10 November, 2021

Operating at Scale

David Brohan, Gaming & Leisure Analyst at Goodbody, says 888 Holdings’ acquisition of William Hill’s international assets highlights the trends dominating today’s gambling market

We are currently experiencing a truly exciting time for the gambling sector. The shift to online gambling continues to accelerate at pace following the Covid-19 pandemic, and the leading players are increasingly recognising the importance of having a robust online offering, ultimately enabling them to operate at scale.

These considerations were clearly at play in 888 Holdings’ recent acquisition of William Hill’s non-US international assets from Caesars Entertainment. The deal is a perfect indicator of the trends dominating the gambling landscape, and the acquisition is set to have a notable impact both on the wider market and the opportunities it provides for 888 going forward.


Achieving scale outweighs short-term drawbacks

If we look closer at the financial elements of the acquisition and its implications for 888, it is clear that the monetary benefits arising from the deal will far outweigh current investor concerns. While the leverage will be high for the group immediately post-completion, the increased scale means that the acquisition will be highly cash generative, enabling 888 to deleverage quickly and regain a stable financial footing.

In the longer-term, the business will benefit from access to transformational opportunities, including improved market share positions and greater-than-anticipated cost synergies due to the fact that 888 owns its own technology. There is additionally increased exposure to the sports vertical, which can create cross sell opportunities throughout the group’s verticals.  


Potential for geographic expansion and prime market share

Online gambling is an industry where scale is key. While 888 as a standalone business has grown significantly in recent years, this acquisition places it in a very strong position as one of the leading operators. The deal would mean 888 now sits within the top three operators in the UK and Spain, and in the top five in other key markets including Germany, the Netherlands, Denmark and Ireland.

The enhanced scale and diversification the deal delivers would enable 888 to further invest in the US and other additional growth markets, allowing the group to take prime market share through geographic expansion. For instance, it expects to launch in 2-4 US states a year, targeting a market share of 3-5% in each of the states they are active in. 888’s expansion in turn would reshape competitor market share within the industry, placing it in fourth place behind Flutter, Bet365 and Entain, but ahead of peers such as Kindred Group and Betsson.


Balancing online with retail

UK retail has undoubtedly suffered a massive revenue hit due to the multiple Covid-19lockdowns over the past 18 months. Therefore, one of the main concerns investors have had about acquiring William Hill’s international assets was the performance of its online business. In 2020, online revenue grew by just 8%, significantly below 888’s growth of 52%.

However, a lot of improvements have been made to this part of the business and its online platform is now starting to bear fruit, as evidenced in its performance for the first half of this year – with revenue growing by 38%. This puts the group in a strong position to mitigate any negative headwinds that may arise from UK online regulatory change.

However, with the pandemic easing, there are still a number of benefits from having bricks and mortar stores, not just for 888 but for other players in the sector looking to scale up their omni-channel offering. Consumer demand for in-person gambling has seen strong momentum since the reopening and easing of restrictions. Also, should advertising restrictions be introduced into UK online gambling, storefronts may prove to be a valuable advertising asset. So long as operators are able to secure short average lease lengths for their stores to ensure flexibility, we expect to see many groups retaining their presence on UK high-streets.