Gaming or Gambling Insight

Hi all - wondering if anybody has any experience or knowledge of the industry they could share? I’ve been doing some research & I’m particularly drawn to the high margins & sticky revenue but the industry also seems to be coming under increasing regulation & scrutiny.

Anything will help me here, thanks

I have had the “pleasure” of working within the online side of this industry for the last 18 years (Ladbrokes, Sportingbet & GVC/Bwin). It’s quite a complicated and dynamic environment at the moment, but I’ll try to answer your questions as best I can. So, what would you like to know?

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Thanks! Specifically I’m interested in:

  • how cyclical the industry is?
  • how big & important bet365’s competitive advantage is
  • how must investment is needed in the business. I know most of the revenue is online based now where margins are high but if infrastructure is old, then margins will erode

Thanks again!

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Ok, here goes…

  • how cyclical the industry is?
    When times are good people bet for fun and the buzz, when times are bad people bet to try to make money, people just bet! Sports betting revenue expectations and budgets go up a bit for the years when we get a football World Cup or European Cup, but generally speaking any well run company should be able to maintain growth year on year. There are also people all over the world turning eighteen every day and so there are potential new customers appearing every day.

  • how big & important bet365’s competitive advantage is?
    Bet365 are a giant of the industry and for good reason. Early on they focussed on the right things and delivered on them very well. Bet365 are competitive and growing, but the online side of the industry is now global and so it’s more than big enough to maintain a number of big operators. The other large operators have also lifted their game during the last few years and are much more competitive.

  • how must investment is needed in the business. I know most of the revenue is online based now where margins are high but if infrastructure is old, then margins will erode
    Any 24/7 global high availability/large product offering operator does need to have very high end IT kit to run the desktop & mobile sites/app’s from. However, costs are coming down and the operators do ensure that they maximise the value that they get from all of this. You also need a very skilled and experienced 24/7 IT team to run this kit as any downtime can be very expensive in terms of lost opportunity. IT req’s for a start up or small operator can be prohibitive, but once an operator has reached critical mass then the IT budgets are manageable. As the market continues to get more competitive then margins are becoming a lot smaller than most people would imagine. However, if you’ve got a large enough group of regular customers then the revenue numbers can be very good.

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Hi Mat, would be interested to hear your thoughts on Playtech which seem to have a strong market position across different gambling products and channels yet trading at an attractive valuation at the moment.

I’ll start by saying that I’ve never worked directly with Playtech but I do know a few people that work there, and/or that have worked with them.

Personally, I’m a bit wary of Playtech as I hear very mixed views from people regarding their experiences of working with them. They are a reasonably big capable company that makes decent money, but they don’t seem to be making the splash within the industry that they were a 5+ years ago. I would also say that as the online operators continue to consolidate, retail betting shops start to close, and more gaming aggregator platforms compete for contracts with less/smaller operator businesses, then it feels like they are potentially going to struggle a bit to grow at the rate that they were a few years ago.

I haven’t done any detailed analysis but I would say that Playtech shares are currently looking cheap and so there might be a bit of upside in them. However, always do your own analysis prior to buying any shares, etc. :wink:

Onwards and upwards.

Matt

Thanks for this, appreciate the detail. Confirmed a lot of my thoughts so I appreciate you taking the time on this!

William Hill will report in a few weeks too so I’ll watch that closely. Any specific thoughts on Wiliam Hill?

Ok, you want to know about Hill’s…

Again, these are just my personal views and so please do your own analysis, etc.

Strengths
Good trusted brand in UK
Recent US offline business showing very good progress
Recent acquisition of Mr Green business could open up international growth online
Online casino does well

Weaknesses
FOBT stake changes will have a very negative impact on the UK retail bookmaker shops. Hill’s will be hit hard by this.
Web site is currently quite poor in comparison to competitors. Mobile app is ok.
Poor international online growth to date, has been very UK focused in the past.

Opportunities
US offline business expansion looks very interesting and could be huge
US online business expansion is on hold for now until the law is confirmed
UK online business could be grown if the web/mobile products are improved
International online business could be grown significantly if they decide to focus on it

Threats
UK retail business restructuring/close down will cost a lot and distract the management team
Reg’s for UK online business are tightening up a lot and could impact current revenue levels and growth

Personally, I think that Hill’s have sleep walked into the current UK market issues and that they will be hit very hard by it. The US offline growth could be good in years to come, but will need time to build. International online I would like got see grow, but I’m not sure if this will be a priority for them. I would have thought that next year will be poor for them due to the UK retail shut down (expensive), and that this could lead to them becoming and M&A target for someone to buy.

Matt

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Thanks for this - based on results this morning I’m hopeful that they’ve now turned a corner!