Feeling the strain: how the gambling industry has been hit by the coronavirus pandemic

The World Health Organization director general Tedros Adhanom Ghebreyesus has described the coronavirus pandemic as an unprecedented threat. Last month, UK Chancellor Rishi Sunak used similar phrasing by announcing “unprecedented measures for unprecedented times” in terms of financial support for those businesses impacted by the pandemic. And it’s a situation that is rapidly changing every day around the world, as more and more industries feel the impact.

Retail, sport and entertainment have clearly been among the sectors hardest hit by the coronavirus outbreak. The new James Bond film No Time to Die has been moved from an April to a November release date, Premier League fixtures are cancelled indefinitely, and large stores such as Nike and Apple have shut their doors to customers in many locations.

For gambling, the same disruption applies. Retail bookies have shut down in the UK, while the cancellation of most sport means there is fewer betting choices for punters. On the entertainment front, land-based casinos in Las Vegas have been closed, while casinos in Macau recently reopened following a two-week closure but with 50% less tables.

On 20 March, UK Prime Minister Boris Johnson dealt a blow to the retail, leisure and entertainment sectors by forcing all pubs, clubs, restaurants, theatres, cinemas and gyms to close from that evening. This also included casinos and betting shops.

Although the retail betting sector has been decimated by the impact of the coronavirus as shops close, it could have the opposite effect on online gambling. Marc Thomas, partner at Propus Partners, says online operators could see a rise in activity as people are off work and staying at home. However, with the majority of sporting events cancelled for the foreseeable future, “ultimately the events that people can bet on from a sports betting point of view may reduce and the quality of events will certainly reduce as well”, he explains.

This could also have a knock-on effect for gambling firms’ operations if the situation worsens. “Product development and investments into the sector will largely stop,” remarks Thomas. As more people stop going to work or are off sick, services could start grinding to a halt. “The people who are on hand to keep the sites up-to-date, and keep systems working, won’t be available.”

Peter Nolan, CEO of iGaming Solutions, agrees that in the short term there will be an impact on betting shops, content and sports betting, while short-term turnover will also be affected by the postponement of Euro 2020 this June to 2021, and UK racing being halted.

With a great deal of the operational side of sports betting fulfilled by third-party suppliers, these suppliers are also affected by the outbreak, which means other functions will start to slow down, says Mark Israney, partner at Propus Partners. “When the suppliers can’t cover those services anymore, many operators will be hit at the same time. For example, odds providers won’t be able to deliver the odds anymore, meaning events won’t be able to be covered by many,” he remarks.

Clearly, it’s a hugely challenging time for the sports betting industry, as underlined by Stuart Tilly, CEO of Argyll Entertainment, the company behind online gambling brands SportNation and RedZoneSports. “Given how fluid and rapid the circumstances are evolving on a daily basis, it’s difficult to take a firm view on the long- or even mid-term ramifications. But I am, like a lot of others are, hoping for a swift and safe return to live sport as soon as possible, even if it means going behind closed doors,” he remarks.

Behind closed doors

With football matches going ahead largely being played behind closed doors, it could potentially have an impact on scouting in terms of collecting live data. Thomas explains that if scouts aren’t allowed inside stadia during matches to gather and verify data, then the accuracy of that data could be an issue if only data from TV pictures is available.

Sportradar did not directly address how its scouts would be impacted but did provide a statement to EGR Intel: “We are currently following existing processes and protocols that are in place to manage event rescheduling, modifications, cancellations and postponements. While this is occurring at an unprecedented rate, the procedures with which we address these situations remain the same. We are taking all the necessary and appropriate measures to maintain our coverage and service at the highest levels possible.”

For Genius Sports Group, however, it still has access to games played in empty stadia due to its official partnerships. “In the first instance, the increasing number of games being played behind closed doors should not directly impact our service. Unlike most other data and trading suppliers, our data-capture technology is integral into how sports around the world run their events, keep fans up-to-date, and inform their coaches and officials,” says Jack Davison, the supplier’s chief commercial officer.

More choice

So, with popular sports such as football and horseracing now largely off the table, where will punters turn next? During the first weekend with no Premier League football on offer, bookies saw punters flocking to overseas and lower leagues instead. Turkish football, lower-league games in the UK and rugby league have all drawn attention as betting alternatives to the Premier League.

Meanwhile, Harry Lang, founder of Brand Architects, believes virtual sports and esports could benefit significantly from the lack of sporting action available to bet on. “In 2020, most operators offer some form of virtual sports betting beyond horses and even into virtual UFC fighting. In the absence of live sports events, these markets are likely to benefit significantly,” he says.

Likewise, esports online tournaments could become a new fixture during the outbreak. Lang adds: “Unlike cancelled football, rugby, basketball and golf events, viewers are guaranteed via the hugely popular streaming platform Twitch, meaning that in the absence of nigh-on all other sporting entertainment, esports might be able to attract a captive audience of potential fans just itching to get a sporting fix.”

With less sport on offer to bet on, could customers turn to gaming or virtual sports instead as an alternative? It is a very real possibility, says Propus Partners’ Israney. “From a gaming point of view, without any shadow of a doubt, there’ll be some customers who will want to bet on something. In fact, it’s the same for casinos as it is for virtuals, it will act as a substitute for some customers. But there’ll be many who are betting on sports that they know about or have opinions on, and they’re not going to move over to a random number-generated product as opposed to a real event,” he points out.

Thomas of Propus Partners also notes that when foot and mouth hit the UK in 2001, it had a huge impact on horseracing, so virtual racing “got a huge bump” as fixtures were wiped out. Israney believes this is because those customers were in the betting shops already as part of their daily routine. “As there were no real races, they bet on virtuals, but you wouldn’t expect that to be the same online,” says Israney.

Jason Ader, managing partner at SpringOwl Asset Management, isn’t convinced that virtuals will fill the sports betting void. “I think you want to bet on your team and there’s engagement because it’s a match. When the Serie A matches in Italy were cancelled, we saw slightly more online casino and online poker play, but we didn’t see sports bettors playing different types of games. It was just lost,” he explains.

While online and mobile bingo as well as casino and slots operators could see increased demand due to the lack of live sport and social distancing measures put in place across the world, Lang highlights the important consideration around problem gambling. “More unexpectedly available time plus an inability to socialise or take part in other hobbies means some people may easily slip into risky behaviours,” he comments. Lang urges operators to mitigate the increased risks: “Perhaps casino brands could collectively focus their marketing efforts on low stakes games so people who play for longer periods would lose less than if they played at their regular stakes?”

Ader agrees that the industry must carefully monitor potential problem gamblers and underage bettors at a time when people are off work or staying at home. “The industry really needs to be reminded that it needs to be careful. I do expect the surge in play that we’ve seen over the last month to continue while people are self-quarantined and at home. You know, there’s Netflix and there’s poker and I think people are doing both.”

Crunching the numbers

In terms of the financial blow to the online sector, some of the big names have already forecast how Covid-19 will impact their numbers going forward. GVC is predicting an annual EBITDA fall of £150m, modelled on a Covid-19 scenario where the Euro 2020 is postponed until 2021 (now a reality) and all football cancelled until July 2020, as well as the Grand National meeting at Aintree (now cancelled) and Royal Ascot being called off. The EBITDA estimate – which could increase by £50m per month now that UK retail outlets have closed – is also based on the operator’s shops in Italy and Belgium being shut for three more months.

Meanwhile, William Hill has confirmed it has access to an undrawn “revolving credit facility” of £425m, which can be accessed if the operator’s financial position worsens as a result of the pandemic. Should specific events occur, company EBITDA will reduce by £100m to £110m, with every additional month of closure decreasing EBITDA by between £25m and £30m. Other factors modelled include the cancellation of the Grand National and Royal Ascot, as well as the resumption of US sports in September.

For Flutter Entertainment, EBITDA could take a hit of between £90m and £110m if coronavirus restrictions remain in place until the end of August 2020. The reduction estimate includes the suspension of Australian sports and the cancellation of Euro 2020. EBITDA would drop by a further £30m per month should the operator’s Paddy Power retail outlets close in the UK and Ireland (now in effect), along with horseracing cancelled in those two markets and Australia.

Elsewhere, The Stars Group (TSG) remains confident it will continue to drive revenue growth despite the impact of the outbreak on global sports. TSG said 62% of its 2019 revenue was generated from poker and gaming.

“Notwithstanding, while it remains difficult to predict the scope, timing and length of the current sports postponements and cancellations, our business is online-only with a global geographic reach,” said CEO Rafi Ashkenazi. “We therefore remain confident in our ability to continue driving revenue growth in the years ahead, despite the inevitable disruption in the sports industry during 2020.”

However, TSG’s CEO did acknowledge that the cancellation of sporting events will have an impact. “While we currently still offer a broad range of betting options for our customers, any sustained outbreak resulting in the further postponement or cancellation of major sporting events could have a material impact on our sports betting revenue in the near term,” Ashkenazi commented.

Meanwhile, operators with large retail portfolios are especially feeling the pinch. Rank Group, which owns 144 venues in Great Britain, put out a statement on 17 March citing that in the three-week period prior, it had seen a slowdown in trading across its UK venues and sharper decline in the recent days running up to the business update. However, despite the slowdown, its UK venues remained profitable the prior week.

“Our venues in Spain and Belgium have closed following movement restrictions with substantial support from those governments subsidising payroll costs as we temporarily lay off colleagues. The Group’s digital business operates as normal with colleagues able to work from home, and we are providing additional opportunities for our venues players to socialise and play online,” said Rank Group.

The London-listed operator’s modelling shows that the impact of venue closures would result in monthly net cash costs for the Group of about £25m before mitigating actions and around £17m with mitigation.

Elsewhere, Danish affiliate Better Collective confirmed it is preparing for a potential €10m revenue reduction due to the impact of coronavirus on global sporting events. Up to €4m of the potential €10m expected loss will come from the postponement of Euro 2020.

In the days after the almost full halt of major sports on a global basis, sports betting activity halved while esports and casino activities remained unchanged. Jesper Søgaard, CEO of Better Collective, says: “Though visibility is currently limited, we stay optimistic that normal sports betting activity levels will be restored which is why our guidance remains unchanged.”

Panic stations at the ready

Coronavirus is not the first time the industry has had to adapt its operations in the midst of a virus-related outbreak. The aforementioned foot-and-mouth outbreak in the UK in 2001 led to the Cheltenham Festival being abandoned due to a new outbreak of the disease reported five miles from the Gloucestershire course. The racing suspension was put in place to prevent large gatherings of people and horses who had been in close contact with livestock. The cancellation of the festival was estimated to have cost the betting industry £100m. A prior foot-and-mouth crisis in 1967 had also resulted in the racing calendar being affected for almost two months.

Fast forward to just last year when horseracing was shut down once again due to an outbreak of equine influenza. At the time, Nolan had been working for Sky Bet as customer operations director and satellite broadcaster Sky was encouraged to implement a form of contingency planning across its businesses, which included Sky Bet. “Ex-military consultants were available to consult and set up command and control structures on the basis that you might lose 20% of your workforce anytime, including your management team, so you need to set up some structure of who would become in charge in that scenario,” he explains. “At that time, working remotely wasn’t as feasible as it is now, so you would set up remote working where possible if you had the systems to do it,” Nolan adds.

Retail and live poker take a hit

Looking again at the impact on the retail side of the industry, live poker tournaments across Europe have also suffered in terms of lower player numbers. PokerStars’ live events in Europe (Hamburg, Madrid and La Grande Motte, France) have all been postponed, as have stops in São Paulo and Monte Carlo.

GVC’s partypoker brand has had to postpone its land-based poker tournaments in Barcelona and Cyprus, although its Millions Super High Roller Series in Sochi, Russia still went ahead in early March as planned, albeit with reduced numbers. Partypoker’s Rob Young tweeted on the eve of the event that 40 of the 87 players confirmed to be attending had withdrawn due to concerns over coronavirus.

Even Europe’s oldest poker festival, the Irish Poker Open, has switched to an online-only festival instead, running from 6 to 12 April on partypoker, while Unibet Open Tallinn in May has also been replaced by an online event.

Further afield, land-based casinos in Macau and Las Vegas have been forced to close due to Covid-19. The 15-day casino closure in Macau in February had caused gambling revenue to plummet 87.8% compared with February 2019.

Ader at SpringOwl Asset Management recently told CNBC the current pandemic should serve as a “wake up call” for Asian governments to consider legalising online gambling. With all this abandoned casino infrastructure, how do you deal with the lost business?

“There is the potential to hedge the lost business,” Ader tells EGR Intel. “So, if the Macau casinos had online licences and were able to legally offer government-controlled gaming, there certainly would be revenue offset.” He also suggests that by marketing to customers who can’t get to Macau, online incentives could also be offered to encourage them to return once health conditions improve.

In turn, there is a risk that the current virus outbreak could be pushing gamblers in Asia towards the black market or to the Philippines, which is the only market where online gambling is legal.

Disaster planning

Many businesses around the globe have already initiated disaster contingency plans, including allowing their staff to work remotely during the outbreak.

Gibraltar-based operator Mansion has advised its employees in all three offices (Gibraltar, Bulgaria and Israel) to work from home.

Similarly, William Hill CEO Ulrik Bengtsson also confirmed the operator had put a business continuity plan into place. “We have implemented a number of measures to ensure normal operations, invoking our business continuity plans where appropriate. In addition, large parts of the group continue to operate on a ‘business as usual’ basis, albeit while working from home.”

As the egaming industry already has more remote workers than some other industries, it shouldn’t be too difficult to get the right processes in place. “From a central services point of view, it wouldn’t be as hard for many operators to get many of their staff working from home because the infrastructure is there, but obviously from a retail point of view it’s a very different situation,” says Israney.

“Obviously, the problems affecting the gambling sector pale into insignificance when compared to the human cost of recent events. However, when the sporting calendar restarts, it will hopefully be a good indication of things slowly getting back to normal,” adds Thomas.

Looking back at how Sky Bet had prepared for the equine influenza outbreak, Nolan urges those businesses in the current climate to ensure there is a focus on the core business and to decide what that is. It might be customer-facing staff or protecting the product and the network. “What you might find is, as this issue progresses, that you would have a strategy to have discretionary spends stopped. For example, you may decide not to spend money on marketing because you’re battening down the hatches.”

Nolan suggests looking at your resources as a “team approach” where, for instance, your marketing team could be trained up to help out in other areas of the business. “Protect the core elements as you lose staff due to sickness.”

As businesses around the world continue to adapt to new working practices, the central theme throughout these testing times is to look after staff and customers as best you can. No doubt the crisis will continue for some time but if the gambling industry can work together to weather the storm, hopefully a return to normality will be on the horizon.