Part 1: The UK – Covid-19 compounds contraction
The first-quarter trading statement released on
17 April showed the effect the crisis was having on
the company’s business. Having come into 2020
on the up, sports betting revenue for the first
three months of the year increased by 13%.
But before the lockdown, that figure had been
an even more promising 30%, showing the effect
that only 15 days of the shutdown had had on
that part of the business. Meanwhile, gaming
– which was on course for a 27% year-on-year
revenue rise until March 15 – saw actual revenues
for the quarter come in slightly under that at 25%.
Across the group, sports betting revenues have
fallen 46% year-on-year since the cancellation of
racing in the UK and Ireland. While Flutter doesn’t
break out the UK from the Paddy Power Betfair
online business, it did say that the operation as a
whole had suffered a 32% drop in revenue yearon-year
in the period 16 March to 12 April. Within
that, sports betting was 57% down overall and
65% down since the cancellation of Irish racing
on 25 March.
For all the bad timing, chief executive Peter
Jackson said the current turmoil only reinforced
the logic of the merger. “While the current
disruption is truly exceptional, it underlines
the importance of product and geographic
diversification,” he said. “As such, the strategic
logic of our combination with The Stars Group
remains compelling.”
Analysts at Numis pointed out that via the
deal, Flutter would leapfrog bet365 to become
the largest gambling company by revenue, with
a market-leading position in the UK, as well as
other countries. “The pending merger will be
transformational, not just for Flutter but for the
entire industry, and given the pressure on margins,
we expect consolidation will continue.”
Paul Leyland, analyst and partner at gambling
industry consultancy Regulus Partners, says the
current backdrop underlines the logic of the deal.
“The combination creates the scale and need to
look to the longer term (it will be a significant
FTSE 100 player with all the scrutiny that entails)
to shift the overall industry culture of online
gambling even further away from its origins of
operational ‘dark arts’ and regulatory avoidance,”
he adds.
“What Flutter-Stars represents is the future of
domestically regulated gambling of any scale, in
our view, and that future has become much more
immediately relevant.”
The Stars Group – into Flutter’s arms
What we don’t know about the future for the
various Flutter Entertainment brands is how the
likes of PokerStars and Sky Betting and Gaming
have performed since the crisis evolved in mid-
March.
The last results pre-merger from The Stars
Group arrived in late February. Following its own
transformative acquisition of Sky Betting and
Gaming, Stars is now heavily reliant on sports
betting – 34% of 2019 revenues came from this
segment, or $781m.
Stars is also heavily skewed towards the UK,
which represented 37% or $947m of revenue in
2019 and 42% or $288m in the fourth quarter. The
company said that betting stakes in the UK rose
13% in the fourth quarter, while gaming rose 14%
and average users over the quarter rose 8% yearon-year.
Continuing the theme from elsewhere, Stars
also made much of its “commitment to safer
gambling”.
Without any guidance, we can only make some
educated guesses about the Stars business as it
heads into the Flutter merger. On the plus side,
Table 6: The Stars Group 2019 selected numbers
Revenues from sports
betting ($m)
Percentage of revenues
from sports betting 2019
Revenues from the UK
($m)
Percentage of revenues
from UK 2019
Source: Company report
781 34 947 37
iGB Market Monitor • The UK and Sweden • May 2020 7