Five talking points from William Hill's move for 888
A tie-up between William Hill and 888 throws up as many questions as answers, eGR takes a look at some of the main talking points
Yesterday’s news that William Hill has made an offer for 888, reportedly valuing the firm at around £750m, has got the market speculating about exactly how a combination of the gaming giants would play out.
With rumours that 888 shareholders may want William Hill to cough up 300p a share – almost 50% more than the 210p thought to be under discussion – a deal is far from a certainty while previous attempts to acquire 888 have in the past fallen through.
But should an agreement materialise, William Hill would no doubt be stronger for the proprietary casino and poker platform and the significant boost to its gaming business from acquiring one of the leading brands in egaming renowned as masters of digital marketing.
But exactly how it would go about capitalising on what on the face of it would appear to be some obvious synergies seems to require some difficult decisions to be made and more than a few potential stumbling blocks.
1) Maximising the Synergies
A combination of William Hill and 888 does, on the face of it, make a lot of sense and would certainly create the biggest online operator in the UK, if not in Europe. William Hill’s sports betting expertise mixed with 888’s proprietary casino and poker platform would represent a formidable beast. But that’s to ignore William Hill’s substantial existing casino business, which in pure revenue terms is far larger than 888 already. The question becomes will William Hill’s gaming business be integrated into 888 or the other way around?
The acquisition of a leading poker platform would be a big boost for William Hill as would 888’s bingo platform, which powers a substantial part of the UK bingo market as well as 888’s own brands. While in sportsbook the picture is more straightforward and there is unlikely to be much of a customer overlap. An amalgamated firm would strengthen its position in major jurisdictions such as Italy and Spain and the addition of 888’s CRM capability should provide it with an effective cross sell machine while there would also be savings to be made on administration costs, revenue share deals and marketing expenses.
2) Combining the Brands
With no deal agreed, we can only speculate on how the brands would be managed in different territories. 888 has a strong brand in the UK so it would be a bold step for William Hill to remove it from the UK market altogether. However, William Hill has shown previously that it prefers to operate under a single moniker – take its experience in Australia where it acquired a trio of brands, including one of the biggest brands in the market in Tom Waterhouse but, eventually, decided to bring it under the single William Hill banner.
William Hill also dispensed quickly of the Spain-facing Miapuesta brand it acquired from Sportingbet and a dual brand strategy would be a significant departure from its current operating model. But 888 presents a far more established brand than previous acquisitions and has real value in many of William Hill’s core markets and arguably a stronger presence in some verticals such as poker. There is also the question of the US where 888 has invested heavily in the brand – one senior gaming exec told us William Hill would be “bonkers” to replace the 888 brand in the US market. Perhaps William Hill will be forced to change its view?
3) The Regulated Question
A deal would also leave William Hill questioning its risk appetite with the operator set to gain, among others, a business with a large unregulated focus most obviously in its Australia-facing casino business and revenues derived from countries such as Russia and Germany not seeming to fit neatly with Hill’s pure regulated market approach.
Last year William Hill withdrew from a long list of markets as it sought to assure both the market and regulators that its operations were whiter than white. However, those markets were rumoured to amount to less than 1% of total revenues. Whether it would be prepared to draw a line through meatier sums is an altogether different question. Barclays this morning estimated 888’s unregulated EBITDA to be worth in the region of £20m for FY16 and waving goodbye to that would be a tough ask.
4) Platform Integrations
William Hill is known to want more in-house control over its operations so the lure of 888’s propriety gaming platform must be great. The chance to end what has been a long and tumultuous – albeit profitable – relationship with Playtech is given by some as a major driver behind any deal, but William Hill has already built a substantial casino business on its own in-house platform. Vegas, its non-Playtech casino brand, was quoted as representing 60% of total casino revenue in Q3 2014 and is a major source of gaming growth.
Nonetheless the ability to operate on its own platform across all gaming verticals would be a huge differentiator, albeit one that raises a number of technical challenges with back end integrations never easy. A potential leakage of customers in what would be a likely long migration process must be a concern. As Simon French, analyst at Cenkos Securities put it: “The ability to further reduce reliance on technology partners such as Playtech is a key attraction although migrating customers to 888’s platform would not be without significant risk.” Compared to its peers, William Hill has a strong gaming division so it would be a big move for it to jump ship.
5) The Fate of the States
How William Hill would square the US market also appears complicated. 888 has invested heavily in the US, and is the only operator live in all three regulated states – Nevada, Delaware and New Jersey – and has one of the strongest brand partnerships in the market, powering the platform for Caesars Interactive’s World Series of Poker site.
But operating on US soil has proved costly so far for 888 and with little prospect of the regulated US egaming market growing in the near future, it is not out of the realms of possibility that 888 could withdraw from the market under William Hill ownership. However, 888 would appear best positioned to capitalise on any future growth while William Hill could potentially install its land-based sports betting platform into Caesars properties across the US given their current partnership with 888.