During Entain's Q3 earnings call on Thursday, CEO Stella David expressed confidence that Brazil's gambling market will reopen, following a recent ban issued by President Luiz Inácio Lula da Silva. This provisional measure, implemented in late September, has temporarily halted licensed gambling operations in Brazil, impacting companies like Entain that operate under the SportingBet brand.
The provisional ban is pending a vote in Brazil's Congress, which will determine its permanence. Amid this uncertainty, Brazil's Supreme Federal Court is under pressure to overturn the ban, which has left numerous local employees without jobs.
David suggested that the market could reopen with restrictions, possibly allowing only sports betting. "Clearly, we don't know exactly what's going to happen. At the moment, the provisional measure is for 120 days. At that stage, it either gets ratified, changed, or revoked. We are planning for multiple potential scenarios," she said during the earnings call. Describing her best guess, she added, "I think the market will reopen in some form or another, and we will be back there."
Entain reported a 36% decline in group net gaming revenue (NGR) from Brazil during the third quarter, attributing this drop to ongoing challenges and marketing adjustments prior to the gambling ban imposed on September 25.
David also emphasized a balanced approach as the company contemplates returning to Brazil, stating that before the ban, Entain prioritized investing in the right customer segments rather than pursuing short-term volume increases. "The fact that the market can be closed down with no notice does put you at a degree of risk, so taking a sensible approach is crucial," she added.
In August, both David and CFO Michael Snape noted that Entain's NGR in Brazil for the first half of the year was down 25% on a constant currency basis, reflecting unfavorable sports margins in Q1. Snape had characterized the Brazilian market as "incredibly difficult and unpredictable" and mentioned the company's cautious strategy for investment in that region.
As the company waits for regulatory clarity, David indicated an intention to prioritize profitable growth and leverage SportingBet's strong brand presence. "SportingBet has been around a long time in Brazil, and it's predominantly a sports brand that's about 70% sports. If the market came back and it was sports only, then I think we'd be well set for that," she explained.
The CEO acknowledged that the ban could affect profitability, predicting that the company's full-year EBITDA would likely land at the lower end of its £910 million to £960 million forecast, but outside Brazil, they expect online NGR growth for FY’26 at 5-7%.
In contrasting developments, Entain's online NGR from the UK and Ireland grew by 14% during Q3, surpassing expectations, despite unfavorable sports outcomes. Overall, the group's NGR increased by 2%, with online NGR rising by 3%, and 5% if Brazil is excluded. David attributed UK and Ireland's market share gains to enhancements in their brands and digital products, highlighting a refreshed Ladbrokes app that has performed well in benchmark assessments.
Regarding fiscal policies, David commented on potential increases to the UK's machine games duty (MGD), which may double to 40% in the upcoming Autumn Budget. She cautioned that a tax increase could lead to more betting shop closures and job losses, reducing overall Treasury revenues. David emphasized the importance of raising awareness about how excessive gaming taxes could harm an already struggling retail sector.
Despite these challenges, David expressed confidence in Entain’s ability to adapt. "We are, I believe, the best retail operator in this space. When there's any disruption, we are well-versed in how to deal with that. We’ve got the most motivated staff, the most compelling footprints, and we understand our operations thoroughly. If tax hikes occur, we would likely gain market share in retail," she stated.
