Federal Reserve leadership change could reshape US gaming sector as rate cuts loom

Major leadership changes at the Federal Reserve this year could bring long-awaited relief to the US gaming industry, as investors and operators closely monitor who will succeed Jerome Powell when his term as chair ends in mid-May.

There is intense speculation in Washington over Powell’s replacement, and the gaming sector is paying close attention to the transition at the central bank. The prevailing view among political and economic observers is that the next chair, possibly nominee Kevin Warsh or another candidate, will move to reduce interest rates in support of President Donald Trump’s economic plans. Trump originally appointed Powell in 2017, but the two later clashed over the Fed’s refusal to aggressively cut rates in the years following the Covid pandemic.

So far, gaming stakeholders have had a strained relationship with Trump’s financial policies during his second term. The Commodity Futures Trading Commission has embraced prediction markets since Trump returned to office, while Trump also revealed plans to enter that space himself through his Truth Predict platform. In addition, his “One, Big Beautiful Bill” last year introduced a controversial tax measure limiting gambling loss deductions to 90 per cent. Lawmakers representing gambling-dependent states have unsuccessfully attempted to reverse that change.

However, unlike those policy developments, a shift in Federal Reserve strategy could provide meaningful benefits to gaming companies. Lower interest rates would ease borrowing costs, improve debt refinancing conditions, encourage mergers and acquisitions, and potentially lift 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,” said Chad Beynon, head gaming analyst at Macquarie.

Gaming stocks struggle despite broader market strength

Improved valuations would come as welcome news for gaming firms, whose stocks have lagged behind the broader US market. While major indices such as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite reached record highs in the past year and remain close to those levels, many gaming companies have seen sharp declines.

Among the hardest hit were Aristocrat Leisure, whose shares fell 31 per cent; Caesars Entertainment, down 43 per cent; DraftKings, down 51 per cent; Evolution, down 25 per cent; Flutter, down 57 per cent; Genius Sports, down 34 per cent; Penn Entertainment, down 41 per cent; and Playtech, down 45 per cent over the past year.

Interest rates had previously surged from near zero in 2021-2022 to above five per cent in 2023-2024 before gradually declining. Since Trump resumed office in January 2025, Powell and the Fed implemented three quarter-point reductions, bringing rates down from 4.5 per cent to 3.75 per cent.

Trump has nominated Warsh, a lecturer at Stanford University and former investment banker at Morgan Stanley, to succeed Powell. Warsh previously served as a Fed governor between 2006 and 2011 and was the youngest ever appointed to the role at age 35. Analysts remain divided over how he would manage monetary policy, but most expect at least some rate cuts if he is confirmed.

Trump underscored his expectations in an interview with NBC News, stating Warsh “would not have gotten the job” if he had indicated a desire to raise rates.

Sale-leaseback operators stand to gain most

If rate cuts materialise in 2026 under Warsh or another successor, casino operators—particularly those involved in sale-leaseback deals—could benefit significantly. Companies such as Caesars, Penn and Bally’s sold their real estate to generate immediate capital while agreeing to lease the properties back. While those transactions provided financing flexibility, they also left companies vulnerable if performance weakened.

“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.”

Data from New York University through January showed the hotel and gaming sector has an average enterprise multiple of 17.7, slightly below the broader non-financial average of 19.8. Among companies generating positive EBITDA, gaming firms averaged 14.9 compared with 16.9 across other sectors.

In contrast, casino operators that retained ownership of their real estate have generally performed better. Wynn Resorts saw its shares rise 20 per cent over the past year, while Red Rock Resorts and Boyd Gaming posted gains of 18 per cent and 10 per cent respectively, benefiting from their strong positions in the Las Vegas locals market.

Lower rates expected to stimulate mergers and acquisitions

Interest rate reductions could also stimulate mergers and acquisitions, boosting valuations across the sector. Frank Fantini, founder of Fantini Research, said investors are looking for catalysts to drive stock prices higher.

“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.

Private equity firms have played a dominant role in gaming acquisitions in recent years, including purchases of Gaming Labs International, IGT-Everi, PlayAGS, the Rio Las Vegas casino and the Venetian-Palazzo casino.

Rick Arpin, US gaming leader at KPMG, said previously that gaming companies struggled to compete with private equity buyers due to limited access to capital, expensive borrowing costs and depressed share prices. Industry stakeholders now hope improved financial conditions could restore balance.

Debt pressures could ease with rate cuts

High debt levels remain a significant concern for gaming companies, and lower rates could help relieve those pressures. According to New York University data, the sector’s average debt-to-EBITDA ratio stands at 5.3, far exceeding the non-financial market average of three.

Beynon said refinancing at lower rates could trigger broader positive effects.

“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.”

He added that elevated debt levels often follow recession-like conditions, as “gaming companies traditionally put on a lot of leverage” to remain competitive. Many have struggled to “grow their way out of this leverage”, making lower rates particularly important.

Legal tensions cloud Powell’s final months

As Powell’s tenure as chair nears its end, tensions with Trump have escalated dramatically. In January, the Department of Justice subpoenaed Powell over past testimony concerning renovation costs at Fed headquarters.

Powell pushed back forcefully.

“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.

The investigation could delay the leadership transition, as members of the Senate Banking Committee warned they may block any nomination until the issue is resolved.

North Carolina Senator Thom Tillis told The Hill: “I made it very clear that the only way we move forward on any Fed nom … [is] until this is resolved.

“If we undermine the independence of the Fed, there will be catastrophic economic consequences.”

Although Powell’s chairmanship is ending, his term as a Fed governor runs until January 2028. While most outgoing chairs leave the institution entirely, Powell could break precedent and remain on the board under the new leadership.

Warsh’s Senate confirmation hearing has not yet been scheduled, leaving the future direction of US monetary policy—and its implications for the gaming industry—uncertain.

By fLEXI tEAM