During Entain's Q3 earnings call on Thursday, CEO Stella David expressed optimism about the potential reopening of Brazil's regulated gambling market, recently impacted by a ban from President Luiz Inácio Lula da Silva. The ban, enacted through a provisional measure in late September, halted licensed gambling operations, including those of Entain's SportingBet brand.
The provisional measure is currently pending a vote in Brazil’s Congress, which will decide its permanence. In the meantime, Brazil's Supreme Federal Court is facing pressure to overturn the ban, which has left many local workers jobless.
David suggested that the market might reopen, possibly limiting regulations to sports betting. "Clearly, we don’t know exactly what’s going to happen. At the moment, the provisional measure is for 120 days, at which stage it either gets ratified, changed, or revoked, and so we are planning for multiple potential scenarios. But ask me for my best guess. I think the market will reopen in some form or another and we will be back there," she stated.
Entain noted a 36% decline in group net gaming revenue (NGR) for Brazil in the third quarter, attributing this to "disciplined marketing and player engagement in an increasingly challenging market," prior to the ban instituted on September 25.
David outlined a cautious approach to re-entering Brazil, emphasizing that Entain had already adopted a pragmatic strategy prior to the ban. She stated, "We were already taking what we would call a pragmatic approach to making sure that we were investing in the right sort of customer and not chasing volume at any cost."
In previous reports, David and CFO Michael Snape indicated that Entain's NGR in Brazil experienced a 25% drop in the first half of the year, citing a "highly adverse" sports margin. Snape had characterized the Brazilian market as "incredibly difficult and unpredictable," while expressing hope for recovery in the latter half of the year.
Referring to SportingBet’s brand strength, David emphasized the company’s focus on profitable growth as it awaits regulatory clarity. "I can’t predict what’s going to happen, but our brand SportingBet is a great brand. It’s been around for a long time in Brazil, predominantly a sports brand that’s about 70% sports. So if the market came back and it was sports only, then I think we’d be set for that."
David acknowledged that the current betting ban could affect profitability, forecasting that Entain’s full-year earnings before interest, taxes, depreciation, and amortization (EBITDA) would likely fall at the low end of the £910 million to £960 million range.
Despite the challenges in Brazil, the company reported a successful Q3 in the UK and Ireland, with online NGR rising by 14%, along with a 15% increase in volume despite challenging sports results. Overall, group NGR saw a modest 2% increase, with online NGR growing by 3%, and 5% excluding Brazil.
David highlighted that customer offering improvements significantly aided market share gains. "We have been doing a lot of initiatives to improve our customer offering," she noted, referencing enhancements made to the Ladbrokes app and service standards that were developed over the past 18 months.
Looking ahead, David discussed the potential doubling of the UK’s machine games duty (MGD) as a significant concern, warning that such increases could lead to accelerated betting shop closures and job losses. She pointed out that over 630 betting shops have already closed in the past year, and an increase could result in approximately 1,500 additional closures and around 16,000 job losses.
David stressed that increasing the gaming tax would undermine an already struggling high street environment, reinforcing the company’s commitment to ensuring that the repercussions of potential tax increases are clearly communicated.
On a positive note, she asserted Entain's resilience, saying, "We are the best, I believe, by far the retail operator in this space… if there were to be an increase in taxes, we would be a relative winner in the fact that we would gain market share in retail."
