The economic landscape in the United States is undergoing significant changes, marked by hints of a shift in monetary policy. With Donald Trump securing the presidency and a Republican majority dominating both the Senate and the House, the GOP (Republicans) will have substantial influence over the nation’s legislative and executive decisions, potentially reshaping economic policy. This political control is expected to affect crucial areas, such as interest rates, debt policy, and inflation management, thereby having extensive economic repercussions.
This article examines how these major developments could influence the online gambling sector. Central indicators like the Federal Reserve’s stance on interest rates, U.S. debt levels, inflation risks, and adjustments in money supply determine market liquidity and investment behaviors. We then explore how these factors might impact both public and private entities within the igaming industry.
In observing macroeconomic trends, we particularly focus on the U.S. due to its financial dominance, with other regions often adapting their policies to preserve currency strength in response to changes initiated by the U.S.
### Fed’s Monetary Policy Shift
The U.S. Federal Reserve has recently reduced the federal funds rate by 0.25%, adjusting the range to 4.5%-4.75%. Although this reduction is significant, the yield curve provides clearer insights into market expectations regarding growth and inflation. Investors in igaming might view current rates as a hint for further cuts, but much of this optimism may already be reflected in the market, which remains sensitive if the anticipated smooth economic transition doesn’t occur. Potential reversals in interest rates, coupled with changes in tariffs or fiscal policies, could inject volatility into risk assets, especially in leveraged sectors like igaming.
**Impact on the Stock Market**: Historically, more lenient monetary policies have energized stock markets, increasing asset prices as capital becomes more available. Lower rates decrease borrowing costs, fostering leveraged buyouts and acquisitions in capital-heavy industries such as the regulated igaming segment. Publicly traded gaming companies could see valuations increase as speculative investors seek high-growth stocks.
**Private Equity and Trade M&A**: As market sentiment shifts and private equity leans towards risk-on assets, we anticipate an uptick in mergers and acquisitions. Cash-rich sectors like online gaming will attract interest, with private equity firms in the igaming space potentially using this liquidity environment to sell off assets that have reached optimal value or achieved significant milestones.
### M2 Money Supply Dynamics
The M2 money supply, representing cash and accessible funds, has dropped by $500 billion to $21.2 trillion from its peak following the pandemic. This decline is partly a result of quantitative tightening (QT), which involves policies that shrink the Fed’s balance sheet, including steady reductions in bond holdings. With expected rate cuts, we might see a resurgence in M2 levels as liquidity returns to the system.
**Treasury Bonds and M2 Correlation**: Continued rate cuts by the Fed would lead to lower Treasury bond yields, making bonds less appealing compared to riskier assets. This scenario would likely channel more capital into equities, potentially enhancing valuations in the gaming sector. A drop in Treasury yields could foster a favorable lending climate for start-ups and growing companies in the igaming sector.
**Potential for Inflation**: September’s inflation rate sits at 2.44%, closely aligning with the Fed’s target, indicating a stable outlook. However, increased liquidity could spark higher inflation, leading to rapid Fed responses that might undermine gains in high-growth sectors like igaming. Such policy shifts could hinder investment and slow growth.
### U.S. Debt and Inflation Concerns
The U.S. is contending with a national debt of $35.9 trillion, with interest payments comprising 17% of government spending. Trump’s proposed fiscal budget aims to inflate this debt further by $15 trillion over a decade, though it includes $2 trillion in spending cuts.
**Debt Ownership**: The U.S. government itself holds the largest share, over 21%, categorized as an internal obligation. Interestingly, foreign-held debt has decreased by about 10% since 2014, reflecting a shift in foreign investor confidence and raising concerns about the sustainability of this financial structure.
**Stablecoin Issuers**: In an intriguing development, cryptocurrency stablecoin issuers (like USDT, USDC, etc.) collectively rank as the 19th largest holders of U.S. debt, surpassing countries like Germany. This trend signals broader acceptance of Bitcoin and other crypto assets.
**Fed’s Approach to Addressing Debt**: The likely solution for managing this debt involves further quantitative easing (QE) alongside inflation as an indirect tax. However, this strategy potentially weakens the dollar’s strength.
**Relevance to Igaming**: While macroeconomic signals don’t directly dictate business operations, they offer critical insights for strategic planning. Metrics to watch include the Consumer Confidence Index (CCI), unemployment claims, and interest rate changes, providing a better understanding of consumer spending shifts, economic stability, and market sentiment.
### Focusing on the Igaming Sector
Regulatory developments remain a pivotal force in determining market accessibility and investor confidence. Many countries pursuing igaming regulations are driven by the potential for tax revenue to support financially strained economies.
**Regulatory Trends**: Key markets like Brazil and the U.S. continue to witness evolving regulatory environments. Brazil’s efforts to liberalize igaming and the post-PASPA expansion in the U.S. have spurred investment from both public and private companies. However, the popularity of sweepstakes and crypto gaming operators in unregulated and some over-regulated markets, particularly in Europe, represents growth opportunities for private funds and alternative trading platforms, while also posing challenges for regulators.
**Private Equity and Venture Capital Backing (2010-2024)**: Private equity’s influence in the igaming sector has steadily increased, evidenced by transactions like Bridgepoint’s investment in Cherry Group in 2018 and Apollo’s recent acquisition of IGT & Everi. Tracking PE/VC-backed deals over time reveals a rising appetite for gaming assets, highlighting the industry’s maturity, resilience, and growth potential.
### Conclusion and Future Prospects
As economic conditions become more conducive for capital investment, the foundation for continued growth in the igaming industry strengthens. The increasing interest from buyers and investors in scale-ups and M&A opportunities, which offer significant synergies, is evident.
**Optimistic Market Outlook**: Lower interest rates and higher liquidity indicate a substantial influx of capital into high-growth stocks, including gaming assets, which could drive valuations upward. Public markets may benefit, and start-ups might find it easier to secure funding.
**Inflation Risks and Fed Strategies**: If lenient policies spark inflation concerns, the Fed may revert to stricter measures sooner than predicted, dampening market enthusiasm, particularly in leveraged sectors like igaming.
**Growth in Unregulated or Over-Regulated Markets**: The unregulated market is thriving, particularly in sweepstakes, crypto casinos, and sportsbooks. These businesses appeal to consumers in unregulated regions and, increasingly, in over-regulated areas where heavy taxes and restrictive policies have rendered regulated options less competitive.
Despite macroeconomic risks, the current trajectory points to a promising near to medium-term outlook for the igaming sector. Investors who have placed capital in this area may find 2025 to be highly fruitful.
### Author Bio
*Ben Robinson is the managing partner and founder of Corfai Capital (established 2023) and RB Capital (established 2014), with over two decades of commercial experience in technology and media. He specializes in igaming, sports betting, fintech, and media, helping facilitate numerous acquisitions and funding initiatives, supporting entrepreneurs in achieving their growth, investment, and exit ambitions.*