iGB Intelligence reports iGB-Market-Monitor-May-2020-proof4 | Page 7

Part 1: The UK – Covid-19 compounds contraction To the survivors the spoils The good news for the major UK operators is the assumption that once sport is back on the agenda in any meaningful sense – particularly major football and horseracing, even if these are played behind closed doors – then the sports betting business will come roaring back. “Once sporting content is back online, we suspect the recovery would be evident fairly immediately,” said RBC. “This is because, for the most part, placing a bet is a small ticket item which can be done as a solitary activity. As such, demand is likely to pick up again quickly once there is supply (i.e., sporting content).” Ivor Jones, analyst at Peel Hunt, agrees with this premise. “Sport and racing will revive,” he said at the end of April. “Generally the message from online gambling operators is that sports betting has declined less than expected during Covid-19 and that gaming revenue growth has accelerated. Nevertheless, we expect the restoration of some mainstream sporting fixtures to engender confidence that mass-market interest in sports betting will bounce back.” RBC’s sporting assumptions for 2020: • Three months of closures in retail estates – offset by government stimulus packages (business rates holiday and employee furloughing in the UK) • No meaningful football or other sporting content until the end of summer, and the cancellation of the Euros • • new NFL season in September • All horseracing cancelled for three months The US comes back online just in time for the Marketing is the key mitigating lever that companies have to pull, in particular around the US expansion businesses The gaming upside The trading evidence from the gaming side in the UK is much more positive compared with sports betting, but it comes with its own pitfalls, particularly around the regulatory reaction. On the plus side, trading has more than held Sport and racing will revive. Generally the message from online gambling operators is that sports betting has declined less than expected during Covid-19 and that gaming revenue growth has accelerated. Ivor Jones, Peel Hunt up. As 888 put it when it released a trading statement at the start of April: “There is currently evidence of increased customer activity in the group’s casino and poker products that might, in part, compensate for the sports betting disruption for a period of time.” This is significant: according to 888, the sports betting vertical contributed 16% of revenues in 2019. Others in the sector have benefited even more. Analysts at Numis point to Gamesys, which, as the team points out, has no sports exposure and hence has seen the upside in the switch from sports betting to gaming. Nevertheless, all of the multi-product brand leaders will to a greater or lesser degree have seen some mitigation. Rank’s Grosvenor Casino and Mecca Bingo online operations saw revenues rise 27% and 20%, respectively, in the company’s third quarter, growth trends which, the company said, continued into the early lockdown period. Flutter said gaming revenue since the shutdown was up 15%, partly offsetting the 65% fall in sports betting revenues since 25 March. Positive trends, perhaps, but they cannot make up for the sports betting shortfall and neither can they be relied upon to continue. As 888 also outlined, should the current disruption continue for a prolonged period, “it is possible that consumer spending across the group’s online gaming product verticals may also become impacted”. As has been proven previously, notably in the wake of the global financial crisis, while gaming might be more recession-resistant than other sectors, it is not immune to the impact of economic downturns on consumers. iGB Market Monitor • The UK and Sweden • May 2020 4