iGB Intelligence reports iGB-Market-Monitor-May-2020-proof4 | Page 6

Part 1: The UK – Covid-19 compounds contraction Part 1: The UK – Covid-19 compounds contraction The crisis for the UK gambling sector caused by the Covid-19 pandemic and the subsequent near-total global shutdown of sport has been stark. The most recent figures we have from the Gambling Commission, for the year to March 2019, show that online betting in the UK, including betting exchange activity and pool betting, totalled £2.03bn. Broken down into a crude monthly historically based figure, we can estimate that in the month since big-time sport was cancelled across the board, the industry has ‘lost’ up to £160m in GGY (depending of course on replacement activity into either the minor sports available, esports, virtual sports or other forms of gaming). As analysts at RBC Capital Markets said in early April, just as Covid-19 began to impact sporting activity: “If there is no sports content, it follows that there will be significantly decreased sports revenue with perhaps just a small amount coming in from the likes of esports and some non-mainstream Chart 1: Percentage of 2019 revenue from sports betting for selected operators 100 80 60 40 20 0 78% 45% 53% Flutter GVC William Hill Source: Company reports 34% The Stars Group international sports such as sumo wrestling.” While there is some hope that some major football will return in mid-May, notably the German Bundesliga, and towards the end of the month a limited programme of UK horseracing, it is likely that the leakage in terms of lost revenue will continue well into the early summer. The pandemic has come at a time when the UK market was already seeing signs of a potential contraction. According to data from the UK Gambling Commission, UK online betting, excluding betting exchange activity and pool betting, fell back by 11% between 2017/18 and 2018/19 to £1.83bn. Meanwhile, a handful of market failures at the lower end of the scale – MoPlay being the most prominent – suggests that the consolidation at the top of the market is squeezing the opportunities further down the ladder. The RBC analysts suggested the leading lights of the UK-listed sector – GVC, Flutter (and the Stars Group) and William Hill – will be best-placed to take advantage when sport returns. Indeed, the team led by Julian Easthope suggested that the big four could survive two years of disruption. “Liquidity is the main investor concern,” they wrote. “We estimate the monthly cash burn of each group in a disrupted state. Even pre- any mitigating measures, each of the groups has sufficient liquidity headroom to survive at least a year of disruption. Including mitigation, this extends to two years.” This would almost certainly not be the case with operators in the mid-tier and below and the willingness of investors – whether public or private – to continue funding companies that were already facing an uphill competitive battle has to be questioned. iGB Market Monitor • The UK and Sweden • May 2020 3