Wednesday, January 23, 2019

Private equity (PE) has been quite active in the gambling market in the last year. This represents a change from a decade ago, when gambling became persona non grata for private equity due to profitability not coming anywhere near the expected returns. Gambling companies were awash with red ink and investors all but wrote off any chance that they might get any of their money back.

Since that time, gambling revenues have stabilised and grown, and companies have shown there can be significant returns on investments. However, valuations have continued to be depressed. It is very difficult for privately-owned land-based gambling businesses in Europe to command valuations above or even approaching seven times EBITDA.

Last year’s exhibition was record-breakingly large, and this year is surely tipped to exceed that, with an incredible amount in store for attendees. Media coverage will of course be extensive, and I’ll be there doing the rounds on behalf of CDC Gaming Reports and its Tottenham Report. There’s an enormous amount going on, so let’s dip into a few areas and get a preview of what you can expect at ICE London this year.
The ICEVOX seminar series has been totally revamped for 2019, and now features an array of different arenas for partaking. The series is running from the 4th - 6th of February, whereas the exhibition itself runs from the 5th - 7th. ICEVOX now offers four formats.

The Euro News Revue
Luke says: A detailed treatment of the rise and maturing of the gambling industry in Spain is offered herein by EuroWeekly, featuring the classic arguments for the industry bringing economic benefits and jobs to the nation even as they have struggled to come out of a tough economic chapter beset by high unemployment. It’s interesting to reflect on just how recently, 2012, that license regulations were introduced, and this shows the relative immaturity of the market, which pundits predict still has much growth in front of it. The passing reference to average household spend on gambling at a monsterous 15% of household income does give pause for thought however, and perhaps justifies the recent measures to restrict advertising for gambling services in Spain. The comparison with the UK market is also of interest - particularly speculations that Brexit could pull operators from Gibraltar to Spain - though the smart money is still on Malta as the principal beneficiary of any corporate relocation.
Luke says: It’s a pretty shocking indictment to note as this article does in closing that the Gambling Control Bill in Ireland has still not been listed for priority in the Spring legislative schedule, especially when we consider the epic nature of delays which have afflicted the bill thus far. Eamonn Toland, who spoke out to The Times in a recent investigation, has some very sensible suggestions covered here, including the implementation of a special regulatory body to track user details such as time spent on a gambling service, and the maintenance of a central self-exclusion register. He is also quite right to draw attention to the higher rate of problem gambling in the 18 - 25 age bracket. It is also significantly higher in this bracket amongst UK gamblers, according to recent Gambling Commission stats. The government must take its share of the blame, in terms of slow or lacking action in bringing this bill forwards.
Luke says: A sobering read from The Guardian here about British plans to conquer the American market, as legal sports betting looks set to open up. Troubles are identified on both sides of the pond, with investors a little shy given the UK sector trading on a four-year low with “a lot of bad news baked into the price”. Major firms have suffered major image problems in recent years in the UK, along with a big blow on the high street from the new FOBT stakes restrictions coming in for April. The USA was supposed to be the big prize coming in to save the day for firms such as Will Hill, who even pulled out of Australia in anticipation of the dollar riches to come. But it seems that a new US Department of Justice interpretation of the Wire Act is that it contains “prohibitions which sweep beyond sports betting” are enough to set even the most ambitious expansionist gambling executive into a swift backstep. Will it be one step forward, two steps back for UK firms in the States? At least this clarification from the DoJ only concerns interstate activity, not betting within each state. Still it makes the whole venture less cohesive.
Andrew says: Codere, the Spanish multinational is undergoing a three-year “corporate transformation”. The company, which is listed on the Madrid Stock Exchange has seen its share price collapse from €9.50 at the beginning of 2018 to €2.50 at the end of the year. Some readers may remember that the company ousted the founders from the executive management in what was seen as a coup by three US private equity investors; that fight continues in court.

In 2018, Codere’s Argentine business recorded significant losses, which are partly responsible for the lack of public market enthusiasm. According to the plan, the company needs to raise €200 million in working capital to carry out its transformation, moving in to new markets. By comparison, Cirsa, a company with a similar profile to Codere, was sold to Blackstone last year, but the existing shareholders were forced to retain the company’s Argentine assets, due to the high level of risk associated with that particular market.
Andrew says: The onward march of online gambling continues in Europe, as more countries look to legalise and regulate the sector. Whilst there is a desire in countries where it is not currently regulated to bring the industry under government control, there does appear to me to be some double thinking. On the one hand countries are putting restrictions on the land-based gambling businesses because of the ubiquity of their products; on the other they are liberalising online gambling, which means every smartphone is potentially a slot machine.
Andrew says: The world of lottery broking and secondary lottery just got a bit hotter. Lottoland, known for its aggressive (some say much too aggressive) marketing of secondary lottery products, is upset that their offer for Lotto24 was turned down. Instead, Zeal Networks will be acquiring Lotto24. Lottoland is upset even though it a bit of a forgone conclusion that they would lose, given the existing shareholder structure of Lotto24.

(For those who don’t know, lottery broking is the sale by third party brokers of lottery tickets in different jurisdictions with a mark-up. Whereas, secondary lottery is companies selling bets on the outcomes of lotteries, either backed by a purchase of a lottery ticket with the same numbers or an insurance product that pays out if the winning number is the one the customer picked.)
Luke says: The Sunday Morning Herald story homes in on one individual swept up during the massive series of police raids related to match-fixing which took place across Belgium back in June 2018, an individual known as “Maestro” who is supposed to be a key suspect in tennis match-fixing across the lower limits. Just because this isn’t the TV players we’re talking about, doesn’t indicate anything about the money to be made, as there are still significant bets being placed on lower leagues, in football and in tennis. The announcement referred to in the article from Spanish police that 28 tennis players have been found to be linked to the same match-fixing ring, and that the ring was known to have been placing bets using fake identities, just reinforces the fact that this story clearly has legs. Match-fixing is still an enormous, complicated, profitable and dark world, and one in which players are often scared to come forward and report on illegal activities.
Luke says: The Greek Gaming Commission (EEEP) seems to have its skates on here, offering operators a mere ten days to respond to its new proposals for online regulations. It is notable yet expected that RNG casino games are still omitted, and the requirements to support responsible gambling by offering wagering limits and self-exclusion options should hopefully be welcomed by the industry. In fact it appears that many of the new proposals regarding advertising restrictions seek to protect players, which is good to see. Restricting ads from targeting excluded players, full terms of bonuses to be made clear to users, geolocation requirements, all indicate that this is a regulator who is up to speed on the issues of the day, and determined to oversee a responsible industry. This should be heartening news for the industry as it suggests a market that will be sustainable and see steadier growth and lower player churn over the longer term.
This report is edited by Andrew Tottenham and Justin Martin
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