UK sector gets regulatory ‘clarity’
UK gambling policy reaction, Flutter approval, PointsBet sales chat, Kambi share price action, sector watch – tokens +More
Good morning. On the agenda today:
The UK sector breathes a sigh of relief.
Flutter gets the nod for its transatlantic shift.
PointsBet says multiple sales talks are ongoing.
Churchill Downs says it’s all quiet on macro impact.
Sector watch looks at the criminal charges being faced by Bittrex.
I know it's over - still I cling, I don't know where else I can go.
I can see clearly now
The publishing of the UK White Paper on gambling removes an overhang.
Counting the cost: Flutter was first out of the traps yesterday with a response to the publication of the UK government’s plan for the future of the sector, suggesting the measures as proposed would cost between £50m-£100m of incremental revenue.
Combined with the ~£150m that pre-emptive measures have already cost the company, it now estimates the revenue impact for the group’s UK revenues to be between £200m-£250m.
Recall, in 2022 the UK & Ireland business generated revenues of £2.14bn, up 4% for the year but with growth from the Tombola acquisition partially offset by the enhanced safer gambling measures.
The company said the incremental impact would be a 2024 event rather than this year.
Entain similarly said there would be no impact on this year’s forecasts but that 2024 NGR would take a <1% hit or ~£50m by CBRE estimates.
Exposed: The government estimates the impact of the measures to be between 3-8% of total GGY across the sector with online taking a hit of between 8-14%. This is after, according to the team at Numis, a 16% fall in GGY in 2022.
Numis noted that 888 was the most exposed to the changes with ~36% of its revenue coming from the UK.
Entain is next with 27% exposure followed by Flutter at 19%.
And breathe: After such a protracted gestation period, the relief rally in UK stock was somewhat muted with Flutter itself barely moving, 888 up nearly 2% and Entain down less than 1%.
Making hey! The exception was land-based casino to bingo operator Rank which rose over 10% as the market digested the potential good news from the plans. Land-based casinos will see an increase in the number of machines allowed in properties licensed under the 1968 Act.
All casinos will also be allowed to offer sports betting.
The government also said it would consult on the potential introduction of cashless payments.
For bingo the proposals include adjusting the allowable ratio of category B and C/D machines from 80/20 to 50/50.
Net net: The company said this morning that the positives on land-based casino and bingo would “more than offset” the negatives of the new levy and the impact of the new slots stakes measures for online.
🎉 Let that sink in: Rank investors warmed to the White Paper
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ICYMI
In Compliance+More yesterday, the TLDR version of the 260+ pages of the UK government’s White Paper on gambling. A new levy, slots limits, a gambling ombudsman and affordability measures all featured.
Overshadowed by the White Paper, Earnings+More yesterday also covered Evolution’s Q1 earnings and what the live casino giant said about its comparatively lackluster RNG games segment.
In the Gambling Files this week, Fintan and Jon speak to Ron Atzmon of A10TIX about KYC, payments, technology and why the Return of the Jedi is the best Star Wars film.
Flutter approval
Shareholders voted 100% in favor of allowing the UK-listed betting and gaming giant to seek a dual listing in the US.
Say Aye: Flutter’s shareholders gave their full-throated approval for a secondary listing in the US, a move which is likely to be a precursor to a full listing by the end of 2024, according to analysts. The dual listing will become operational by the end of 2023.
Flutter also confirmed the appointment of new chair John Bryant who will take over the post from Gary McCann in September.
Cereal appointments: Bryant is currently a non-executive director at Ball Corporation, Compass and Coca-Cola European Partners and was previously executive chair and CEO at Kellogg Company.
I am the fly in the ointment: The Jefferies team is cautious, however, on whether even a primary listing will be enough for Flutter to be included in US indices. “The major index providers consider several factors, such as the location of incorporation, filings and several others,” they suggested.
“In short, we believe Flutter needs to meet additional criteria to be considered US for S&P.”
PointsBet’s multi-party talks
Break-up talks “well advanced” for both parts of the PointsBet business.
A certain ratio: Pointsbet said today that “certain negotiations” regarding the sale of its North American operations were “well advanced” while it remains in discussion with third parties over the sale of the Australian arm.
It added that talks with the original bidder for the Australian trading business – known to be the Australian Betr – had come to nothing but it said discussions with other potential buyers were ongoing.
Recall, Entain is hotly tipped to be one of the potential buyers though the price is thought to be a sticking point.
The Australian Financial Review, meanwhile, reported in mid-April that Moelis has been appointed to oversee a potential US sale.
BAU: Ahead of any sale of the North American business, PointsBet said today it had slashed its headcount by 12% as it attempts to trim its cost base. The company said it still expects net cash outflow for H223 to be 30% lower than in the first half.
However, the Q3 figures show the net cash outflow worsening QoQ by 30% to A$77m. Ex-player outflows of A$17m, the QoQ position improved slightly.
Double double: In Q3 US OSB net win rose 99% to A$38m while iCasino was up 115% to A$12m. Canadian net win rose 21% to A$6m. However, Australian net win fell 3% to A$51m. “It’s clear we have huge momentum in the US,” claimed CEO Sam Swanell.
He wouldn’t comment further about the ongoing negotiations except to say “it's all about shareholder value”.
The shares week
Kambi hits the skids.
Here comes the fear again: Despite producing a 19% YoY rise in revenues this week, up to €44m in Q1, it was the 25% fall in EBITA that spooked investors with the share price falling over 13% on the day. The shares regained some ground on Thursday but were still down over 7% on the week.
🛝 Markets react poorly to Kambi
Churchill Downs analyst call
Historical horseracing machines were the lead vertical for Churchill Downs.
No flags: Talking to the analysts, Churchill Downs CEO Bill Carstanjen said there were “no yellow or red flags to raise” with regard to economic headwinds. But he added the group would always focus on margins and adjust appropriately if headwinds occurred.
Horsing around: Asked about TwinSpires’ B2B partnerships with FanDuel and DraftKings, Carstanjen said initial signs were “encouraging” and the Kentucky Derby and other Triple Crown events should boost handle.
FanDuel, in particular, is showing a lot of interest in the vertical and is able to reach “many more customers” than Twin Spires ever did, he added.
Earnings in brief
GLP: Adj. funds from operations rose 14% YoY to $249m while the lower-end guidance for the year was raised to $984m with the high end remaining at $997m. The company expects performance to be driven by new agreements with Bally’s and Cordish.
Analyst takes
Evolution: Despite revenue growth of 32% to €430m, the team at Regulus Partners said the group’s “predictable if underwhelming pattern” of RNG performance continued. With online slots up just 0.6% vs. live casino’s 36% rise, Regulus said Evolution had “still not worked out how to turn around NetEnt”.
Boyd Gaming: CBRE said the partnership with FanDuel had been a “windfall” for Boyd, adding that the growth shown in Q1 “remains an underappreciated part of the story”. The team added that they see “overall resilience in regional gaming in the face of potential economic impacts”.
Sector watch – tokens
The one-time largest US crypto exchange Bittrex has copped criminal charges for offering digital tokens which should have been registered as securities.
Identity crisis: The Seattle-based exchange failed to register as a broker-dealer, exchange, and clearing agency, as it raked in more than $1.3bn in unlawful revenue between 2017 and 2022, Securities and Exchange Commission (SEC) officials said.
Six tradeable cryptocurrency tokens were classed as securities in the lawsuit, which rests on allegations Bittrex failed to obtain clearance to offer securities to customers under the regulations.
Since the exchange’s inception, it has offered over 300 digital assets to investors, the lawsuit said.
In response, Bittrex said the SEC refused to identify the tokens it considered securities despite several attempts to smooth the matter over.
Bittrex announced it was shutting down US operations last month, telling users to withdraw their funds from the platform by the end of this month.
Last year, the firm agreed to pay more than $29m in fines to separate federal agencies for sanctions violations in the Crimea region, Cuba, Iran, Sudan and Syria between 2014 and 2017.
Here it comes: The suit echoes a recent action against Beaxy, which settled and is similar to a near-certain forthcoming case against the current largest US exchange, Coinbase, which has been given notice of impending action.
Critics of the SEC’s approach have said the agency is attempting to regulate by enforcement and risks driving businesses away from the US.
Coinbase has secured a license in Bermuda and may move its headquarters to the UK and list on the London Stock Exchange, boss Brian Armstrong told an event in the City.
Armstrong blamed the aggressive US regulatory regime, as the other top exchanges Kraken and Binance are also in the sights of federal enforcers.
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Newslines
Wynn has announced details of a $3.9bn full-scale luxury integrated resort in the UAE in partnership with RAK Hospitality and Al Marjan Island. Wynn has a 40% ownership in the JV.
Lottomatica has completed the formalities for its IPO and will begin trading next Wednesday in Milan.
Macau is set to resume Covid testing as a preventive measure ahead of the May Day Golden Week holiday.
Circa Sports has been granted a license in Illinois.
What we’re reading
Cracked it: On the trail of the Croatian gambler who cracked roulette.
Calendar
May 1: MGM Resorts
May 2: Caesars Entertainment, E+M Startup Month
May 3: Flutter, Rush Street Interactive
May 4: DraftKings (earnings), Penn Entertainment, Red Rock Resorts
May 5: DraftKings (call)
MLRO – Malta
CMO – UK -
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