Will the real UK market please stand up?

Backers of “mixed messages” were in absolute clover this month as the UK gambling industry reported a set of results that ranged from cautious pessimism to outright optimism and most points in between. Over at The Stars Group they were busy persuading investors the sky was not falling, despite a 37% drop in betting revenue at Sky Bet in the first quarter, and both William Hill and Paddy Power Betfair (PPB) also reported sharp declines in sportsbook revenues for the start of the year. Positive stories were in short supply.

Talk was of short-term variance and a return to growth in the rest of the year, but around it all there was a sense of trepidation for what lies ahead with increasing regulatory change, advertising restrictions and declining player yields all causing downward pressure. That was unless you were at the GVC capital markets day presentation. Because the men behind Ladbrokes and Coral had a far more positive view on the UK market, after growing 8% in Q1 and predicting there was life yet in the old dog of the UK online market yet.

Management at GVC remained bullish about growth in the UK online market, implying that other operators weren’t making the most of the opportunities in the market. A surprisingly detailed look at their data-driven marketing was shown as evidence of how they were managing to both acquire and monetise players efficiently and drive further share of wallet gains. For long-term industry watchers the techniques used were not new and the only conclusion you can really draw is they feel they just do this better than everyone else.

https://twitter.com/gamblinglamb/status/1129021561606955008
The numbers don’t lie…
On a pure number basis it’s hard to argue with that conclusion, as GVC themselves were keen to point out. GVC’s UK sports brands, which includes a large chunk of gaming revenue, were up 8% in Q1, while in contrast Sky Betting & Gaming was down 12% due to its extraordinary spend on its Cheltenham promo, Paddy Power Betfair online was down 1% (up 4% including Adjarabet) and William Hill for the year to the end of April was down 6% on a proforma basis but up 8% including acquisitions. In summary GVC was up, PPB and Hills were halfway up and Sky was neither up nor down.

As you might expect with this disparity there was a broad range of views on the overall health of the UK market. Phillip Bowcock at William Hill repeated his view from their own capital markets day that the UK was seeing some slowdown and would not see the same levels of growth it had been at for the last decade. “We set out mid-single-digit growth for the next two to three years in the UK market and we still stand by that,” he said. The message at PPB was less about the market and more their role within it with PPB CEO Peter Jackson stating they were solidly focused on growing its recreational base.

This is also a focus for William Hill and it is, of course, the primary source for Sky Betting & Gaming’s growth story over the past decade. The message from the latter was probably the most interesting of all the major operators in this period, having spent mid nine-digits to acquire a huge number of customers over the Cheltenham Festival and seeing a massive hit to margin as a result. The operator reported that some 90% of those players acquired remained active following Cheltenham and it had almost recouped its spend from them already. It also added actives and staking growth remained strong and said it continued to take market share and predicted double digit growth through 2019. For those hoping to grow through volume of new players it provided some hope.
Who is right?
But perhaps we shouldn’t be so pessimistic. GVC talked dismissively of the “doom and gloom” around the UK market at the present time but it’s there for good reason, with sequential quarters of revenue declines at some operators and more restrictions on the way. How the industry manages this next period of change is crucial, and Kenny Alexander at GVC pointed out how he didn’t want a repeat of the mistakes made in the FOBT debate where an uncoordinated industry response kept them on the back foot.

He seems bullish on the potential for the industry to take the issue of advertising and possibly the issue of affordability on the front foot, make big changes that take the topic off the front pages and off minister’s minds and return to a more measured debate. It’s not a plan without merit, but the substance of the changes will be hugely important here, especially with GVC itself nto yhet taking the foot off the advertising pedal. The UK industry has deemed that advertising is the big problem to solve and once that is dealt with everything else will fall into line, and issues such as credit cards can be reasonably well managed without too much of a hit to bottom line.

It’s worth noting that the noise around advertising is fairly recent and was a topic that was fairly easily dismissed in the past. These issues can quickly gain momentum and there are broader issues around the operating model of online gambling, and online casino specifically that could cause further pressure on the industry. And as we’ve seen with the recent introduction of more robust ID checks at registration this month, even relatively small changes can have a big impact on the complex monetisation models and player acquisition and retention platforms this industry depends on. It’s not quite a butterfly flapping its wings, but small changes can have big impacts.

And not everyone can be correct here. The market doesn’t look like it can support double-digit, or even high single-digit growth for everyone, especially with more regulatory change coming down the pipe. And while they can’t all be right, they can all be wrong. UK online gambling spend can clearly increase, but structural drivers are going to be harder to find. It’s reliant on consistently better execution driving either real mass market adoption or ever-increasing share of wallet gains, which feel in contrast to some of the stated responsible gambling aims and will be an interesting square to circle. The UK it seems will not be an easy problem to solve over the next few years.