William Hill reported that “full-year operating profit for 2016 was c£260m, at the bottom end of our guided £260-280m range,” in a new trading statement for the 52 weeks ending December 27.
The statement from the sports betting operator explains the £20 million ($24.3 million) shortfall as being the result. It blames the poor numbers on soccer and horse racing results that favored the customer rather than the bookie.
Interim CEO Philip Bowcock commented:
“Importantly, the improvements we saw in wagering in Online and Australia in the second half have continued in recent weeks. However, all four divisions saw customer-friendly results at the back end of the year, which translated into profits being c£20m below our prior expectations. With key underlying trends continuing to be positive, the recent run of sporting results have not changed our confidence in a better performance in 2017.”
2016 was a tumultuous year for William Hill
Investors might accept the reduction in gross win margin as a short term reality of being in the bookmaking market. But investors looking at the company’s prospects over a longer horizon can see that William Hill still has several problems that need to be fixed.
The company needs a new CEO
In July, the company eased out CEO James Henderson after just two years. The company blamed weak online sports betting performance.
William Hill has not officially replaced Henderson. Bowcock is temporarily holding the reins while the company engages in an extended search process to find a permanent replacement.
William Hill is rejecting suitors
Almost immediately after Henderson left the company, the intermin CEO faced a takeover bid from 888 Holdings and the Rank Group.
The company presented a spirited defense of its prospects. It argued that the offer undervalued William Hill. 888 and Rank would not proceed without the support of William Hill’s board, so the bid expired.
But the company does want to find more scale
Only a few months later, William Hill put together its own plan to merge with Amaya.
Amaya’s online expertise combined with William Hill’s land based betting shops held out the prospect of creating one of the world’s largest gaming companies, but the deal proved to be beyond the capacity of the two sides to agree, and lapsed.
It was a bold move for Bowcock. There are expectations that William Hill continues to look for opportunities to acquire or merge with another company that can provide it with greater scale and a stronger online presence.
William Hill has strengths in innovation, the US and Australia
Some of the more positive signs that William Hill remains an attractive investment are its operations in the US and Australia.
Last week the company entered into an agreement to bring pari-mutuel simulcast wagering to Iowa in a deal with Caesars and its Horseshoe Council Bluffs Casino.
Joe Asher, chief executive of William Hill US, said:
“We are excited to expand into Iowa and proud to partner with Caesars Entertainment to bring back pari-mutuel simulcast wagering to the Horseshoe Council Bluffs Casino. We look forward to creating a first-class experience for all racing fans in the Greater Omaha area to enjoy.”
Late last year, the company worked with the Downtown Grand Casino in Las Vegas and the Nevada Gaming Commission to produce a fully regulated esports betting product—the first ever regulated esports bet in the US.
In Australia, the company has established a substantial market share. That came after it bought the SportingBet Australia business and its acquisition of TomWaterhouse in 2013.
In 2015, the brands merged and Australian sports bettors met the William Hill brand. This move was successful, but now one of the acquired brands, Centrebet, is relaunching.
The Centrebet brand will offer the highest available limits on horse racing and major sporting events. The brand is immediately targeting bettors who have had their accounts restricted or closed by rivals Tabcorp and Ubet.
The details look to be improving but the big picture needs work
None of these developments is of itself a game changer. However, they do show that the company is in expansion mode. It is willing to wheel and deal in different jurisdictions to create new products and extend market reach.
It’s always embarrassing for a company to admit that it missed profit expectations. But William Hill looks to have legitimate reasons why it has underperformed its own forecasts.
However, shareholders remain unimpressed that over the course of 2016, William Hill lost $1 billion of its market value.
What the company now needs is a narrative that investors can believe in. Uncertainties about whether the company will acquire or be acquired need to be resolved. Will Hill could also use a distinctive customer proposition that would ensure growth.
