Proprietary Sportsbook Push And US Prospects Fuel 888 M&A Speculation

If a trading statement aims to say little but deliver a lot, then it might be supposed we can expect great things from 888 in the US in the years to come.

In a brief pre-close period trading update given to the London Stock Exchange earlier this week, the company made only a brief mention of the US saying it remained “focused on achieving further progress.”

888 has a long-standing arrangement with Caesar’s for online casino and poker and operates 888-branded sports and casino through a Caesar’s skin in New Jersey. At the time of its half-year results, it said it would be “smart and selective” about other state-by-state opportunities.

As it stands, it must be very selective as it is yet to launch in any other state. Moreover, in New Jersey, it remains very much an also-ran – according to the latest data with an online market share at just over 2% in November.

Yet there are structural reasons for believing that 888Sport might soon be in a better place to launch a more concerted US assault.

Future’s So Bright

Back in March last year, 888 (powered by Kambi to date) completed the buyout of Dublin-based bookmaker BetBright, which provided it for the first time with a proprietary sportsbook platform.

Indeed, 888 has already enjoyed some success with 888Sport in other jurisdictions, notably Spain and the UK. Net gaming revenues for the unit have risen significantly since 2014 from $20m up to $80.3m in 2018. They are forecast to top $92m for the year just gone and to rise to $136m by 2022.

Much of the further uplift will come from owning its own tech. House broker Canaccord Genuity suggested this week that the integration of the BetBright platform was progressing “as planned” with a proprietary sportsbook due for launch during the first half of this year.

The company clearly plans to accelerate its US business alongside the sportsbook backend launch. The analyst team at Numis estimates that losses in the US B2C segment totaled circa $3.5m in 2019 and this will bounce up to $8m in the coming year.

The cause of the extended losses will be a further commitment in New Jersey, where 888 is building a local team, including a “small marketing group.” The Numis analysts also suggested 888 was on the lookout for a “strategic partner,” which can help increase traffic and suggested the next likely market entry for 888 would be Michigan.

They further speculated that a move off the Kambi platform in the US could be in the cards in 2021, giving time for the new platform to bed-in in Europe first. As an aside, it is worth noting that allied to the news about DraftKings and SBTech, the likely BetBright platform move by 888 makes Kambi’s US position look far weaker than was the case previously.

State of Independence

Where this sportsbook independence really counts is with any potential M&A. As we have seen recently with DraftKings and SBTech, a solid and workable proprietary sportsbook backend is a valuable property in the current climate of US sports-betting expansion.

In a separate note this week, the analyst team at Peel Hunt highlighted 888 as one of their top M&A and special situations picks. The analysts pointed out that “the perpetual bridesmaid” is set to report a “remarkable uplift” in revenues in the fourth quarter of last year, helped by its new online casino platform Orbit. Meanwhile, the US position (despite “not having yet revealed a strategy” outside of New Jersey) and sportsbook backend make it attractive to any potential suitor.

Moreover, there is a push factor with regard to small and medium-sized companies, particularly when it comes to the US opportunity.

“The continuing consolidation of the sector places the remaining smaller companies at increased risk,” the analyst team wrote. “The longer 888 remains independent, the greater the risk from its larger competitors. 888 has been involved in many merger discussions over the years, and management is clear that it views its participation in further consolidation favorably.

“An experienced management team in a market heading for further consolidation makes 888 our top pick for upside from M&A activity.”

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