Rob Wood Q&A: Entain deputy CEO on cost savings, affordability checks and a return to growth

Entain deputy CEO and chief financial officer Rob Wood cuts a relaxed figure. The exec is confident on the future for the London-listed operator as its Q3 trading update, on a pro forma basis at least, showed some slippage.

A 5% year-on-year (YoY) dip in group net gaming revenue, excluding the US, was in line with expectations as regulatory headaches in the UK and Germany persist. However, the group’s US JV, BetMGM, continues to perform well despite a slight market share slip.

The addition of Angstrom Sports earlier this year is planned to drive pricing capabilities to give the operator the edge, while a sustained pipeline of bolt-on M&A has ensured global expansion.

Along with divulging Q3 results, Entain also laid out its plan for operational efficiencies by 2025, including gross cost savings of £100m and a prioritisation of growth markets.

Here, Wood delves into Entain’s future strategy and how he is pegging H2 2024 as a key target for return to growth for the firm.

EGR: You’ve already highlighted an EBITDA impact of c.£45m for Q4 due to sporting results. Can you lift the lid on that further?

RW: In the last five years, across a whole week, our online business has only been loss-making three times. Two of them were in the last two weeks. September was poor but October is in a different league altogether.

It’s great for customers because if they don’t win then you don’t have a business. It’s one of those things that happens. It means that Q4 is significantly behind the curve, but it doesn’t have any long-term impacts. Customers win from time to time, and it’s great when we do too.

EGR: What does the pipeline for M&A look like currently? Are there more bolt-on deals on the horizon or Angstrom-style in-house additions?

RW: [M&A] will always be a part of any plan. The good news is we’ve been busy the last couple of years filling in those geographic gaps.

We’ve really acquired the pipeline that we wanted to and we’re at a point now where we’re very happy with the businesses we’ve acquired and the scale that we’ve got.

Now’s the time to focus on the business that we have and deliver the plan that we will lay out this afternoon. The answer is M&A is deprioritised, but I would say for the right opportunities [we will move].

EGR: Moving forwards, there are plans to realise £100m in gross cost savings by 2025. How will these savings manifest?

RW: We’ve grown so rapidly, particularly through M&A, we have quite a complex structure. The underlying theme is one of simplification, and inevitably that will result in some job losses around the world.

But it makes us a better organisation, it enables us to share best practice more easily and, importantly, it enables us to reinvest in areas that need it more.

For example, our sportsbook technology teams – this is a critical area. They’re really important battlegrounds. It enables us to invest more in those areas and we become a better, stronger business as a result.

We have an ongoing internal project that started in the summer. It’s an evenly paced programme for the next couple of years but, by the time we exit 2024, it should be complete and therefore there will be benefits flowing through into 2025.

EGR: Also included in the operational strategy is the plan to “exit smaller non-core opportunities”. Is this defined as markets or pulling back on product à la Unikrn?

RW: One of the things we find is that operating in regulated markets comes with a lot of complexity. You have to localise your offering such that it works to adhere to the local regulation.

What we found is that some of our markets are just too small to warrant the effort that’s required, and if we redeploy those resources and the marketing dollars elsewhere, we think there’s higher return.

We are shuttering a few small markets, so there will be no great financial impact, but more one of freeing up resources to prioritise high-end growth and greater value opportunities effectively.

[Entain CEO Jette Nygaard-Andersen confirmed today these non-core markets included Zambia and Kenya].

EGR: In the Q3 prelude trading update, Entain said regulatory headwinds were “persisting longer than expected”. Is this a case of UK affordability measures biting long after you planned?

RW: We made some big changes around affordability checks last summer. So, we had expected that as we progress through the second half of this year and into next year that the impact of those changes would start to recede as you annualise them.

The reality, though, is this is still catching a lot of customers. We’re growing our customer base really strongly, our actives growth is north of 20% in the UK, but customers are still running into these affordability checks.

And the moment that people do, more often than not, they would rather not give payslips and bank details and so they use another operator.

We are still seeing more and more customers restricted as a result of these changes. But there are some ongoing refinements as part of our strategy. There are always ongoing refinements that have some impact as well. What we’re seeing today is that, realistically, we think it’ll be into the second half of next year before we’re fully through all the impacts in the UK.

EGR: Looking ahead, Entain is planning to prioritise growth in high return markets (US, Brazil, CEE) while looking to “drive profitable growth in core markets”. Can you give a further breakdown of what this means?

RW: It is tricky to segment because we’re lucky that our markets are growing, other than regulatory changes. The best way to think about it is double-digit growth versus high single-digit growth. But it is a little more nuanced than that.

When we think about where’s the greatest return, of course, market growth is important, but also how big is the market?

A tiny market that is growing fast doesn’t create as much value as a large market that’s growing at a medium pace.

Our competitive position matters; if we’re number one, then that’s fantastic. Who are the competitors? What’s the regulation? What are the marketing restrictions? You have to factor in all these things in order to decide whether something is a high priority market for investment.

EGR: The plan is for a return to growth by H2 2024. How do you plan to see this through?

RW: The UK, Germany and Brazil are really where the declines are. If you look across the rest of the portfolio, excluding those markets, it is in growth and in line with market growth.

If we get through the regulatory transition in the UK and Germany that will really help, and then with our Brazil plan we can get back to growth and where we used to be.

The online organic business is a very important part of our business but it is the one part that has seen some challenges over the last year. Our retail business is going well, as are our US business and acquisition strategy. It is just this one part of the business that is seeing challenges.