Betting on who’ll survive the coronavirus

Betting companies are reeling following the cancellation of sporting events in the wake of coronavirus, as I’ve briefly discussed in a previous post. The Financial Times in recent days published an article briefly exploring how betting firms are encouraging their punters to play casino games and use products such as virtual racing. This idea of virtual racing reminds me of those penny slot machines you’d see at the British seaside with plastic horses and jockeys artificially running a racecourse over and over again. I used to enjoy playing on those, feeding in coins to place a ‘bet’ on which horse would win. It was all completely pre-determined of course. So will hardened betting fans really start putting their cash on racing reinvented by software? I’m not so sure.

Anyway, what I’m interested in is how the big betting companies will survive the coronavirus lockdown. Particularly, the four I’ve already identified and had positions in – Flutter, GVC, The Stars Group and William Hill. They’ve all put out updates to the market giving various estimates of how this will hit their financial performance, which I will briefly summarise.

Flutter, 16th March 2020

  • 78% revenue through sports betting.
  • EBITDA reduced by £90-110m (assuming restrictions until the end of August).
  • UK, Irish and Australian horse racing cancelled and UK/Irish shops closed – Incrementally reduce EBITDA by £30m per month.
  • Leverage ratio (net debt/EBITDA) of 0.7 times as at December 31st 2019.

GVC, 16th March 2020

  • 45% revenue through sports betting.
  • EBITDA reduced by £130-150m (assuming restrictions through to August).
  • UK shops closed – Incrementally reduce EBITDA by £45-50m per month.
  • Leverage ratio (net debt/EBITDA) of 2.69 times as at December 31st 2019.

GVC, 17th March 2020 Update

  • UK horse racing cancelled – Incrementally reduce EBITDA by £20-25m per month.

The Stars Group, 16th March 2020

  • 62% revenue through sports betting.
  • Online only business, no shops.

William Hill, 16th March 2020

  • 53% revenue through sports betting.
  • EBITDA reduced by £100-110m (assuming restrictions through to August).
  • Additional closure – Incrementally reduce EBITDA by £25-30m per month.
  • Leverage ratio (net debt/EBITDA) of 2.4 times as at December 31st 2019.
  • Dividend suspended.

It’s hard to carry out a perfect comparison between the different bookmakers since they all make slightly different assumations about the resumation of sporting events.

The merger of Flutter and The Stars Group somewhat complicates the situation further with The Stars Group benefitting from more revenue gained from poker. However, this is offset by Flutter’s higher sport betting revenues. The post-merger product profile puts poker and online gaming at 40% of revenue, making the combined group perhaps the biggest loser from the cancellation of sporting events. The same can be said for their respective leverage ratios. In fact, this was actually one of the advantages for The Stars Group in merging with the more conservatively leveraged Flutter. The combined group will have a leverage ratio of 3.5 times after completion excluding synergies, according to the merger presentation.

It’s also clear that the vultures have started circling. The owner of Betfred, Fred Done, had already bought a chunk of William Hill earlier this week, describing the bookie as “massively undervalued”, according to the Racing Post. In recent days, the Betfred owner has further increased his stake taking his holding to 4.12% on 20th March 2020.

The British bookmakers have already been challenged by the government’s changes to stake limits for fixed odds betting terminals. And they could be further hamstrung by potential changes for stake limits for online games that are on the cards, according to the FT. The coronavirus lockdown could be the biggest test of all.

Main photo: William Hill betting shop in Tottenham by Alan Stanton licensed under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).

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