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In recent years, UK gambling group Entain may as well have been renamed “in pain”. That reflects investors’ experience: its current market capitalisation is just about a quarter of the £16.7bn equity value put on the company in a 2021 approach by US betting rival DraftKings.
Since DraftKings walked away, it has all been downhill. There have been compliance fines and settlements, the heftiest of which was the £615mn it agreed to pay last year for failing to prevent bribery at its former Turkish subsidiary. Mature markets have been tightening regulation. Then there was its former chief executive’s costly £2bn acquisition spree.
Throughout those travails, the US market had been a bright spot — where UK gambling companies were backed to clean up as the sport betting market liberalised. That dream is fading. Reviving Entain was never going to be easy but the job is now that much harder.
BetMGM, Entain’s US joint business with MGM Resorts, said this week that it expects a loss of more than $240mn this year as it ploughs more into marketing its online gaming products. It had warned that 2024 would be a year of investing to reap the rich rewards on offer in the US. But estimates on Visible Alpha pointed to a much smaller loss of $18mn. More importantly, BetMGM moved the goalposts on profitability: it now expects to generate $500mn in ebitda in “the coming years”, rather than 2026.
This isn’t disastrous. BetMGM has made progress to improve the consumer betting experience. Punters no longer have to use a different account if they cross state lines, for example.
But the company faces formidable competition, both from market leaders DraftKings and Flutter-owned FanDuel and from more recent entrants such as ESPNBet. A marketing arms races could easily escalate in the grab for market share, eating into margins.
Indeed Evoke, formerly 888, decided to exit the US consumer market, highlighting the “significant” costs of operating there. BetMGM will find it challenging to meet its longer-term target of a 30 per cent-plus ebitda margin, thinks Investec’s Roberta Ciaccia.
For the wider Entain group, this was an unwelcome surprise before a new chief executive — industry veteran Gavin Isaacs — takes charge in September. An update in May, including considering “strategic alternatives” for its Georgian business Crystalbet, failed to change the stock’s painful slump.
A tougher US outlook, as well as activists on the register, will keep up the pressure on Isaacs to consider other sales, most likely of businesses such as Eurobet that aren’t integrated into Entain’s main technology platform.
The painful process of reviving Entain looks like it will be slower than ever.
