View from the City: The impact of extreme sporting results
Nigel Hinchliffe, managing director at Alvarez & Marsal, Transaction Advisory Group, on driving sustainable growth during inherently volatile times
One of the key challenges facing gaming executives remains the management of investor expectations (for stable and steady growth) in what is ultimately an inherently volatile industry. Sporting results on either side of the Atlantic in Q4 served as a timely reminder of these challenges, with the punter-friendly results in the NFL well publicised in recent trading updates (72.1% of games won by the favourite this season – the highest mark since 2005), but operator-friendly EPL results somewhat more downplayed.
So, what are the levers available to the large, listed operators?
Diversification across customer bases, products and geographical markets can clearly help mitigate the impact of extreme sporting results. Flutter, as the most globally diversified gaming business, should theoretically be well-positioned to handle market volatility relative to its peers.
Ironically this was not the case in Q4, with FanDuel bearing the brunt of punter-friendly NFL results because of its overweight sportsbook offering and market-leading same game parlay product. In contrast, BetMGM, with its overweight gaming offering and a greater mix of moneyline wagers, fared better, and potentially even benefited from elements of gaming recycling from FanDuel and DraftKings sportsbook customers.
The general consensus in the industry suggests that growing the recreational sportsbook base and cross-selling into gaming is key to more stable growth. However, this approach often presents an inherent contradiction with new products designed to attract recreational users (eg. player props, same game parlays etc) often leading to greater bet concentration and therefore increased volatility. Furthermore, the continued increase in gaming tax rates (relative to sports) threatens to limit the benefits of cross-sell mitigation.
The challenge for executives is unlikely to ease any time soon, with the higher-growth markets targeted currently by listed operators likely to increase structural volatility over time if anything. US margins are heavily influenced by just 300 NFL fixtures annually, the emerging Brazilian market is highly concentrated around domestic and international football, and African growth is likely to be fuelled by 10+ leg accumulators.
In summary, to drive sustainable growth, operators should – where economically sensible – look to mitigate volatility through adapting to market dynamics and leveraging cross-selling opportunities to achieve more stable, long-term performance. In the short term, managing investor expectations and educating stakeholders will remain essential to navigating the industry’s inherent volatility.