888 Holdings: hero or villain?

It’s been a busy start to 2019 for the London Stock Exchange-listed 888 Holdings. The operator hit the headlines recently with two major acquisitions – one more controversial than the other – as well as some thought-provoking financial results.

On the surface of things, the flurry of acquisition activity looks positive. 888 agreed to an £18m deal to acquire JPJ’s Mandalay business in February, a deal which was completed last week.

The acquisition adds a raft of brands to 888’s UK bingo offering, and integration should be straightforward, since the operator has been supplying its Dragonfish bingo platform to Mandalay since 2009.

However, analysts are understood to regard the move less as a strategic bolstering of the firm’s bingo offering and more as a defensive attempt to rescue an under-performing asset in which 888 has a vested interest.

Regulus Partners pointed to a steady decline in Mandalay’s performance, saying revenue had fallen 24 percent per year since 2015, despite what the analysts termed a “relatively buoyant” bingo market.

Meanwhile, the company’s 2018 financial results revealed that it had been a challenging year for Dragonfish. Revenue from the B2B division fell by 8 percent, from $55.2 million in 2017 to $50.6 million.

The firm’s financial statement attributed the decline to “the overall fiscal and regulatory challenges facing the UK bingo market; the reduced marketing spend by some of our partners; and the termination of the Group’s agreement with Cashcade.”

GVC’s Cashcade had been a longstanding business to business partner with 888 but decided to migrate its brands to its own proprietary platform late last year.

All in all, 888’s own results seem to fall some way short of Regulus’ characterisation of a “relatively buoyant” bingo market, too.

BetBright deal sparks controversy as well

Meanwhile, there has been additional controversy around the operator’s £15m acquisition of Irish sports book BetBright earlier this month from Dedsert Limited. No sooner was the deal announced than BetBright ceased operations, which left 888 with a new tech platform and punters seething over voided ante-post bets right before the Cheltenham Festival.

After the Gambling Commission received numerous complaints about the policy, 888 agreed to honour bets on Cheltenham, but stuck with its stance on all other single bets: if they were placed through BetBright and due to settle after March 5, they were void.

Having got wind of the upset caused by the BetBright debacle, UK consumer research company YouGov started totting up some numbers relating to 888’s public perception.

On Monday it revealed that just 50 percent of the British public were aware of the 888 brand, implying that the operator could little afford the controversy.  Although, relative to many gambling brands, 50 percent seems pretty good. Moreover, the figures showed 63 percent of those that had placed bets in the last 12 months were familiar with the 888 brand. Awareness rose to 66 percent among football punters and 89 percent among horse racing punters.

Could it be the case that ‘all publicity is good publicity’ for 888? YouGov’s figures showed the operator’s ‘Buzz score,’ which measures whether consumers had heard anything positive or negative about the brand in the last fortnight, had peaked in February.

888 is no stranger to weathering controversy, having been whacked with a £7.8m fine in 2017 after the Gambling Commission found it had failed in its duty to protect vulnerable customers.

That said, the numbers also showed that appreciation for the brand among football fans had fallen from -8 to -12.7 last week – a reflection, perhaps, of having adjusted their policy on the BetBright wagers for horseracing, but not other sports.

And, while the BetBright deal was lamented by gamblers, so too did analysts point out flaws in the agreement. Regulus again poured scorn on the acquisition, unable to reconcile the fact that, though £60m had been invested in BetBright since 2013, the firm was sold for £15m. A sure sign, in Regulus’ opinion, of a failing brand.

Either way, 888’s new CEO, Itai Pazner, waxed lyrical about the company’s resilience in the face of “headwinds in some areas of the business” while commenting on the financial results on March 12.

Pazner skirted over 888’s 2 percent decline in revenue in favour of drawing attention to a record EBITDA figure of $108.7 million profit before tax, which equates to an adjusted figure of $107.1 million for 2018 – up 6.4 percent on $100.7 million the previous year.

However, key verticals did struggle. Poker revenue fell by 37 percent, from $77.9 million in 2017 to $49 million, while bingo fell by 17.5 percent from $39.3 million to $32.4 million.

Sport and casino betting were up by 6.4 percent and 8.1 percent, respectively, but can that – and some strategic shaving of overheads – be seen as a real success in light of the aforementioned declines?

Arguably, the addition of a proprietary sportsbook platform will aid the firm’s potential expansion into emerging markets. With local operators still taking the lead in the US, however, investors seem unlikely to place all their eggs in that basket if 888’s European mergers and acquisitions are already raising eyebrows.