As the repercussions of the Remote Gambling Duty increase from April begin to settle, operators in both online and land-based sectors of the UK gambling market are reassessing their strategies and financial frameworks.
During iGB Live's M&A Summit in July, Ollie Woodward, a director at BDO Corporate Finance, observed that operators are primarily focusing on the sustainability of their player bases. Recent moves in the industry reflect this trend, notably with Entain announcing a major restructuring that could see a reduction of up to 500 jobs globally. However, Entain clarified that this restructuring was not a direct consequence of the recent tax hike.
On the flip side, Bally's Intralot is viewing the tax hike as a strategic opportunity, having recently acquired Evoke amidst its reported challenges related to the tax increase. Robeson Reeves, CEO of Bally's Intralot, indicated that the acquisition aligns with the company’s European expansion ambitions and is a step forward in bolstering their market presence.
Restructuring and M&A strategies have become increasingly important for operators facing the difficulties of the current UK market. Woodward noted that evaluating workforce and technology has become a central theme in discussions among gaming businesses.
"Client discussions have shifted to evaluating how to assess and optimize our cost base. Many clients believe that maintaining strength during this period will position them well for market opportunities, as smaller players struggle to adapt to the tax changes," Woodward stated.
He pointed out that the tax hike coincides with a broader industry trend toward scrutinizing operational costs, especially as larger players explore ways to enhance their efficiency. "Some established companies are critically assessing their personnel and technology to uncover potential margin improvements," Woodward added.
Currently, BDO's M&A team is engaged with about five or six UK gambling firms that are navigating significant transactional processes across both B2C online and land-based operations, as well as the online supplier side. Many of these firms are seeking expansion opportunities outside the UK, especially in regions like Alberta, Canada, where the online market is growing.
Another point of focus following the RGD hike is the evolution of player cohorts. Operators are now analyzing metrics such as return-to-player (RTP) rates and overall marketing strategies, recognizing the pivotal role these factors play in ensuring the enduring sustainability of their earnings and player engagement. Although the tax increase has placed pressure on industry margins, Woodward observed an overarching sentiment of resilience and optimism among clients as they seek solutions to mitigate financial stress.
At the BDO M&A Summit, Woodward underscored the critical nature of accurately reporting regulated versus unregulated revenues in today’s M&A environment. Selling firms must be transparent about their revenue streams, as buyers are increasingly interested in highly regulated opportunities.
Prominent industry names, including Bet365 and Yolo Group, have begun to exit or downscale black and grey market operations in recent years. In discussing the challenges of reporting unregulated revenue during due diligence, Woodward explained, "Companies often ask, 'From a legal and structuring perspective, can we ring-fence these operations if we're navigating a sale or a carve-out?'" He added that separating operations can be complex, especially when companies do not report key performance indicators at a granular level.
In response to the current M&A climate, regulated revenue streams are seen as far more appealing. "Regulated revenues create ease of exit and command higher valuations. Many large operators are transitioning towards having at least 90% of their revenues regulated," Woodward remarked.
From a reputational standpoint, operators with a history of unregulated revenues are not automatically excluded from negotiations, according to Woodward. The perception largely hinges on the nature of their prior activities. For instance, companies that operated in grey markets with prior regulatory compliance may be evaluated differently compared to those involved in illegal markets. Woodward concluded by noting how critical it is for stakeholders to understand the rationale behind management decisions regarding market operations and compliance as the industry evolves.
