Five things we learned from Entain’s Q4 and FY22 results

Off the back of a record quarter for online net gaming revenue (NGR), Entain proceeded to update its full-year 2022 EBITDA guidance to between £985m and £995m.

A strong World Cup performance and a strong uptick in active players during the reporting period gave the FTSE 100 giant a shot in the arm at the end of the year, with online NGR jumping 12% year on year (YoY).

The firm was also able to lean on impressive retail growth against tough Covid-19 comparisons.

Entain did warn of regulatory headaches in the UK and Germany, but the performance throughout the rest of its global operations went some way to absorb any potential impact.

Speaking on an investor call following the results yesterday, CEO Jette Nygaard-Andersen and CFO Rob Wood lifted the lid on the group’s performance and their ambitions for 2023.

The pair are confident in the position in Brazil, growth in Europe despite headwinds and a strong balance sheet to continue actioning M&A plans.

Esports betting was also heralded as a future revenue driver of the business, while the looming spectre of the white paper into the Gambling Act 2005 review once again reared its ugly head.

You keep me hanging on

“Other than the UK, we’ll be shooting for growth in all our major territories.” This is the damning reality of the current state of the UK market, according to Wood, as operators remain in the dark regarding the long-overdue white paper.

Entain, along with other major firms, have already baked in losses due to affordability measures and safer gambling strategies. Bosses hope this proactive approach will stave off any major drag but, with the document still yet to see the light of day, it remains a waiting game.

Wood confirmed Entain continues to take market share in the UK, and with now around 90% of customers being lower-spend recreational players, the pre-emptive work done before the white paper’s release could pay dividends.

Wood said: “If you look at the second half of 2022 in the UK, we were almost flat, just a fraction under. Ordinarily we would expect the market in the UK to be mid to high single digits. Logically, there could be 10% points of drag from absorbing these measures, which I’m sure the larger operators are carrying as well. We’re cautious on the outlook for the UK in 2023 until we have that clarity.”

Nygaard-Andersen said she was hopeful the white paper would be published during Q1. EGR understands DCMS chief Michelle Donelan wants to release the document before she heads off for maternity leave in April.

Nygaard-Andersen added: “What we’ve heard in the last couple of weeks from the government is somewhat more pro industry and advocating freedom of choice. They also want to talk about frictionless checks, instead of affordability checks, which is all positive.”

Game on 

Entain soft-launched its esports betting division Unikrn in Q4 in both Brazil and Canada (excluding Ontario) as the group looks to diversify its revenue streams.

Unikrn was acquired in August 2021 for an undisclosed sum and £50m of investment was earmarked to plough into the platform to support its growth.

Entain confirmed that up to this point, that investment had not been fully realised, with £17m of the original £50m investment now being carried over into 2023 from 2022.

Nygaard-Andersen insisted Entain was still committed to esports betting and that she was playing the “long game” in terms of success.

The CEO said: “It’s still early days, but we’re happy with progress to date and are planning for launches over the coming months.

“We’re now in two markets, Brazil and Canada outside of Ontario. I think its important for me to say that we’re playing the long game here. It’s really important for us that we almost build the market around our business and we are going the right way about this.”

The Dane went on to confirm that while she is not expecting Unikrn to report a lot of revenue in the coming months, she is confident in new market launches and a packed esports calendar to support the division.

“In 2023, we are looking to expand into other markets [and] we are looking at markets, for example Australia and New Zealand that have firm regulation and a great esports audience. We will be looking for a further 10 markets as we learn and upgrade our products,” she added.

Bolt it on 

Off the back of championing the addition of Croatian operator SuperSport last year, which since 23 November added £8m in EBITDA to company coffers, the CEO was bullish on the aspect of continuing Entain’s legacy of M&A.

The operator completed the acquisition of Dutch operator BetCity last month to finally enter the Netherlands as it awaits licence approval for its bwin and Party brands, and Nygaard-Andersen noted M&A was a sure-fire way to deliver growth across target markets.

“We’re mainly looking at M&A in order to support our growth plans,” she said. That is across new markets, deepening our presence in existing markets or expanding into new areas such as we did with Unikrn. We’re being as active as ever.

“I do think that in the current environment it could open up opportunities for us as we have a really strong balance sheet, with our strong cash generation and successful model on M&A.

“In terms of valuation, we are clearly not an operator that is buying distressed assets, we are buying really strong businesses. And we’ve seen public valuations come down, but these are strong businesses and private valuations are still holding up,” she added.

Europe’s green and pleasant land 

While industry eyes are turned by the prospect of breaking the US or the burgeoning Latam market, Western Europe has fallen by the wayside, driven primarily by market maturity and the ever-tightening grip of regulation.

New legislation in Belgium and Germany have hit operators hard, including spend, stake and deposit limits. Germany’s 5.3% turnover tax on online slots and poker was too bitter a pill for some to swallow, which has seen swathes of firms exit the market.

Since the Dutch market regulated in October 2021, politicians in the country have been scrambling to amend the regulation they previously waved through, with a clampdown on advertising.

However, Wood painted a different picture for the region, citing Entain’s positivity around the three markets for 2022, and indeed moving forwards.

Wood said: “Belgium is trading really well despite the recent changes in spending limits, so we are pleased we are pushing double-digit growth there in Q4. And, as I’ve said previously around profitability in the Netherlands, those first six to nine months is probably about breaking even and then you get to profit.”

On Germany, he revealed positive signs emerging from Europe’s largest economy.

The CFO added: “Germany has been a challenge, that’s for sure. It does feel like momentum is gathering now and we hope 2023 will be the year where Germany returns to growth.

“There were some nice green shoots in Germany, and even though NGR was still down a bit in Q4, actives and first-time depositors were up strongly. Hopefully, it is starting to turn a corner now but in terms of profitability there will be an increased investment around igaming which will be a drag.”

Samba in limbo

Jair Bolsonaro’s failure to give the green light to sports betting legislation by 12 December left Entain and a host of other operators in limbo in Brazil as the long wait for regulation continues.

Bolsonaro was defeated by Luiz Inácio Lula da Silva, or Lula, in the presidential elections in November, with many expecting the far-right leader to sign off the legislation before he left office. Instead, with no action taken, it now leaves the policy sitting at Lula’s feet.

Entain will remain in Brazil – where it occupies a market-leading position with Sportingbet and bwin –as it classes the market as “regulating”; part of the requirements of the firm to only derive revenue from regulated or regulating markets by the end of 2023.

Last month, Entain confirmed it was ramping up market exits where it sees no feasible route to regulation. Nygaard-Andersen revealed that around 93% of group revenue comes from fully regulated markets where Entain holds a licence.

The CEO would not be drawn on what markets that aren’t officially regulated the London-listed operator still provides it services in, but confirmed Entain had no presence in the Middle East where 888 was recently stung by VIP compliance issues.

Touching on her hopes for Brazil, Nygaard-Andersen said: “We had expected that the sports betting legislation would come through and that Bolsonaro would sign that during his transition period.

“Despite this delay, we still expect the regulation of sports betting in Brazil in 2023 with the new administration. That means legislation probably towards the end of 2023, and then, hopefully, we’ll be regulated by the end of the year or into 2024.

“That doesn’t change our excitement about the Brazilian market as the underlying trends there are strong, so it is certainly something we are looking forward to,” she concluded.