Five things we learned from Entain’s H1 trading update

During its H1 trading update, Entain reported a 7% drop in net gambling revenue (NGR) for the second quarter of Q2.

“Tough comparators” were blamed such as the increase in online gambling in 2021 during the Covid-19 pandemic.

Additional affordability measures hampered the UK online business while “weaker macroeconomic” climates around the globe were also taken into consideration.

The firm did point to an improved performance in retail after the lifting of Covid-19 restrictions.

NGR performance in this part of the business was up 243% compared to an overall drop of 6% and 9% respectively for sports and igaming.

The JV partnership with BetMGM in the US was also highlighted as a particular highlight where it garnered 24% of overall market share with a market leading igaming market share of 29%

Speaking on an investor call, CFO Rob Wood touched on a series of topics, including marketing strategy, regulatory headwinds in Europe and the downturn in the UK, as EGR explores.

Not OK in the UK

Amidst the current uncertainty surrounding the Gambling Act 2005 review and the cost-of-living crisis, Entain admitted there were concerns regarding its UK-facing business, with revenue having taken a hit during H1.

Wood noted there was little change in Q2 2022 compared to Q1, but year-on-year revenue had decreased in its home market by around 15%.

He remained coy on what the key driver for the downturn was, reflecting it could be a multitude of factors which has seen revenue decrease.

Wood said: It is hard to unpick competing drivers. For example, we’re seeing spend per head fall in the UK, that’s the driver of the 15% decline that I mentioned, how much of that is affordability measures versus other measures?

“But also, versus macro conditions, it is hard to separate with confidence. What I would say is we do see macro impacts in the UK as well because if you look at spend per head on the lower spending cohorts, then you can see a fall off.”

However, Wood did note the “top cohort of spenders” was down 50% in the UK, adding it was a “very material movement in the customer base”.

Elsewhere, retail revenue was up thanks in part to the return of the opening of Ladbrokes and Coral shop in the UK. The total NGR was up 243% (244% in constant currency) for the first half of the year.

However, Entain did note further retail expansion was not part of its plans moving forwards, instead focusing on digitalisation of its outlets.

Wood said: “I don’t think there’s a lot of opportunity to open more shops. So no, but is there opportunity to invest? Yes, we have already and continue to invest in the digitalisation of the estate.”

Fear of the tax Down Under

Following recent point of consumption (PoC) tax hikes in New South Wales of 50% and Queensland, which saw tax rates increase from 15% to 20%, Entain touched on its Australian business and whether it was fearful of further regulation from other states in Australia.

Wood suggested that there is “always a risk” in Australia of further taxation and that once you roll forward the recent changes “the blended tax rate…is comfortably over 20%”.

He spoke of what would happen were there to be further taxation in Australia and claimed the company would go into “mitigation mode”.

He added: “We think action internally can typically mitigate around half and of course the smaller operators just simply can’t make it work. So, unless you’ve got a decent market share, then you’re going to be loss making as a result of these changes.

As for figures in Australia, spend-per-head was pointed to as a key reason for 20% growth in the country over the last 12 months.

Marketing cuts

“The more revenue you make, the more you can spend on marketing,” said Wood when quizzed on the firm’s current marketing model.  “If you miss your numbers, you need to pull back.

Amid current regulatory headwinds specifically in Europe, the CFO was clear to point out that efficiency in marketing is an absolute must.

And while there is no definitive metric for measuring the efficacy of marketing Wood did add: “You can choose which activity or free bets are redeemable again, you can focus your different marketing promotions whether above the line or below the line, you can focus on certain products with margin in mind.”

Wood hinted that marketing efficiency could be cut by 5% to improve CPA.

Netherlands now?

 Entain confirmed the acquisition of BetCity, one of the Netherlands’ biggest betting brands for an initial consideration of €300m (£257m) and a deferred contingent consideration of up to €550m earlier this year to speed up its entry to the market.

Entain was one of the larger firms to be unsuccessful in its attempts to a secure one of the first licences in the Netherlands, and has instead faced a series of EBITDA downturns due to its absence.

The acquisition of BetCity is set to ease these fears, with Entain confirming it expected to launch in the market by Q4.

“We now expect the second half to deliver mid to high single digit NGR growth leaving online NGR for the year around flat,” said Wood when looking forward to the impact returning to the Netherlands would have for the firm.

Forward facing                                                         

Finally, Entain said it was anticipating a strong H2 in comparison to the first six months of the year, with a combination of factors set to boost the operator’s bottom line.

Wood touched on the first-ever winter World Cup, starting in November, would have a material impact on operations, along with a more manageable margin compared to what the firm faced in October 2021.

Wood said: “I expect Q3 to be better than Q2 and then I expect Q4 to be better again. There are some fairly material movements between Q3 and Q4 to note.

“One is football tournaments. We have one in Q4 whereas we didn’t the prior year and in Q3 this year we don’t have one, whereas we had the end of the Euros last year.”

“I ultimately think the quarters from a year-on-year perspective get progressively better,” he added.

However, Wood did remain cautious regarding the wider economic environment, with fears over spend and being attributed to macroeconomic factors.