The COVID-19 pandemic is upending traditional investing considerations as companies post earnings results for a time that has little bearing on what they're facing today. Casino operators are a microcosm of the effects that shelter-in-place orders are having on the economy as they were among the very first businesses ordered to close in an effort to contain the spread of COVID-19. 

First in Asia, now in the U.S., casinos have seen their operations almost completely walled off from opportunities to make up the difference elsewhere. With many industry players having lost about 50% of their value year to date, even after rallying in the last week of March, it may be tempting to take a position in gaming stocks at "bargain" prices. But that would be a mistake.

Friends playing slot machines

Image source: Getty Images.

A global hit

Global resort operators like MGM Resorts (MGM -0.14%) and Wynn Resorts (WYNN -0.82%) have been among the hardest hit, with shares down 64% and 56%, respectively, so far this year.

That's because of their base of operations in Macao, which was shut down for two weeks as China sought to contain the outbreak. While Macao began reopening its doors in late February, MGM said visits to resorts have yet to recover, and gambling revenue in the region plunged 88% year over year that month. Analysts expect a 70% decline for March, but it could be worse as China first limited tourism to the region and has now completely closed its borders to foreigners.

That was followed here at home by states like New York, New Jersey, and Connecticut similarly ordering casinos to close. And after South Dakota shuttered casino operations as well, every operator in the country, including regional casino and racetrack operators like Boyd Gaming (BYD 0.64%) and Penn National Gaming (PENN 0.87%), are completely shut down.

WYNN Chart

Data by YCharts.

Striking out on sports

Most operators have no means of generating revenue from other businesses, which led the industry to seek a bailout in the $2.2 trillion federal stimulus package, though it doesn't look like they've been successful.

Some casinos may be able to offset some of their losses with online gambling, but only 10 states allow some form of it, and six of those are sports betting only. With all major sports leagues having suspended their seasons, that leaves only four states -- Delaware, Nevada, New Jersey, and Pennsylvania -- that allow for either online casino games, online poker, or both.

Casinos in Las Vegas and Atlantic City have the most developed online gambling operations since they were first into the business. Even so, online betting represents only a small portion of total gambling revenue. While that may tick up during the pandemic, it's not nearly enough to make up what casino operators are losing from their physical properties.

A roll of the dice

Casinos are trying to ease the pain of the closures with their employees by paying their salaries, including tips, while executives take pay cuts (Wynn CEO Matt Maddox is forgoing 100% of his salary for the rest of the year in exchange for company stock). But many of these operators are also carrying heavy debt loads.

Wynn has over $10 billion in debt, half of which is tied to its Macao operations. Ratings agency Fitch Ratings just downgraded MGM's outlook to negative from stable, including its China business, saying current financial conditions and "the severe disruption to global gaming caused by the coronavirus outbreak" warranted the revision. Its stock has actually been one of the best performers recently, rebounding 70% in the second half of March.

Las Vegas Sands (LVS 0.81%) has been anomaly in all this as its stock has gained the least in the past couple weeks, while all other casino operators surged. But its shares have also seen the smallest losses year to date, even though, like Wynn Resorts, it derives the bulk of its revenue from Macao.

Despite the industry's rally, which likely priced in any optimism that the most financially secure casinos will make it through this storm, the best bet for investors is to remain on the sidelines.