Entain

Entain: streamline will answer difficult questions of growth on all fronts

Regulatory difficulties have dogged Entain’s Q3 performance significantly according to the group’s leadership, particularly in Germany and the UK with the group facing an ongoing HMRC investigation in the latter.

Expect headlines….

In his address to investors following publication of the company’s Q3 results, group Chairman Barry Gibson informed that Entain will go before the courts during Q4 and expects to pay a provision of £585m to be paid to HMRC over a four year period. 

“There will still be headlines in the press as these things develop and progress, but as far as Entain is concerned there is a line drawn under it,” Gibson remarked.

The investigation concerns the group’s legacy Turkish business, operated from 2011 until its sale in 2017. HMRC is currently investigating the possibility of corporate offences by the then-management of GVC Holdings and its suppliers at that time.

Gibston emphasised to investors that as far as Entain is concerned, the settlement of the investigation with HMRC will ‘draw a line’ and close the matter, however the fallout’s publicity will likely continue.

Headlines aside, leadership put forward its ‘sunrise strategy’, to focus entirely on regulated or regulating markets, a goal which Entian has made clear over the past year, diversifying its commercial and product make-up. Gibson provided an update on initiatives, detailing the company has now exited 140 unregulated markets.

He did acknowledge that this has had a significant impact on the business, estimating that if it had still been active in these 140 markets it would have made around £100m more in EBITDA, but ultimately these sectors ‘were not appropriate or correct’.

Once more, Q3 trading underlined the importance of US joint-venture BetMGM, bolstering  Entain’s growth profile generating period NGR of $458m (+15%). The JV remains on track to achieve a positive EBITDA this year, helping secure a primary objective for the FTSE100 firm. 

Yet Gibson notes that BetMGM’s growth comes with the responsibility of Entain playing a cautious hand in North American markets. He remarked: “US regulators in particular have a very long reach when you apply for a licence, and they are very interested in companies and their activities over and beyond what they do in the US or in a particular state.”

Finding Entain’s right direction

Operating entirely in regulated markets does not guarantee smooth business. The UK and Germany have posed steep hurdles for Entain this year, which leadership were keen for investors to understand. 

Player safety and responsible gambling have become increasingly important areas for operators to focus on in the UK in the context of the Gambling Act review, which laid out recommendations for regulatory reform in a White Paper in April.

“Problem gambling is not good for the business, for the industry and certainly not for the players,” Gibson summed up Entain’s approach, whilst expressing that the company is working with the UK Gambling Commission through the ongoing White Paper consultations to ensure changes are balanced.

However, taking these new concerns into consideration has bitten into the firm’s finances, as Chief Financial Officer (CFO) Rob Wood explained. The CFO outlined that regulatory impacts ‘over the past few years’ have amounted to around £500m in EBITDA – bottomline costs accounting for the equivalent of  9% headwind in 2022.

“Our expectation earlier in the summer was that we would have seen this reduced by now, but it hasn’t,” Wood explained. 

“This is partly because prior measures are still having an impact as they catch either brand new customers or pre-existing customers who are spending more with us. And it’s partly because of new measures.”

Looking ahead, the group expects regulation to impact its performance for the next few months, particularly as it rolls out its ARC safer gambling tool internationally to meet demand. 

Yet regulatory adjustments cannot be avoided as forthcoming changes in Australia at both the federal and state level are expected to affect volume in that market, but Wood expects the impact of UK reforms on customers to ‘peak’ in H2 2024.

CEO Jette Nygaard-Andersen cited the group’s adoption of enhanced safer gambling measures in the UK as having an impact on trading in the country, although asserting that Entain is the right direction to take to create a more sustainable industry.

“We are leading our industry in ensuring that our customers play safely across all our brands. Entain protects customers meaning that they can switch shifts drift from brand to brand accumulating a sustainable level of play. 

“That’s the right thing to do and the right direction of travel for the regulator and our industry. The short term cost of this is an uneven field with in particular operators who are yet to implement changes.”

Streamlining leadership

The HMRC investigation and regulatory difficulties across Europe were two of the defining moments of 2023’s agenda, but the group has also been embarking on a streamlining of its operations. 

Nygaard-Andersen explained that there are a number of objectives to this. Focusing on growth and returns and on key metrics to drive shareholder value are front and centre, coupled with acquisition and retention through tech, products and innovation.

Given the difficulties the firm expects to have to navigate over the next few years, a desire to ‘more agile and quicker to respond’ was also unsurprisingly highlighted as a key motivator behind the streamlining.

“As I stand here today, we have a solid revenue and operational base from which to grow, but one that needs transforming to maximise the opportunity ahead,” the CEO asserted.

“Our industry has seen huge growth over the last 10 to 15 years but like many consumer facing businesses, we can’t stand still. We had legacy issues, too many grey markets, and the portfolio was unfocused. all creating risks to our revenues. 

“We had to pivot to be the most responsible operator, as well as drive leadership positions in the US and other growing regulated markets.”

Looking to the Americas, Nygaard-Andersen observed that Entian has been ‘punching above our weight’ in the US, where as mentioned above its BetMGM joint venture with MGM Resorts is on track to record profitability.

Investors should have ‘no doubt that we want to win in the US’ according to the firm’s CEO, who also addressed developments in Brazil, where the company has been building up a presence and onboarding lessons from pre-existing markets.

“Historically, Entain’s business operated out of Europe, and therefore failed to spot changing trends in the local market early enough to respond appropriately,” she acknowledged, adding that the company has worked to counteract this by building a strong local team on the ground.

Nygaard-Andersen explained that leadership expects EBITDA of ‘around 26%” for the end of 2023, with headwinds of £30m expected following Brazilian regulation in 2024, rising to ‘up to £60m’ by 2025.

Leadership’s outlook for the future remains optimistic, and yet aware of the ever present challenges facing gambling PLCs, particularly in Europe.  A streamline is essential as Entain operates a global portfolio of 35 brands under management.

As change beckons,  Entain – a company defined by its relentless acquisition strategy,in the form of recent buyouts of SuperSport, Angstrom and STS Holdings – will be pursuing a ‘much slower pace of M&A going forward’, Nygaard-Andersen recognised. 

Check Also

SBC News Entain maintains track towards ESG sustainability goals

Entain maintains track towards ESG sustainability goals

FTSE-listed gambling group Entain has released its latest sustainability report, outlining the progress towards its …

SBC News Entain brings Helen Ashton on board as new Non-Executive Director

Entain brings Helen Ashton on board as new Non-Executive Director

Entain has announced Helen Ashton as its new Independent Non-Executive Director, she  will take the …

SBC News Entain debuts gameshow The Chase Live with ITV & Playtech

Entain debuts gameshow The Chase Live with ITV & Playtech

Entain has launched a ‘first-of-its-kind’ game, reimagining ITV’s flagship ‘The Chase’ gameshow for gaming audiences. …