May 25, 2015    4 minute read

The Odds of Consolidation in the Gambling Industry

   May 25, 2015    4 minute read

The Odds of Consolidation in the Gambling Industry

A combination of high overheads and tighter industry regulation has led to a series of high-street shop closures and M&A activity across the gambling industry. The latest movements surround online group 888 Holdings, who were previously subject to two takeover offers from gambling counterpart Ladbrokes. In mid-February, 888’s owners rejected William Hill’s offer of 200 pence per share, in addition to a 3 pence dividend in mid-February of this year, on the basis of being too low.

As three months have passed, 888 Holdings posed a “reverse takeover” offer to merge with 888 will be competing with an Amaya Gaming/GVC Holdings partnership, with both 888 and Amaya seeking to reduce the surging costs that bookmakers face at present. The bids are estimated to be in the region of one-to-two billion pounds.

Strategic Match-Ups

As the share price of 888 slowly recovers from the 11% fall following William Hill’s seemingly undervalued bid, a corporate synergy between 888 and Bwin could compliment the growth that 888 has experienced, especially over the previous year. This could also be the driving force in compensating for the struggling poker and bingo aspects of the business. Interestingly, revenue from sports betting is not 888’s forte; most turnover is generated via their online casino. A recent 25% rise in Bwin’s sport betting markets would indicate a handsome fit between the two. BPTY.L share price share price (Source: Yahoo Finance)

A successful bid from Amaya/GVC would enable Amaya, the owners of the world’s biggest internet poker provider, to sustain their online dominance, catalysed by the prevailing popularity of mobile betting. The merger would also give Amaya and GVC the chance to minimise the danger that Bwin are exposed to from operating in risky, albeit profitable markets. Furthermore, Amaya and GVC would be given the option to purchase Bwin’s thriving sports market betting business in the coming years.

The Road to Industry Consolidation

The British gambling industry seems to be notoriously unfavourable with Parliament and regulatory bodies, despite contributing over £2.3 billion towards GDP. The reason is ultimately because 888 and Bwin, amongst other bookmakers, locate themselves in Gibraltar as a means of significantly reducing their tax burden. The introduction of the point of consumption tax, which requires a 15% levy on profits arising from British transactions regardless of the bookmakers’ domicile, has become yet another burden to the gambling sector. Duties on fixed-odds machines and licensing fees are further examples of the mounting efforts by the UK parliament to “beat the bookies.”

Increasing attempts for horizontal integration has sparked engagement on the likelihood of industry consolidation. This would enable the gambling sector to shield itself from the wrath of regulation, through economies of scale and significant cost savings.

Source: Harvard Business Review

Source: Harvard Business Review

If we refer to the HBR’s consolidation curve, the betting industry would currently be in stage 2 where firms are “expanding their global reach.” It therefore makes sense, for rising cross-border acquisitions, which would enable international players to access European clientele.  However, as these firms become increasingly integrated, one wonders how they will continue to differentiate themselves in a market where free-bet offers and sports-odds seem to be all too similar.

Bwin itself was established from a merger, Betfred purchased Tote (Sport) in 2011 and a William Hill/GVC collaboration took SportingBet under their wing in 2013. The battle for Bwin and the next stage of 888’s corporate future is to be decided within the next few weeks. Regardless of the outcome, one can expect a cascade effect of mergers within the gambling sector as these businesses increase in size. The finishing line for amalgamation is only a few lengths away.

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