William Hill, Amaya: Five talking points
The potential merger has divided opinion, we take a look at some of the main talking points
A week has passed since William Hill and PokerStars-owner Amaya confirmed they were in early stage discussions over a potential £5bn tie-up.
The news certainly caused a stir, with some seeing the rationale behind what’s been described as a “merger of equals”, while others â including William Hill’s largest shareholder â were left scratching their heads.
Below we explore some of the key talking points over the past seven days.
1) Tipping the scales
Depending on who you talk to, possessing scale in a rapidly regulating industry is either essential or preferable. But what can’t be denied is that a combined Amaya and William Hill would have scale no other operator could match, not even bet365. A large chunk of this scale would be delivered by PokerStars and its 100 million-plus strong customer database, which is spread far and wide across the globe.
Yesterday’s open letter from key shareholder Parvus rubbished the rationale behind the merger, with one of its key points being that skill-focused poker players have no interest in verticals where the odds are stacked against them. Logic suggests this is a fair point but the changing nature of the PokerStars’ business over the past couple of years tells a different story.
Random number generated casino, the vertical where the least skill (if any) is required, now makes up approximately 20% of Amaya revenues. And this has been achieved through little if no external marketing â which would suggest there is some thirst for alternative products from within the PokerStars database. Indeed, the current growth trajectory from H1 figures suggests PokerStars’ casino vertical could overtake 888’s by the years’ ends based almost entirely on cross-sell.
2) But what about sports?
It’s fair to say PokerStars’ has struggled with its sportsbook BetStars’ brand â which has been given a large external push. But at this point it would be hard to judge whether this is because poker players simply don’t fancy sports betting or that the BetStars’ product simply isn’t up to scratch.
Amaya CEO Rafi Ashkenazi is of the view it’s the latter â that the product just isn’t strong enough and therefore competitive enough, particularly in European markets. The firm recently decided to pull back on marketing spend to allow time for recent hire, former Mybet CEO Zeno Ossko, to make some much needed improvements. Much of BetStars’ struggles have been technical issues, which would of course be improved by the William Hill sportsbook.
It’s also worth considering exactly what kind of cross-over PokerStars and William Hill would need to achieve to make the merger a success. The sheer size of the PokerStars’ customer numbers would perhaps indicate only a small percentage cross-over would be required to have a material impact on William Hill’s business. EGR understands around 40% of PokerStars’ active customers engage in online sports betting.
3) Kentucky litigation
Perhaps one of the biggest obstacles to the deal is the $870m (£710m) fine which is hanging over Amaya’s head. The fine relates to PokerStars’ continued operation in the state following the enactment of UIGEA. Amaya is seeking to overturn what it described as an “absurd” decision, particularly because an earlier ruling determined that damages should be based on the net loss of players â which PokerStars says is £12m.
William Hill is currently taking legal advice on the case in order to better understand the risk of this fine being upheld. However, Amaya appears confident of getting the fine dismissed or significantly reduced, as was the case with similar action faced in Illinois. “Given that PokerStars only generated revenues of £12m from Kentucky customers during the five years at issue, a damages award in excess of £530m [FX now £710m] is notable only by its absurdity,” an Amaya lawyer commented last year.
4) Gearing up
Hills stands accused of “blatant double standards” by Parvus in its fielding of a potential tie-up with Amaya on one hand and the rebuffed 888-Rank approach on the other. One of the main reasons Hills’ chair Gareth Davies gave when rejecting the 888-Rank three-way was the debt to EBITDA gearing of around 3.5-4% – or approximately £2.2bn. An Amaya-Hills merger would exceed that with debt of around £2.8bn.
It does appear strange that one of the reasons given for not even discussing a potential deal with 888-Rank is being swept under the carpet now Amaya has come calling. One explanation for it would be that Davies listed a number of reasons for not talking to 888-Rank, and perhaps it was the aggregation of debt, increased exposure to retail and the likely complicated nature of a three-way merger that put pay to any talks. An Amaya source also pointed out that the ability to pay down that debt is only enhanced by the stronger balance sheets of a combined company.
Nonetheless, the debt issues remains a live one but Amaya won’t be bringing any retail or three-way complications to the table. Although that’s not to say an integration of the two businesses won’t bring its own issues, with any significant synergies only likely to be extracted by converging all players on to one single-wallet platform.
5) It’s good to talk
Negotiations are still at a relatively early stage and there will be many issues to cover off before any proposal is considered, let alone made. But the industry is moving and consolidating quickly and the likes of PokerStars and William Hill cannot afford to be left behind.
Whether 2 + 2 = 5 in this instance remains to be seen but, with both businesses suffering issues in recent times, you can’t blame them for sitting down with each other to do their sums.
EGR recently criticised William Hill for its lack of willingness to enter in to dialogue with 888-Rank and its apparent preference for a DIY approach. So while the Amaya-William Hill talks came as something of a surprise, Hills can no longer be accused of sitting on its hands and hoping things get better.