The Betting Industry

Betting industry tear sheet
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Overview and Outlook:

The UK betting industry is a mature market that has been under increasing regulatory pressure in the last few years. Therefore, many betting companies are seeking alternative growth opportunities, especially in the online segment and the US, who passed a bill in 2018 allowing for state by state legislation of sports betting, having been available only in Nevada. Generally, operating in the industry generates high levels of cash flows and requires no inventory- assets are mostly intangible. Return on invested capital is also at much higher levels than other more asset-heavy industries. As such, the best performing stocks should be the ones that secure good access to the US market, while developing new online platforms and products.

UK regulation:

Remote gaming duty (RGD) increased from 15% to 21% in 2019.

Credit card ban on all gambling and placement of bets in UK from April 2020.

Fixed odds betting terminal (FOBT) stake limit of £2, reduction from £100 in mid-2019. This caused many betting companies to shut many of their high street shops.

Implementation of £2 online stake limit in advanced talks currently- likely to come into effect later this year or early next year.

These headwinds and a mature market mean that the UK market is not a focal point for business growth for betting companies.

Covid-19 Impact:

The suspension of major sports leagues due to Covid-19 in March brought the sports betting industry to a complete standstill and caused stock prices to plummet. Fortunately, the disruption proved to be temporary as major sports leagues in Europe resumed in June. The disruption has also accelerated the shift from the retail to online betting and gaming, as gamblers adjust their ways. The means that even more high street betting shops will shut soon.

Landscape of the US market:

As of 2018, there are commercial casinos in 24 states, gross gaming revenue was $41.68 billion in 2018, a 3.5% increase on 2017. NJ first to legislate sports betting following the bill in 2018. As many as 15 followed by the end of 2019. Full analysis in separate document. CA, FL & TX are key due to their large populations and therefore have massive revenue potential.

Top pick:

Flutter entertainment plc- largest betting company in the world. Very strong access to US market- secured first skin access to online market in 18 states including CA. Business also operates in Australia. Mainly grows inorganically- has acquired strong brands such as Fanduel in US. However, its main risk is the debt it took on from its recent acquisition of the Stars Group- but otherwise outlook is stable.

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