We are at a turning point in history, not dissimilar to the end of prohibition. An unprecedented opportunity for gambling companies to capture massive new markets. If you read my previous article, you will know how the UK gambling market is projected to earn £2b ($3.04 billion U.S.) this year. This article will concentrate solely on UK based gambling organizations, but with reference to how they may be affected by the change in US gambling laws.
|William Hill plc||OTC:WIMHF||3,204.42M||15||29.4||11.2|
|Bwin.party Digital Ent. plc||OTCPK:PYGMF||1,161.94M||25||12.4||1.72|
|888 Holdings plc||OTCPK:EIHDF||584.11M||25||8||0.6|
|Betfair Group plc||OTC:BTFRF||728.59M||17||33||11|
All figures are in Sterling (GBP).
William Hill plc employs more than 17,000 people. Founded in 1934, it is now the UK's largest bookmaker with more than 2,390 licensed betting offices (LBOs) that provide betting opportunities on a wide range of sporting and non-sporting events. William Hill Online is one of Europe's leading online betting and gaming businesses, providing customers with the opportunity to access William Hill's products via the internet, through their mobile, by telephone and by text services. The group generated revenues of over £1.2bn ($1.82 billion U.S.) in 2012.
In 2012, William Hill US was formed and subsequently granted a gaming license by the Nevada Gaming Commission. They have now incorporated three land based sports betting businesses; American Wagering, Inc., Brandywine Bookmaking LLC and the racing and sportsbook assets of Sierra Development Company, trading as Cal Neva. They are also the exclusive risk manager for the State of Delaware's sports lottery and the Marriott hotel in St Kitts.
In a recent announcement by the CEO, Gareth Davies, he wrote;
We believe William Hill US combines the operational strength of the existing management teams with our brand, greater ﬁnancial strength and extensive product offering, and ensures we are well-placed to capitalize on potential regulatory changes in the US.
Ladbrokes plc operates in five segments: UK Retail, European Retail, Digital, Core Telephone Betting and High Rollers. It operates approximately 5000 LBOs in Great Britain, Ireland (North and South), Belgium and Spain. The Digital segment is engaged in betting and gaming activities from online and mobile operations. The Company's Core Telephone Betting segment is engaged in activities relating to bets taken via the telephone. There is the High Rollers segment which encompasses activities relating to bets taken over the telephone from high net worth gamblers. The group's revenue was over £1bn ($1.52 billion U.S.) in 2012.
Ladbrokes owns 65% of Stadium Technology Group, a Las Vegas-based supplier of software and in-game betting applications to sportsbook operators. They recently announced to extend their relationship with Playtech, a provider of digital, and online technology. Playtech will be creating a new head office, based in Israel. The move will help Ladbrokes with their online services.
It appears that Ladbrokes will concentrate on expanding their retail based betting operations (LBOs) in Europe, with their online activities pursued with less vigor. I'm sure that with the right US legislation in place, Ladbrokes could easily move up a gear.
Bwin.party digital entertainment plc operates in six segments: sports betting, casino and games, poker, bingo and unallocated corporate (including World Poker Tour, InterTrader.com and the payment services business). The sports betting segment includes bwin, Gioco Digitale, betoto and Gamebookers. The casino and games segment includes PartyCasino, bwin and GD Casino. The poker segment includes PartyPoker, bwin and GD Poker. The Bingo segment includes Foxy Bingo, Cheeky Bingo and Gioco Digitale. There are subsidiaries engaged in management and information technology services, marketing services, online gaming, transaction services, customer support services, marketing support services and land-based poker events. The group generated $609 million from its online business last year.
Party Gaming had been a major player in the US with its Party Poker brand, but in 2006 the successful game had to be closed due to new laws. Party Gaming is now incorporated into the enlarged group. Revenue for Party Poker is significantly down since regulation. Now that the US is about to legalize gambling once more, they are endeavoring to strategize their resurgence. Bwin.party has formed numerous alliances with MGM (NYSE:MGM), Boyd (NYSE:BYD), Zynga (NASDAQ:ZNGA), and the Thunder Valley Casino Resort in California.
In reference to the US strategy, they have stated;
Through our existing partnerships, we remain well-placed to take advantage of these intra-state opportunities, should the requisite legislation become law.
888 Holdings plc provides a range of virtual online gaming services via the Internet to the public. It is also actively engaged in providing solutions to third parties via Dragonfish. The business to consumer (B2C) offering which provides casino, poker, bingo, 888 Sportsbook, Live dealer offering and games to the public. Dragonfish offers to its business partners use of technology, software, operations, e-payments and advanced marketing services through the provision of offline/online marketing, management of affiliates, search engine optimization, customer relationship management and business analytics. In 2012, revenue was $376m. They have no debts and $82m in cash.
888 is the first online gambling company to be awarded a licence for gambling in the US. The state of Nevada gave the go ahead, and 888 have stated that they plan to launch an online service in May.
They have created a joint venture with Treasure Island of Las Vegas, WMS Industries (NYSE:WMS) and Caesars Entertainment (NASDAQ:CZR) in order to provide an online poker tournament. In a separate deal, they have partnered with Facebook (NASDAQ:FB) to add Bingo, casino and slots to the Facebook UK gambling portfolio.
888 plc 5 year chart (click to enlarge)Click to enlarge
Betfair Group plc is an online betting and gaming operator. The company's segments include Sports, Games, Poker, Management of customer funds, Other investments, Betfair US, LMAX and High rollers. Sports consists of the Exchange sports betting product, which offers markets on racing, football and sports and specials, plus multiples, tote, timeform and sportsbook. Games consists of various casino products and bespoke exchange games products. Other Investments include the LMAX Group and its United States operations (including the TVG Network). LMAX, Betfair's financial trading business which operates a similar model and earns revenue by charging commission on each transaction on its platform. In addition, it offers pooled or tote-style sports betting products, acting as an agent for the pools providers and earning a commission on stakes placed. In January 2012, the company acquired an additional 24.92% interest in LMAX. The group generated £389.7 million ($591 million U.S.) in 2012. Betfair is debt free, and has £135 ($205 million U.S.) million in cash.
Betfair, through its wholly owned subsidiary, TVG, has a provisional betting exchange license in California. There are hopes that this license will be fully operational shortly. If this does happen, it may give a boost to the faltering horse racing sector. For this reason alone, it stands a good chance of being successful. This would give a substantial lift to their share price.
All charts courtesy of Google Finance.
It's a waiting game
I am looking to go long Bwin.party for the impending Zynga UK RMG launch, as I feel this could provide a 10% or 20% gain on today's price. There has been a lift in previous months due to this and US de-regulation optimism. The recent pull back presents an opportunity.
For the longer term, there is real potential for all these companies to be impacted if the US gambling laws are relaxed, with maybe 888 and William Hill having the greatest potential. Bwin.party is the largest provider of internet based services at the moment, but it could change. One thing is certain though, these companies are all bustling for the best positions at the starting gate. It will be interesting to watch how the race pans out.
I haven't gone into too much detail with regard to specific valuations and projected earnings for each company. That is for another time. I am not certain of the level of interest US investors have for London based stocks anyway. Suffice to say, there is an unprecedented opportunity for the gambling sector - given the rise of internet based services, and the ease, and user friendliness of games. With the possibility of tens of millions of potential users ready to be converted, the earnings could be incredible.
If you are of the opinion that the US will legalize gambling in one way or another, you may consider one or all of these companies for your portfolio. There will be currency exchange rates to consider, and possibly extra costs. Alternatively, you could trade these companies via the Pink sheets. The pink listings are secondary to their FTSE listings, and may not have enough liquidity to trade, but long term may be worth considering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.