including:
- Aristocrat Leisure (-31%)
- Caesars Entertainment (-43%)
- DraftKings (-51%)
- Evolution (-25%)
- Flutter (-57%)
- Genius Sports (-34%)
- Penn Entertainment (-41%)
- Playtech (-45%)
From a Fed perspective, interest ballooned from close to 0% in 2021-2022 to more than 5% in 2023-2024 and have crawled back down since then. Since Trump returned to office in January 2025, Powell and the Fed made three quarter-point cuts from 4.5% to 3.75%, which is where rates currently stand.
As for who the new chair might be, Trump nominated Warsh, an economic lecturer at Stanford and former investment banker at Morgan Stanley. Warsh was previously a Fed governor from 2006-2011 and was the youngest to ever serve in the role when he joined at age 35. Analysts debate his economic views and how he might govern if confirmed, but the broad consensus is that at least some rate cuts are expected in the short to medium term.
Trump told NBC News this month that Warsh “would not have gotten the job” if he had indicated a desire to raise rates.
Sale-lease back operators poised to benefit
If the US market is destined for more cuts in 2026 under Warsh or whomever else, casino operators might see some relief. This is especially true of operators that sold and leased back their real estate, such as Caesars, Penn and Bally’s. The quick cash infusions are good for financing other projects or paring down debt, but it can get tricky if and when performance slows down.
“I think the biggest sector that has been most impaired during the Powell administration is the OpCos, the companies that did these sale-lease backs,” Beynon said. “It was essentially a way to finance the business. Instead of taking on debt from a bank, you worked with one of these REITs and you sold them half of your profit.
“So if you’re making $100 million, you would say, ‘All right, I’ll sell you $50 million per year rent at a certain valuation,’ and those companies — the ones that did those sales — have really underperformed. And I think that would probably be most beneficial if there’s Fed cuts.”
According to data through January from New York University:
- The hotel/gaming industry has an average enterprise multiple of 17.7, slightly below the non-financial adjusted average of 19.8.
- Among companies with positive EBITDA, the average multiple in gaming is 14.9 compared to 16.9 when excluding financials.
Broadly speaking, a number of the best-performing casino companies of late have been those that still own their real estate. Some notable examples are Wynn Resorts, which slowed in Q4 but still outperformed its Strip peers in 2025, and Red Rock Resorts and Boyd Gaming, which dominate the locals market in Las Vegas and elsewhere. Over the past 12 months, Wynn shares are up 20% while Red Rock and Boyd are up 18% and 10%, respectively.
Juicing the M&A markets
Lowering rates is typically a catalyst for higher M&A activity, which can also help raise valuations. Frank Fantini, founder of Fantini Research, told iGB that gaming investors are searching for “some cause, some sort of reason for valuations” to go up, and dealmaking is one of them.
“If you have a company that is selling at 5x EBITDA and ought to be selling at 10x, and then they sell at 7-8x, that helps lift the valuations for everybody … because people go, maybe your peers are worth 7-8x and not 5x,” Fantini said.
In recent years, much of the M&A in gaming has been driven by private equity. A number of the most high-profile industry deals since COVID have involved private equity as the buyers, including:
- Gaming Labs International (CVC Capital Partners)
- IGT-Everi (Apollo)
- PlayAGS (Brightstar Capital)
- Rio Las Vegas casino (Dreamscape Companies)
- Venetian-Palazzo casino (Apollo Global Management)
Private equity has been opportunistic with low gaming valuations, but that opportunism might change with easier access to money. Rick Arpin, US gaming leader for KPMG, told iGB in 2024 that gaming companies were losing out at the time because they didn’t have the capital, borrowing was expensive and their shares were depressed. Stakeholders are hopeful that conditions eased enough since then to help level the playing field.
Potential Federal Reserve impacts on debt
Debt is another factor that might be affected by Fed moves. As Beynon suggested, the ability to refinance at lower rates can have something of a cascading effect.
“The rating agencies will be more positive on you, and then if the rating agencies are more positive, sometimes investors are more positive as well,” Beynon said. “So yes, I’d say rate reductions would definitely be positive for a number of names.”
According to NYU, the average debt-to-EBTIDA multiple in gaming is 5.3, well above the non-financial adjusted market average of 3. Beynon said elevated debt levels are typically seen after a recession-like period as “gaming companies traditionally put on a lot of leverage” in attempts to keep pace.
Many companies have had a hard time trying to “grow their way out of this leverage”, he said, so lower rates would “absolutely” help those efforts.
Legal trouble with Powell, Trump?
As Powell’s tenure winds down, his relationship with Trump has soured as the president tried to exert unprecedented pressure over the central bank, and this could ultimately afect the transition process. The situation came to a head in January when the Department of Justice subpoenaed Powell over previous testimony related to renovation costs at the Fed headquarters.
“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. … Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said in a statement.
This legal threat could end up keeping Powell in place, as members of the Senate Banking Committee threatened to hold up the nomination process until the probe is resolved.
“I made it very clear that the only way we move forward on any Fed nom … [is] until this is resolved,” North Carolina Senator Thom Tillis, a member of the Banking Committee, told The Hill this month. “If we undermine the independence of the Fed, there will be catastrophic economic consequences.”
Additionally, Powell’s term as chair will soon be over, but his term as a Fed board governor runs through January 2028. Outgoing chairs typically relinquish all roles upon leaving, but Powell could buck tradition and stay at the bank under the incoming chair.
Warsh’s confirmation hearing has yet to be scheduled.
Jess Marquez
Jess has covered the global gaming industry since 2022. A native of Reno, Nevada, he’d like to note that it’s Ne-va-da, not Ne-VAH-da.
Original article: https://igamingbusiness.com/finance/federal-reserve-interest-rate-changes-gaming-impact/
