Taking a gamble
A role of the dice for the betting industry with sport in lockdown
IT SHOULD have been a busy week for bookmakers. Euro 2020 qualifiers, the Oxford-cambridge Boat Race and golf’s WGC Match Play championship were some of the headline events set to contribute to a steady stream of bets placed online and in the UK’S 9,000 betting shops.
Instead, bookies are scrambling to fill the void left by a broad shutdown of global sport by offering odds on less glamorous fixtures: Nicaraguan under20s football, Belarussian ice hockey, Tajikistani basketball and Russian table tennis, to name only a few.
Covid-19 has wreaked havoc on the betting industry. The three main London-listed players – Paddy Power Betfair owner Flutter, William Hill and Ladbrokes parent GVC – have almost lost a combined £7bn in market value in the last month alone.
All three companies issued massive profit warnings last week, saying the pandemic could, in certain scenarios, slash full-year earnings in half. But as firms attempt to move customers online and into more niche markets, there is speculation that the industry could look quite different once it comes out the other side of the crisis.
Gavin Kelleher, a leisure analyst at Goodbody, says 2020 will not be about profitability for bookmakers, but rather about what a company’s monthly cash burn is and how many months it can survive without core revenues.
Global sports betting generates the largest chunk of sales for most firms. Last year, it accounted for four-fifths of Flutter’s total revenues and just over half of William Hill’s. They estimate restrictions on sporting events will remain in place until the end of August.
Bookies are trying to fill some of this gap by promoting trades on alternative markets such as so-called “secondary sports”, e-sports and online casinos.
Kelleher says the problem with trying to boost revenues through obscure sports is that companies don’t have a knowledge of trading these events, so won’t allow punters to place large bets.
“If I’m a betting company and I see a big bet come in on Myanmar under-23s football, I’m not going to take it because I’m going to be worried that I’m
missing something here,” he says. E-sports has similar limitations. While Paddy Power Betfair is offering odds on its novel “Fifa Quaranteam” tournament, Kelleher says operators will be careful because they don’t want to “risk the wrath of the government” by pushing people into things they shouldn’t be betting on.
“If operators are caught breaking the rules, they risk big fines, and they can’t afford big fines at the moment.”
Online casino games offer a better source of mitigation. Already, 888 and Playtech – two online-focused firms that do not rely heavily on sports fixtures – have reported an uptick in activity in their casino and poker products in recent weeks.
Ivor Jones, an analyst at Peel Hunt, says 888’s current trading demonstrates the resilience of its business model during an uncertain period. Unsurprisingly, traditional bookmakers are also looking to encourage customers to play similar online games in an attempt to shore up lost revenues.
However, authorities are concerned that the crisis could push people into problem gambling.
Labour MP Carolyn Harris, who is chairman of the all-party parliamentary group on gambling harm, says: “People who have never gambled may turn to online gambling as a distraction. And people who have been trying to avoid gambling sites – recovering problem gamblers – will go back.”
The UK Gambling Commission also issued a warning this week, reminding online operators that they must continue to act responsibly as more people stay at home due to the pandemic. Harris and two other MPS have called for firms to self-impose a £50-a-day betting cap during the crisis to “mitigate some of the consequences of people being home and bored”.
The proposal has received a cool reception from industry bosses. Michael Dugher, chief executive of the Betting and Gaming Council, says regulatory changes such as caps should only be looked at as part of the Government’s review of the Gambling Act.
“These three prominent anti-gambling MPS have floated this idea, but I don’t know where they’ve plucked that figure from,” he says. Dugher, a former shadow culture, media and sport secretary, adds that the BGC and its members are upping measures to promote safer gambling, such as encouraging customers to set deposit limits.
Meanwhile, as revenues slump and liquidity dries up, the industry could be set for further tie-ups, according to Kelleher: “When you see a market dislocation like this ... it’s likely to lead to another round of consolidation.”
Before the crisis, Flutter had agreed to acquire Sky Betting parent Stars Group for £10bn. However, it is still being investigated by the watchdog.
Betfred owner Fred Done has also recently built up a 4pc stake in William Hill – the big-three firm with the weakest cash position – prompting speculation about a potential takeover.
At the moment, however, most companies will be concentrating on maximising sales with alternative markets.
Many punters will stay at home this weekend, mourning the suspension of live sport. Betting firms will be hoping that the clash between Chinandega and Managua in Nicaragua and virtual roulette will keep at least some interested.
‘If I see a big bet come in on Myanmar under-23s football, I’m going to worry that I’m missing something’