In the aftermath of the April increase in Remote Gambling Duty in the UK, online and land-based gaming operators are reassessing their market strategies and cost structures.
At the recent M&A Summit held during iGB Live in July, Ollie Woodward, a corporate finance director at BDO, noted that many operators are primarily focused on ensuring the sustainability of their player bases.
Last week, Entain announced a considerable restructuring plan that may lead to up to 500 job cuts worldwide. Despite the scale of the changes, the company clarified that this restructuring was not a reaction to the new tax increase.
On the other hand, Bally's Intralot is viewing the tax hike as a strategic opportunity. They recently acquired Evoke, which had been facing challenges, including those posed by the tax hike. Bally's Intralot CEO Robeson Reeves stated in April that this acquisition would bolster the company's expansion across Europe.
Restructuring and mergers and acquisitions have taken center stage for operators assessing the current UK market conditions. Woodward revealed that BDO’s gaming M&A team is particularly busy with ongoing discussions among five to six UK gambling firms engaged in significant transactional activities across both the B2C online and land-based sectors, as well as among online suppliers.
The necessity to reevaluate people and technology is becoming more pressing. Woodward explained, "Client conversations have evolved to 'how do we look at our cost base and right size that?' It's a balancing act, and many operators believe that if they can remain strong during this period, there will be opportunities from smaller players who might struggle with these tax changes."
With the tax hike coinciding with an increasing emphasis on technological efficiency, larger operators are examining how to evolve and optimize their workforce and technology for cost benefits.
Woodward highlighted that operators are also analyzing how their player cohorts may change over the next year in a post-RGD hike environment. Key metrics of interest include return-to-player (RTP) rates, marketing strategies, and overall expenditure. He observed, "Ultimately, it comes down to the sustainability of your earnings and your player base."
While the Remote Gambling Duty increase has undeniably put pressure on sector margins, Woodward noted a general sentiment of resilience and optimism among clients as they explore strategies to mitigate this impact.
At the iGB Live M&A Summit, Woodward elaborated on the critical importance of differentiating between regulated and unregulated revenues within the current M&A environment. For sellers, accurately reporting unregulated revenue is crucial, as buyers are increasingly favoring companies with highly regulated income streams.
Major industry players such as Bet365 and Yolo Group have been reducing their involvement in unregulated or grey market activities over the past year. During a Q&A at the summit, Woodward indicated that companies must consider how they can legally separate unregulated operations when pursuing a sale or divestiture.
"Otherwise it becomes very difficult to separate those operations," he cautioned. Woodward also expressed concerns that many businesses are not adequately tracking their Key Performance Indicators (KPIs) to facilitate clear reporting.
In today’s gaming M&A landscape, regulated revenues are drawing significant interest due to their potential for higher exit multiples. Woodward explained, "A lot of the big groups are moving towards either 90 plus percent regulated or at least soon to be regulated, creating a noticeable divergence within the operator landscape."
From a reputational standpoint, having a history of unregulated revenue does not automatically disqualify a company from potential deals. Woodward noted that the context in which those activities occurred is essential. For instance, operators who moved into regulated markets after having previously operated in grey areas may be viewed more favorably compared to those involved in outright illegal activities. He concluded, "People are keen to understand management decisions regarding those markets and how operators reacted when they eventually became regulated."
