The chosen one: Gavin Isaacs takes up the reins at Entain

After a prolonged period of turbulence and shareholder frustration, 22 July 2024 is the date Entain looked to turn the page and embark on a new era. Gavin Isaacs was announced as the operator’s new CEO, with the new boss to take over the reins from today, 2 September, on a basic annual salary of £875,000, with interim CEO Stella David to step up to become chair. While David and the leadership team had steadied the ship, there’s no avoiding the fact the FTSE 100 operator went through choppy waters while under the stewardship of previous CEO Jette Nygaard-Andersen, until her sudden exit in December 2023.

Things started brightly for the Danish executive, who made the transition from non-executive director to CEO in January 2021, four weeks after Entain’s board rejected a £8.1bn takeover offer from the company’s US JV partner, MGM Resorts International, an offer deemed to significantly undervalue the business. Ten months into Nygaard-Andersen’s reign, there was another proposed bid, a cash-plus-stock deal worth £18.4bn tabled by DraftKings, yet the US operator later decided against making a firm offer.

What’s more, the three years that followed Nygaard-Andersen’s appointment were peppered with acquisitions (11 in total). Two months before her departure, Entain completed the acquisition of US sports modelling and pricing specialist Angstrom Sports for a total consideration of £203m. The acquisition was driven by a need to boost the in-play and same game parlay capabilities of BetMGM, the US operator co-owned by Entain and MGM, although eyebrows were raised at the nine-figure sum.

The integration of the supplier has undoubtedly improved BetMGM’s offering, with Angstrom Sports-powered MLB and NBA markets integrated earlier this year and NFL markets rolled out for the NFL season. Away from the US, there was the £120m purchase in April 2023 of sports media and live scores provider 365scores and its 18 million monthly active users globally, a deal even Nygaard-Andersen conceded was “a little different” but would ensure a leading position in Latam. Management recently praised 365scores for driving first-time depositors (FTDs) to Entain’s Sportingbet business in Brazil.

However, the decision to fund the £750m purchase of Polish bookmaker STS Holdings in 2023 by issuing shares, thus increasing Entain’s share count by 8%, sparked controversy, as hedge fund Eminence Capital dubbed it a “value-destroying strategy”. Ricky Sandler, Eminence CEO, oversaw the hedge fund’s purchase of £7.1m worth of Entain stock in June this year, becoming the operator’s third-biggest shareholder. Isaacs will look to manage investor expectations as he steps up to the top job.

Sticking with M&A, there was the £50m purchase of esports betting platform Unikrn, completed in October 2021, only for Entain to shutter the B2C business two years later. Meanwhile, the legal dispute with the former owners of subsidiary BetCity that started during Nygaard-Andersen’s tenure over an undeclared KSA investigation continues to rumble on. The Dane also left weeks after the operator agreed to pay £585m as part of a deferred prosecution agreement (DPA) following an HMRC investigation over alleged historical bribery at a Turkey-facing business owned by Entain between 2011 and 2017. These difficulties partly explain why Entain shares have lost nearly two thirds of their value from their peak, in 2021, with the company’s market cap hovering around £4.1bn, at the time of writing.  

Supply and demand

This all paints a picture of the size of Isaacs’ in-tray. As a 2022 American Gaming Association Hall of Fame inductee, most of Isaacs’ 25 years of industry experience comes from the supplier side, which explains why he was an unexpected selection by Entain’s board. After his predecessor left, independent bookmaker Star Sports opened a book on who would be next to occupy the hot seat. Among the frontrunners was BetMGM CEO Adam Greenblatt at 6/1, along with 3/1-favourite Richard Flint, the ex-Sky Bet CEO. Isaacs didn’t even feature in the running. Flint later ruled himself out, while Sky News ran a story suggesting former Rank Group CEO Henry Birch had been approached, yet this came to nothing.

Roberta Ciaccia, gambling research analyst at financial group Investec, shares her surprise on Isaacs’ appointment. She says: “It is very true that, for whatever reason, the name of [Gavin] Isaacs had not been mentioned during the period of endless speculation on who would be the next CEO of Entain. However, the market has responded well. Some have pointed to the fact that his expertise lies in B2B rather than B2C, but still Entain has managed to find someone who has deep gambling expertise as well as previous exposure to equity markets, which was not an easy task.” 

Since Nygaard-Andersen’s exit, there have been murmurs of Entain itself becoming a prime M&A target, especially with its market cap today being half what MGM offered for the business previously. Others have suggested the operator could be taken private, and Isaacs’ arrival has done little to dampen speculation regarding the prospect of Entain being sold either way. Overseeing M&A activity on both sides of the deal has become the new CEO’s trademark. The Australian’s first foray into the gambling industry was with slots manufacturing giant Aristocrat in December 1998, where he was subsequently named president of Aristocrat Americas in 2003, which became the company’s largest financial contributor and posted record revenue under Isaacs’ watch.

He departed in 2006 and went on to spearhead Bally’s re-emergence into the Australian market as COO between June 2006 until March 2011, inspiring double-digit revenue growth, before joining supplier SHFL Entertainment as CEO, then known as Shuffle Master. Just over two years later, Bally’s purchased SHFL Entertainment in a deal worth $1.3bn. After a near-three-year break, Isaacs returned to the industry in June 2014 to guide Scientific Games as president and CEO. Two months on, the supplier acquired Isaacs’ old outfit Bally’s for a total consideration of $5.1bn.

With Isaacs in charge, the supplier’s annual revenue doubled to $2.9bn in two years via a series of acquisitions that turned the company into the Nasdaq’s biggest gambling technology group. He remained with Scientific Games as vice-chairman of the board until December 2018. One month later, Isaacs was appointed as chairman of sports betting supplier SBTech. In April 2020, the acquisition of SBTech and DraftKings by SPAC Diamond Eagle Acquisition Corp, is believed to have valued the firm at $700m. He cut ties with SBTech that month and became a DraftKings board member. Isaacs’ most recent role before Entain was as Games Global chairman.

Speaking on condition of anonymity, one former Entain executive says the operator is likely to be an M&A target. “They’ve got a Capital Allocation Committee [CAC] now on the board. They’re going to have a view, an input into some of these decisions, but with the share price where it is, I’d be amazed if there aren’t people trying to approach Entain with a view to some sort of combination. We’ve seen them before with MGM and DraftKings, with the share price significantly below where it was when those earlier conversations happened. I’d just be astounded if people weren’t willing to engage with him [Isaacs] in a conversation.” 

Monique Pollard, a Citibank investment analyst, isn’t as convinced, insisting operational execution under Isaacs’ lead must be seen before the prospect of any sale can be entertained. She explains: “Historically, this space has been rife with M&A that has both been corporate-led and private equity-led. We’ve seen both over the years in the space. I sound like a bit of a broken record, but the key for any of this is improving operational performance. If you start to see improved and consistent operational execution, that’s when those conversations may begin again.”

One situation Isaacs is expected to focus on has been outlined by Entain’s ex-interim chief David and the CAC, both explaining the need for growth in the UK and across the pond with BetMGM, after the FTSE-100 firm posted group losses of £879m in 2023. 

David revealed, after Entain’s Q1 results were released this year, three main pillars of focus for the remainder of 2024, insisting: “We focus on our strategic priorities of organic revenue growth, margin expansion and winning in the US.” The US accounted for 18% of group net gaming revenue (NGR) in H1 2024, a rise of 6% year on year. Currently, BetMGM has an overall market share of 13% in North America in Q2 (23% igaming only).

Investec analyst Ciaccia believes that winning in the US is essential for Isaacs. “It should be at the very top of the list, especially after BetMGM issued much less optimistic short- and medium-term guidance for profit,” she says. “According to Investec analysis, despite cuts to BetMGM’s earnings, the US remains a key contributor to Entain’s value – 50% of the current equity value.” 

The aforementioned anonymous ex-Entain executive agrees but concedes the relationship within the JV had become “strained” under Nygaard-Andersen: “What’s key is having a constructive relationship with MGM and being clear with what both parties want out of the relationship going forward. Joint ventures are tricky, but BetMGM, at least until last year, had been impressive – it went from nothing to one of the top three operators without any head start, unlike FanDuel or DraftKings with their portfolios of fantasy games. You can’t ignore it [the US], and you shouldn’t. I think it’s just managing that relationship with MGM and ensuring the vision is a shared one moving forward.” 

Market forces  

While stateside growth is high on the to-do list, Entain’s H1 2024 results highlighted issues for Isaacs to deal with much closer to home. The financials, released in early August, revealed the UK and Ireland division’s NGR slipped 6% year on year (YoY) to £1bn, while online NGR in the same market recorded a larger decline of 8% to £466.9m. In the Netherlands, a market with considerable regulatory headwinds, NGR slid 13%.

On a much more positive note, Brazil, described as a “must-win” market in the Q2 results presentation, recorded an NGR increase of 28% YoY, with a particularly strong performance from Sportingbet and its surge in FTDs following product upgrades and a new management team installed on the ground. Croatia’s recent results will likewise make welcome reading for Isaacs. Local operator SuperSport, acquired for €690m in 2022, played its part in what was a strong Q2 for Entain’s Central and Eastern Europe (CEE) division, with the brand achieving a 17% NGR increase YoY on a constant currency (cc) basis, while the overall CEE market saw a 12% cc rise in NGR on a pro forma basis.

At a group level, Entain’s full-year 2024 guidance has been upgraded, with EBITDA now expected to fall within the range of £1.04bn to £1.09bn. However, there’s also lingering speculation surrounding which, if any, assets could be offloaded. In March, advisory firm Oakvale Capital was drafted in to help oversee the potential sale of PartyGaming (PartyCasino and partypoker), with Sky News reporting in May that industry sources suggested the subsidiary could fetch around £150m. Bwin has also been the subject of speculation regarding a potential sale.

Following a strategic review of all Entain assets, which completed in January, Georgia-based Crystalbet was announced in May as being “non-core” and potentially up for sale, with the business having already attracted interest from “potential acquirers”. Isaacs and the board will now have a decision to make on that topic, but, given Georgia, which accounts for around 3% of group NGR, posted 11% YoY growth in the first half of the year, there’s every chance a sale isn’t as close as it once looked.

So, there’s certainly plenty on the plate of the new boss, who will receive a maximum annual bonus of 250% of his £875,000-a-year salary, as well as a maximum long-term incentive plan of 450% of his base pay. Isaacs is also required to build a shareholding in the company to the value of 450% of his salary. The incentives are certainly there. Now it is down to Isaacs to spearhead a new Entain-era, and in the process deliver top- and bottom-line growth – oh, and revive the multi-brand group’s floundering share price. Pull that off and Star Sports’ management may well wonder how their odds compilers didn’t even consider Isaacs when pricing the book.