Ladbrokes Owner, Entain, raises lower end of its forecast
Despite tougher regulation expected in the UK, Entain is buoyant about its future and has raised its predicted lower-end profit forecasts. The gaming and entertainment group reported earlier this week on its trading from 1st October to 31st December 2021. It has raised its lower-end forecast to between £875 million and £885 million. It had previously been predicting £850 million with a top range of £900 million.
Despite tougher regulation expected in the UK, Entain is buoyant about its future and raises its predicted lower end profit forecasts. ©Ronile/Pixabay
What has brought about this confidence
Some commentators have been predicted tougher times ahead for the UK gambling industry. However, high street shops opened up again post lockdown and despite ongoing public health measures, Entain report that footfall is returning to previous levels. In addition, the company saw a surge in online gambling activity across all territories apart from Germany where new gambling laws have been introduced, meaning players are restricted as to how much they can deposit and gamble on the online slots. It is really the US market that has bolstered the company’s positive outlook. In the States, the group has a joint venture called BetMGM with the MGM casino group.
This element of the business is not expected to turn a profit until 2023 as the cost of entry is enormous. The recently opened up US markets, including New York, have hefty licensing fees and very high taxes on revenues. In addition, the marketing costs will be enormous. However, the US is seen as a massive growth market with New York being a particular focus for the online casino companies to get a foothold in.
Jette Nygaard-Anderson, CEO of Entain has said:
“2021 has been a successful and eventful period for Entain, and our market-leading platform has driven another year of strong, sustainable, and diversified growth. All of our major markets have performed well. BetMGM, our hugely exciting business in the US, has been a particular highlight with FY21 net gaming revenue ahead of expectations and an upgraded outlook for 2022.”
Source: Q4 Trading Update – Entain
It will be interesting to see how things pan out between Entain and MGM as analysts consider there is a possibility that MGM will try and buy out Entain’s share of the joint venture or even attempt another takeover of them. A year ago in January 021 MGM offered £8bn to buy out Ladbroke’s owner. The offer was rejected after Entain said that the offer seriously undervalued the company
Why are betting companies looking to USA
The more mature European markets are beginning to come under much more scrutiny from their legislators while new, formerly restrictive markets are starting to open up. Since the introduction of the Gambling Act in 2005, the UK has been a lucrative market for the gambling industry. It is expected that a white paper will be brought to Parliament in the spring which will lead to a tightening up of regulations, stake sizes, and betting frequency. The anti-gambling lobbyists hope that this will address issues with problem gambling but the industry is worried that it will simply drive the problem underground or to the black market.
Pre-emptive action
The industry is hoping that pre-emptive action will soften the requirements of a legal overhaul. The industry is working together with legislators to ensure new regulations are not too heavy-handed. In 2018 the Government cut the amount that could be staked at a fixed-odds betting terminal from £100 to £2. The UK Government is now considering a similar approach to the online world.
Other possible regulations might include limits on customers’ deposits and pre-play check-ups on what customers can afford to bet. The UK gambling market is worth £13 billion a year and this includes the largest regulated online market in the world. Entain is aware that crackdowns in Germany and Netherlands have affected profitability this year.
They have developed an Artificial Intelligence program that identifies problem gamblers early from their depositing patterns and reduces the chances of them becoming ‘high risk’. The program is said to have had a 90% success rate . Meanwhile, Flutter has introduced measures like limiting maximum stakes and a monthly deposit limit of £500 for the under 25’s.
People who want tougher crackdowns are concerned that problem gamblers will simply move from one company to another if the rules are not consistent across all providers.
New Opportunities
The US market, however, is only just starting to open up to the online activity. The USA has had a chequered history with gambling being famous for both total prohibitions and being home to the most glamourous gambling resort in the world, Las Vegas. The gambling companies know that there is a huge appetite for their games and slots across The States. In 2018 a federal ban on sports and online betting was overturned. Sports betting is now legal in 30 states and 18 now offer online gaming.
This is not the only new opportunity that Entain has in its sights. It has put aside £25 million to invest in diversifying its business model with new opportunities including a new esports betting business opening up this year.
Entain will need to keep looking for new opportunities. The last couple of years were strong for online casino operators as bored punters turned to gambling on the internet. They will now need to try and maintain that market and interest levels as more entertainment options become available in a post-pandemic world.
