View from the City: Operators must respond to changing demand

Extrapolating UKGC statistics released in May suggests the online gambling sector is currently worth a staggering £6bn. The regulator fully bared its increasingly sharp teeth to unusually revoke a licence of Max Entertainment. Of course, a strong regulator helps explain why online gambling is one of the few industries in which the UK is a genuine world leader.

However, to many, the industry remains a pariah and shareholders of all online gambling companies have suffered as share prices have fallen by as much as 60% over the past 12 months. What then does this mean for the sector’s prospects? Gambling will continue to flourish the world over and companies must respond to changing demand.

Our long-held view has been that companies likely to deliver above average returns and shareholder value are those that have broad geographic diversity, proprietary technology to maximise operational agility and gearing, and a strong balance sheet to participate in M&A and absorb the inevitable regulatory and tax shocks.

Rank’s recommended offer for Stride Gaming highlights the ongoing yearning for consolidation in the space. Combined, the two will have an 18% market share in an online bingo sector where scale is important. The fact that Rank thinks it can achieve cost savings almost equivalent to Stride’s EBITDA shows the motivation for this and many other deals in the sector.

As the UK appears to be falling out of love with gambling, the US is falling back in love all over again. Last month’s presentation by 888 conservatively estimated a $6.1bn US online market in 2025, second only to the UK. This may explain the Sunday Times splash that William Hill had held talks with Caesars Entertainment in the autumn of last year. Vegas beckons for all UK gambling companies but only the few will be chosen.