How Trump's Tax Reforms Are Reshaping the U.S. Gambling Sector—and What Investors Need to Know

The Tax Cuts and Jobs Act (TCJA) of 2017 marked a seismic shift in U.S. tax policy, and its impact on the gambling industry has been profound. By limiting the deductibility of gambling losses, the law altered the financial calculus for both casual and professional gamblers, with ripple effects across casino operators like Las Vegas Sands (LVS), Wynn Resorts (WYNN), and MGM Resorts (MGM). This analysis explores how the tax reforms have reshaped gambling behavior, affected corporate valuations, and what investors should consider when sizing up the sector.

Tax Policy Overhaul: Closing the Loophole

Prior to the TCJA, professional gamblers could deduct non-wagering expenses (e.g., travel, lodging) in excess of their winnings, potentially creating net operating losses (NOLs). The TCJA eliminated this perk, capping deductions at the amount of gambling winnings. For instance, a gambler with $10,000 in winnings and $12,000 in total losses (including non-wagering expenses) now reports zero taxable income from gambling—a stark contrast to the previous scenario, where they might have claimed a $2,000 loss.

Casual gamblers, too, face constraints. They can only deduct losses up to their winnings on Schedule A (and only if itemizing deductions), but the TCJA's broader changes to tax brackets and exemptions further limit their ability to offset gambling losses. The net result? Higher effective tax rates for gamblers, which could deter spending or incentivize riskier bets.

The Double-Edged Sword for Casinos

The policy's impact on gambling behavior is a paradox. On one hand, higher effective taxes might reduce disposable income for casual gamblers, leading to lower visitation or smaller bets. On the other, professional gamblers—particularly high-rollers—may respond to the “phantom income” tax by increasing their bets to offset taxable gains. For example, a gambler aiming for a $1 million profit might bet $10 million to ensure they stay ahead of the deduction cap, boosting casino revenue.

Analysts at CBRE estimate that the 2026 proposed rule (capping deductions at 90% of winnings) could amplify this effect, driving a 10–15% increase in average bet sizes among high-stakes players. This could benefit operators with strong VIP programs, such as Wynn Resorts, which derives over 60% of its Macau revenue from premium mass and VIP tables.

Stock Performance: Volatility Amid Structural Shifts

While the TCJA's immediate impact on casino stocks in late 2017 was muted—likely because the reforms were priced in by markets—the sector's valuation trends since then reveal a nuanced story.

- Las Vegas Sands (LVS): LVS's focus on Macau's premium mass segment has insulated it from broader tax pressures. Its P/E ratio (now ~12.8x) remains below peers, reflecting skepticism about Macau's long-term growth. However, its scale and high-margin VIP business position it to benefit from increased bet volumes.
- Wynn Resorts (WYNN): WYNN's valuation (P/E of ~120.76 in 2019) spiked due to its VIP dominance, but risks persist. Macau's competitive pressures from LVS's new properties and delayed project timelines have kept a lid on sustained gains.
- MGM Resorts (MGM): MGM's diversified portfolio (Las Vegas, regional casinos, and online gaming) offers resilience, but its P/E (~14.8x) lags peers due to loyalty program erosion and lower margins in non-Macau markets.

Valuation Adjustments: A Sector in Transition

The TCJA's changes have forced investors to reprice casinos based on two key variables: (1) the sensitivity of revenue to gambling behavior shifts and (2) operational leverage in high-margin segments.

• Margin Expansion Opportunities: Operators with fixed costs (e.g., hotels, gaming floors) stand to gain if higher bet volumes boost revenue without proportional cost increases. LVS's Macau properties, with ~80% revenue concentration, exemplify this dynamic.
• Debt and Liquidity Risks: High leverage remains a concern. WYNN's debt-to-equity ratio (~2.0x) is among the highest in the sector, making it vulnerable to revenue dips.

Investment Strategy: Proceed with Caution

The TCJA's legacy is far from settled, but investors can position themselves based on three scenarios:

1. Scenario 1: Tax-Driven Revenue Growth Outweighs Costs
2. Play: Overweight stocks with strong VIP exposure (WYNN, LVS).

3. Rationale: Higher bet volumes from professional gamblers could offset tax-related spending declines.

4. Scenario 2: Consumer Caution Dominates

5. Play: Short casino stocks or underweight the sector.

6. Rationale: Reduced disposable income and offshore migration of gamblers could pressure margins.

7. Scenario 3: Regulatory Mitigation

8. Play: Monitor legislative developments. The Fair Bet Act, if passed, could soften the 2026 deduction cap, favoring sector stability.

Final Take

The gambling sector's valuation multiples remain undervalued relative to their growth potential, but investors must navigate a minefield of tax policy, regulatory risk, and shifting consumer behavior. For now, WYNN's premium mass dominance and LVS's scale make them better positioned than MGM, which lacks the same margin leverage. However, with the TCJA's sunset clause looming in 2025 and 2026 proposals still uncertain, caution is warranted. Investors should pair any long positions with hedges against macroeconomic slowdowns or further tax reforms.

Recommendation:
- Buy LVS for its Macau exposure and valuation discount.
- Avoid WYNN until its Cotai project delays are resolved.
- Hold MGM for its diversification but consider lightening exposure if loyalty program declines accelerate.

The dice are still rolling—investors must bet wisely.