In the update announcing the end of talks with Amaya, William Hill set out its current strategy:
“The Group has continued to focus on the four priorities set out by Interim CEO Philip Bowcock – online, technology, efficiencies and international – to deliver value for shareholders and will also continue to consider strategic alternatives where they have the potential to create shareholder value.”
A closer look at William Hill’s “alternatives” shows that future mergers and acquisitions cannot be written off, although they may not be headline makers like the huge proposed deals of the last year.
At the heart of all gaming industry businesses lies the need to acquire customers, maximize revenues from those customers, and minimize costs while doing so.
There are four routes William Hill can take to increase its customer base:
Fully 84 percent of William Hill’s revenues for the first half of 2016 came from its UK operations. The company is also an active player in the Australian market, with smaller contributions from its Nevada operations in the US, and also in other EU markets.
William Hill’s online business may be improving, but it is still far from being a jewel in the company’s crown. There is scope for increasing revenues from such improvements. The half-year report announced:
“Early progress on Online turnaround strategy with Sportsbook mobile user experience redesigned in time for EURO 2016, mobile web and apps localized for four markets.”
However, the recovery of online market share is a tactical rather than strategic move. There won’t be a sudden step-change in revenue numbers.
To expand an existing market, William Hill needs to attract new customers who are not currently active gamblers, poker players or sports bettors, or cross-sell other products to its existing players.
All gaming companies are active in this same area, and in William Hill’s primary markets, any additional revenues will be hard to come by because the UK and Australia are at or close to a saturation point.
Entering new markets seems much more likely to provide a route to growth. To move from being a UK-biased business to being a global business is a tough journey to undertake, but overseas is where growth in online sports betting is most likely to be.
Many of the OECD group of wealthy countries already have legalized online sports betting, and William Hill has a toehold in many of them. In other such as France, online sports betting is so highly taxed as to make it extremely difficult to run a profitable operation.
The new Portuguese taxes are equally a deterrent to entering the newly regulated market, but William Hill has obtained a license for Romania.
The country is small and has a low average national income, but is an EU member state and should benefit from economic convergence with other EU nations.
William Hill is active in Russia, but according to sources quoted by Pokeroff, the company may be about to withdraw from the online poker market.
New laws have permitted online sports betting, but William Hill has no license, and the Russian authorities are clamping down (paywall) on online gambling companies.
In Brazil, there are new gaming laws making their way through the legislative process. “It would be one of the most significant events in the history of gambling if Brazil opened the sector,” said a William Hill spokesman quoted by the El Cronista newspaper.
Other possible markets where William Hill can expand or increase its market share:
Expanding the product range always risks some cannibalization, but can draw in extra customers who may have little experience of online gambling.
The development of the daily fantasy sports industry may have experienced many hiccups along the way, but it is beginning to get established in Europe. Over the summer, a number of Italian operators in the regulated market have added a DFS product.
Virtual sports betting is also taking off, after receiving a boost from this year’s EURO 2016 competition. William Hill is well positioned to benefit from growth in this area with a part of its sports betting site dedicated to wagers on virtual events.
William Hill has also entered the esports betting market, and although there is considerable uncertainty as to how rapidly and how far esports betting will grow, its potential is probably higher than any other sports betting product.
Innovation in gaming is running at a helter-skelter pace at the moment, and there is plenty of scope for William Hill to take advantage of the wider changes in the industry as well as offering its own in-house innovations.
If William Hill seeks to expand its customer base by merging or taking over another online gaming business, it has very few options left.
Taking the top ten gaming companies by online revenue (William Hill ranks fourth) it is clear that merging with or taking over any of them will not be easy.
As an alternative to making a massive deal that needs shareholder approval, William Hill could grow semi-organically, by picking up some of the smaller operators who are not managing well as stand-alone businesses.
This strategy would work both to expand existing market share and as a route to expanding or entering markets in other countries.
Smaller acquisitions are easier to absorb than big ones, and as the gaming industry is refocusing on larger companies, many smaller operators are finding it difficult to continue as standalone operations.
With online recovering, and operating profits for 2016 forecast in the range of £260-280 million ($319-$343 million), William Hill is big enough not to need a partner to get further economies of scale.
However, if it wants to shift its current UK focus to replicate its success globally, the path of organic growth will take it a very long time.