We remain confident in the way VICI Properties (VICI) operates.
- VICI has the most efficient overhead of any REIT
- VICI has favorable leasing structure in which tenants pay for property upgrades at mandatory intervals
- Acquisitions have high cap rates and long lease terms
Today we will be exploring factors outside of VICI’s control that could potentially change its outlook. VICI Properties (VICI) stock has declined substantially as investors fear the rapidly changing gaming environment. Travel to Vegas is down materially at a time when online sports betting is taking off.
Is Vegas impaired?
Is online gambling supplanting casinos?
Each of these factors could potentially erode the value of predominantly Vegas physical casinos. However, if VICI is immune to the changes, its newly cheap 11.7X AFFO multiple vastly undervalues the prosperous behemoth.
This article will analyze the new legal gambling landscape in depth to ascertain its impact on the forward value of VICI’s casinos.
The legal/regulatory framework that ushered in rapid change
In 2018, the Supreme Court overturned PASPA (Professional and Amateur Sports Protection Act) which had formerly made online sports betting a federal matter. With it overturned, the jurisdiction on online sports betting falls to states.
In disparate fashion, individual states went to work forming their own sports betting laws/regulation. As of now, it has been legalized in a majority of states.
S&P Global Market Intelligence
As legalization rolled out, myriad companies raced to establish market share. Revenues for online gaming exploded. According to Mashable:
“Online gaming has increased to 30% of commercial gaming revenue up from 11% in 2021”
It is reminiscent of the e-commerce boom. Just as investors were concerned that e-commerce would steal sales from brick-and-mortar stores, some believe online gambling will take share from casinos.
This fear is worsened by weakness in travel volumes in Vegas.
According to iGamingToday:
“The Las Vegas Convention and Visitors Authority (LVCVA) reported 3.09 million visitors in September, a 9% decline from last year. It has been 12 months since the city last posted a year-on-year increase in visitor volume.
Convention attendance fell more than 18%, and both hotel occupancy and room rates dropped across the board.”
I posit that the impact is much more complex than it initially appears.
A bigger pie, but divided differently
If there was a finite pool of gambling revenues, online gaming would be a clear negative for casinos. Online market share going from 11% to 30% would represent a huge loss of share.
However, the growth in online betting did not necessarily draw from casinos. There are 3 other groups from which it may have pulled:
- Illegal gambling replaced by online
Online sports betting has clear benefits relative to illegal sports betting:
- Physically safer
- Guaranteed payout (to the extent you are betting on an app from a large reputable company)
- Less transactional friction – bets can be placed almost instantly.
- Greater bet selection.
- Lower rake? It is hard to find house percentages for illegal gambling but one would imagine that they take a higher fee.
Over time, I suspect online sports betting will supplant a majority of illegal sports betting.
2) People who would otherwise not have gambled
Online sports betting is being advertised to everyone. It seems rare to go through a single commercial break during any sporting event without seeing at least 1 ad from DraftKings (DKNG), FanDuel, BetMGM (MGM) or the various other players.
To the extent they are capturing audience that doesn’t otherwise gamble, it represents true expansion of the pie.
3) Increased volume from existing customers
Those who already gamble may be tempted to gamble more now that it is so readily accessible. Incremental gambling also represents pie expansion.
Note that gambling revenues have increased at a steeper pace in the last 5 years. Even if you net out the portion that is COVID recovery, revenues are well above the 2019 trendline.
FRED
There are of course societal and moral implications to the influx of gambling behavior, but from the standpoint of investing in casinos, this data is a clear positive.
Overall, casinos now have a smaller share of legal gambling revenues, but the pie is potentially much larger so it is unclear what the absolute impact will be.
Just as brick-and-mortar retailers are starting to see benefits from online sales due to omnichannel synergies, casinos may be positioned for similar feedback.
Positive feedback from online to physical casinos
In many states, the license to operate online sports betting or an online casino is tied to the physical casino in the same state.
Physical casinos improve customer acquisition. Those familiar with Caesar’s Palace or the MGM Grand are more likely to trust online betting platforms from Caesar’s (CZR) and MGM, respectively. If a company has billions of dollars of physical real estate and a long tenured brand to protect, they are not going to scam you or steal your bank info.
Well, they might scam you in the sense that every bet has negative expected value, but that is the scam gamblers are willingly signing up for.
Both MGM and CZR are seeing good success in their online platform launches.
Eric Hession, CZR’s president of digital:
“As we head into Q4 and 2026, I’m pleased with the significant progress on the technology side of the business that’s driving strong volumes in both sports and iCasino. The continued progress in all areas is showing up in our top-line results, and our focus on spending efficiency will drive solid flow-through to EBITDA. We continue to see a business capable of driving 20% top line growth with 50% flow-through to EBITDA, which keeps us on track to achieve our long-term goals”
At a December conference, MGM’s CEO, Adam Greenblatt, said:
“We delivered in the third quarter 38% growth in our online sports business, 21% growth in our gaming business. We delivered year-to-date EBITDA of $150 million. We’ve guided full year guidance to approximately $200 million of EBITDA and $2.75 billion of revenue. So that’s context. The really exciting part and why we’re so excited about the business in 2025 and outlook is that this year represents — that $200 million of EBITDA represents an almost $0.5 billion improvement in year-on-year EBITDA”
If online gambling is expanding the pie rather than stealing share from casinos, why has Vegas been so weak?
The weak bookings in Vegas are a real problem. The hotels and casinos really suffered in 2025 and it shows up in the earnings of the operators. Caesars’ normalized EPS turned negative in 2025.
S&P Global Market Intelligence
MGM’s earnings stayed positive but took a huge dip.
S&P Global Market Intelligence
Note that in both cases, normalized earnings are expected to rebound heading up to $3.09 and $3.27 per share in 2028 for CZR and MGM, respectively.
It would seem the consensus among analysts is that the downturn in Vegas is cyclical. I tend to agree.
In fact, the challenges to Vegas presently are not unique to the city, but rather endemic to the entire U.S.
Traveleconomics
Global tourism is up with most developed countries experiencing higher arrivals compared to 2019, but the U.S. only has 84% as many arrivals as 6 years ago.
tourism economics
Canadian travel to the U.S. is especially weak.
According to CNBC:
“In the first half of 2025, Canadian arrivals to the U.S. fell nearly 18% year on year, representing a drop of more than 1,750,000 visits, according to the U.S. International Trade Administration.”
Fewer incoming visitors means less tourism revenue.
tradingeconomics
Vegas is suffering a bit more than the average city due to being a major tourism destination.
Thus, I see it as less of a casino-specific problem and more as a general travel/tourism problem.
How does all this impact VICI?
VICI derives the majority of its revenues from Vegas.
S&P Global Market Intelligence
CZR and MGM are major tenants of VICI, together accounting for 70% of rental revenue.
S&P Global Market Intelligence
Note that VICI’s revenues come in the form of very long term (approximately 30 years) master leases with built-in escalators. Thus, while the earnings of casinos are volatile, VICI’s earnings have been smooth and ramping with escalators and accretive acquisitions.
S&P Global Market Intelligence
So from an AFFO standpoint, VICI has felt basically no impact from Vegas weakness and no impact from online sports betting. VICI has continued to grow per usual.
I suspect the reason VICI stock got hit is fear that weakness in Vegas will be so severe that operators fail to pay rent. This is a legitimate concern and something on which every REIT investor should keep an eye.
I think the market fears are overblown. Vegas has gone through many downturns in the past. It bounces back.
Regarding the operators specifically, much of the weakness in 2025 is related to the timing of online revenues. In 2025 they are incurring massive expense in building out their platforms, but the earnings are not really flowing yet. Growth rates for online revenues and EBITDA for both MGM and CZR look excellent. As time goes on and full EBITDA flow is achieved, overall operator profitability looks strong.
The analysts covering the operators see full earnings recovery and I tend to agree with that trajectory.
VICI’s master leases with each operator are some of the best worded leases I have seen for any REIT. They come with protections for VICI’s revenue stream and capex clauses that force tenants to update and maintain the properties. Thus, barring severe downside scenarios, I see VICI’s AFFO and asset value as having a long-term smooth and positive trajectory.
Similarly favorable terms were signed on VICI’s upcoming purchase of the Golden portfolio.
VICI
A going in cash cap rate of 7.5% is immediately accretive to VICI and the 30-year term with 2% annual escalators starting in year 3 will keep AFFO growing for a long time.
I cannot emphasize enough the importance of the minimum capex clause boxed in yellow above.
Triple net REITs often have an awkward period when leases expire where they will have to spend a bunch of capital to get the property in shape to be re-leased. This mandatory capex clause, funded by the tenant, keeps properties in excellent condition such that revenue recapture upon lease expiry is a more favorable event.
The buy thesis
VICI has gotten far too cheap for its quality and growth. At 11.7X forward AFFO, VICI is trading well below peers of similar leverage.
Potfolio Income Solutions
It is odd to see VICI trading at a discount given its superior track record, larger size and higher growth rate compared to triple net peers.
Its current multiple only makes sense if one believes that online sports betting is a major threat or that the downturn in Vegas is secular in nature.
Based on our analysis above, we don’t see either as a major threat, although we will remain diligent as new information surfaces.
Fair value
At current valuation, VICI has a well covered 6.3% dividend yield and is poised for 4% annual AFFO growth (combination of escalators and accretive acquisitions such as the Golden portfolio).
That would be a double-digit annual return at a flat multiple. Returns could be higher if VICI stock appreciates to a higher multiple which I believe will happen as VICI’s quality attributes are incongruous with such a low AFFO multiple.
I see fair value at 14X 2026 AFFO which would be a price of $34.30 or about 21% upside to today’s price.
