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William Hill has emerged as a leading player in the expansion of legal sports betting in the US. But in its home market of the United Kingdom, the company is being buffeted by fierce regulatory headwinds that underscore its need to succeed stateside.
William Hill announced earlier this month plans to shut around 700 of its betting parlors, which could lead to the layoff of 4,500 employees. This means roughly a third of the 85-year-old operator’s nationwide retail estate looks set to disappear.
The main reason for the purge is the UK government’s crackdown on lucrative fixed-odds betting terminals (FOBT).
Dubbed by critics as the “crack cocaine of gambling,” these machines allow customers to bet on digital games of chance like roulette.
With a maximum of four machines per outlet, FOBTs generated around £1.8 billion in gross revenue a year for the industry. However, from April, all bookmakers were forced to slash stakes from £100 ($124) to just £2 ($2.49) per spin.
The drastic reduction was the worst-case scenario for the industry. It effectively outlawed this cash cow overnight.
William Hill announced in a recent trading update that it had “seen a significant fall in gaming machine revenue” since April. Retail accounts for more than half of the FTSE 250 bookmaker’s revenue.
William Hill had previously anticipated the new £2 stake would lead to 900 shops closing, at a cost of £50,000 to £60,000 per shop.
While 700 shops going would not be quite as bad as predicted, it still a body blow and means roughly 35 percent of its UK retail workforce faces the prospect of redundancy.
These difficulties in retail have stepped up William Hill’s urgency to become a digitally led and internationally diversified business. Indeed, CEO Philip Bowcock has spoken in the past about being “overly dependent” on the UK.
This is why Mr Green Group (MRG) was snapped up last year for £242 million, accelerating William Hill’s international expansion online. MRG, which includes brands Mr Green and RedBet, is licensed in seven countries.
The big long-term hope is the United States. Indeed, William Hill’s progress stateside is crucial if management is going to hit its ambitious target of doubling global group profits by 2023.
Since acquiring three small Nevada-based bookmaking businesses for $49 million in 2012, William Hill has become a leader in the state with a 32 percent market share in terms of revenue at the end of 2018.
Today, the business is live in more than half a dozen regulated US states, either as an operator, service provider or through partnerships with lotteries.
Meanwhile, the strategic partnership forged with Eldorado Resorts last September gives the bookmaker access to 23 million customers in 13 states. Eldorado took a 20% stake in William Hill US in return.
However, the $17.3 billion mega-merger between Eldorado and Caesars Entertainment could benefit William Hill by increasing its access and footprint in the US.
In a trading update for the first 17 weeks of 2019, William Hill US revealed that amounts wagered with the company directly were up 65% year-on-year. Total net revenue jumped 48%.
The business also doubled the legal sports betting it handles, either as an operator or as a service provider, over the same period last year.
In New Jersey, where William Hill operates retail and online betting, the company is building out its new digital hub. This includes new hires in digital marketing, product development, operations, payments, compliance, and customer support.
Heavy investment and resources have also been plowed into building a new proprietary tech platform. The aim is to launch the platform in time for the new football season in September.
As a result of the investments and start-up costs, though, management expects William Hill US to break even at best in 2019.
William Hill’s main competitors in UK retail are Ladbrokes and Coral. These two brands merged in 2015 and the combined business was subsequently acquired by London-listed GVC Holdings in a deal worth £4 billion.
GVC anticipates that around 900 of its 3,500 Ladbrokes Coral shops could close in the next two years. Retail revenue slumped 19% year-over-year in Q2.
Meanwhile, Dublin-headquartered Flutter Entertainment, the parent company of FanDuel Sportsbook, faces a negligible impact from the FOBT stake cuts. Its Paddy Power brand is a minor player in UK retail betting.
Operators like William Hill probably knew they were living on borrowed time with FOBTs. Opposition to the machines among the media, politicians, and the public was growing louder.
Additionally, UK-licensed operators face increased regulatory scrutiny around responsible gambling and pressure to reduce the level of gambling advertising. The UK market certainly isn’t quite as attractive as it once was.
By becoming more internationally diversified, William Hill reduces its exposure to Britain. This means, as Bowcock has said previously, “when the UK regulator coughs, we don’t catch a terrible cold.”
At the heart of that international expansion is the US, with William Hill bosses striving to achieve at least 15% market share in every state where the operator has access. It’s an ambitious target but not a pipe dream.