Five things we learned from GVC’s full-year results

GVC announced 9% revenue growth to £3.6bn for 2018 and reported a strong start to 2019 trading when the operator unveiled its full-year financial results on Tuesday.

CEO Kenny Alexander said 2018 performance confirmed the London-listed company as the “largest online-led sports-betting and gaming operator in the world”, but with great power comes great responsibility.

Here are five things we learned from the full-year figures, Alexander’s exclusive chat with EGR Intel and his Q&A session with financial analysts.

• The US might take a while

“Long term, anything less than being the market leader in the US is unacceptable,” Alexander told City analysts at the full-year conference call, piling the pressure slightly on newly-appointed US joint-venture (JV) CEO Adam Greenblatt who was sat in the front row. Alexander did however reiterate that GVC’s biggest obstacle – which was finding an influential partner with a well-established brand in the US market – had already been overcome with the MGM deal. GVC also owns its own technology which it would argue gives it a clear advantage over would-be competitors in the market.

“We own all of our tech so our set-up costs are going to be far less than those who still need to find suppliers,” said Alexander. GVC has 25 people on the ground in the States now and will look to confirm all senior appointments by Q2 2019. “We haven’t fired a single bullet in terms of marketing in the US and New Jersey,” he added. “People need to be patient and realistic – New Jersey is just 3% of the US population. The US is important for us but it is not the be-all and end-all. We have many different opportunities and the US is just one.”

While Alexander refuted suggestions that US growth was on the backburner for now in favour of other markets, he did insist that it could be between three and five years before the operator makes a significant impact stateside. Alexander also told analysts to err on the side of caution in the wake of predictions that the US – outside of New Jersey at least – would only adopt sports betting in a retail capacity due to regulatory headaches and a lack of clarity surrounding online gambling framework in different states. “New York is going to lead through retail which is not a problem as MGM has acquired a few casinos,” said Alexander. “If it does go down the retail route, we are confident MGM will always have that access. We are well-placed on the technology side and I am not concerned of being shut out of any markets in the US. Don’t believe everything William Hill say on the US,” he joked. “In fact, don’t believe anything.”

• Multiple markets mitigate regulatory risk

GVC is an operator with so many fingers in so many pies that heightened regulatory risks in certain markets don’t even appear to slow down, let alone stop, growth rates across a portfolio of different brands and verticals. While UK-focused, retail-first operators (looking at you, William Hill) are likely to take significant hits from April 2019 (when reduced FOBT stakes and raised Remote Gaming Duty kicks in), GVC can point to growth in other markets after diversifying risk via a series of smart acquisitions. The operator now operates 19 brands in multiple territories including Georgia, South America, Australia and the US and is highly competitive in all. “I could talk all day about the Ladbrokes Coral acquisition but the numbers speak better than I ever could,” said Alexander in typically bullish fashion. “We beat up William Hill and we beat up Paddy Power in the UK,” he added. And his focus extends beyond the UK, too: “We are the biggest in Brazil undoubtedly and we have managed to get there despite marketing restrictions. Our brand, primarily Sportingbet in Brazil, is very strong. In South America we are biting at the ankles of PokerStars too,” he added.

• Has egaming M&A dried up?

GVC made several key acquisitions in 2018. The £4bn July merger with Ladbrokes Coral was the most significant, but the group also consolidated in Georgia after buying a 51% stake in Crystalbet for €41.3m and Australia through the £52m purchase of Dean Shannon-founded sportsbook start-up, Neds. The Group also made inroads in the embryonic US market after forming a $200m JV with casino giant MGM. So have all the deals now been done? “There is still a lot that comes our way,” said Alexander. “There is a lot of dross out there and it takes me five seconds and [corporate strategy director] Nick Batram two days to work out that it will be no use. Some nuggets do come along though and we have to be quick to get them. We are always looking and we’d like to do something in Africa and the Baltic states. We are selective though and a lot of deals have already been done.”

So with nothing major up for grabs, is GVC likely to consider selling some of its most-prized assets in the near future? No it would seem, and in no uncertain terms according to Alexander. “What could we sell? We were offered to sell the Australian business and we said definitely not. Foxy Bingo we’ve rolled into Gala so definitely not. Would we sell UK retail? No because it is too strategically important. Bwin and partypoker would be absolute bonkers [to sell] so no, I don’t think we would sell anything at this moment in time.”

• Branching out after Brexit

One industry insider told EGR Intel this week: “We are all just doing what we have to do. Brexit is such a car crash that nobody knows what is going to happen.” It would seem that GVC also subscribes to this point of view. For legal and regulatory reasons, companies providing gambling services to customers in the EU will need to be established and licensed in an EU member state. As a result, the Gibraltar-headquartered GVC has prepared “detailed plans” which it is “ready to implement”. These plans include operating under a licence from the Malta Gaming Authority (MGA) and moving the firm’s online gaming servers to Ireland. GVC said its online business would remain in Gibraltar and Alexander told EGR this would remain the case regardless of Brexit. “[Leaving Gibraltar] is not dependent on anything,” he said. “We employ 1,000 people in Gibraltar, we are the biggest employer in Gibraltar and five years from now we will still employ at least 1,000 people there. No matter what happens in Brexit, we are not moving out of Gibraltar. I feel it is overblown and not really something we discuss internally. People are going on about delays at the border – well so what?” Management moved to reassure staff that contingency plans are in place for those who live in Spain but work on the Rock.

• A change in approach to responsible gambling?

The industry has long been saying it needs to get on the front foot where responsible gambling measures are concerned, especially if it wants to combat the tide of anti-gambling rhetoric in the UK from politicians and the mainstream media. GVC has pushed its position as a leader in this arena over the last six months, unveiling its ‘Changing for the Bettor’ campaign while being a key player in discussions with the Remote Gambling Association (RGA) to introduce a voluntary ban on gambling advertising. But Alexander’s comments this morning may have revealed a change in tack from the London-listed operator, as he reiterated they are “winning the battle” against problem gambling, as well as the negative publicity that comes with it, on several occasions during the full-year analyst call.

https://twitter.com/gamblinglamb/status/1102878905743093760

“The industry has made great strides [in problem gambling prevention],” said Alexander. “The stats suggest problem gambling is coming down and that we are winning the battle. I think problem gambling has become a political football. There were 1.2 million registered drinkers and alcoholics and only around 300,000 problem gamblers, so I don’t think problem gambling is as big an issue as some politicians make out.

“It is a problem and something we take very seriously and we have become a lot more sophisticated in recognising that behaviour. It is important that the industry is a united voice as there are people out there with agendas who are not the biggest fans of egaming and despite the research and the stats, they will have their own agendas. The industry needs to come out with its own approach and we are winning the battle,” he added.