Legal View: How Covid-19 has impacted land-based and online operators

It has been six weeks since I first reviewed the potential impact of Covid-19 on remote and land-based gambling operators.  On 20 March 2020, all casinos, betting shops and bingo halls in the UK were closed, alongside other leisure premises and non-essential shops.  Gambling at 152 casinos, 651 bingo halls and 8,320 betting shops in the UK came to an abrupt end. Online gambling was unaffected, although the cancellation of most sporting events left very few markets to bet on.

Following the initial shock of Covid-19, stock markets around the world fell sharply. The FTSE 100 in London sank below 5,000, its lowest level for eight years. Shares in major UK based gambling operators initially tracked the stock market downwards, but land-based operators were particularly hard hit, as markets noted that significant rental costs would continue to be payable during the period of closure.

Listed gambling operators were quick to assess the potential impact of Covid-19 on their revenue. William Hill stated that 53% of its 2019 revenue was generated from sportsbook. It projected a £100m EBITDA reduction for 2020, assuming closure of its UK retail shops for one month and that each additional month of closure would result in a further £25-30m hit to its EBITDA. GVC projected that its EBITDA would be reduced by £130m-£150m, with a further £45m-£50m reduction per month while its UK betting shops were closed. Paddy Power Betfair owner Flutter Entertainment expected its earnings to be reduced by £90m-£110m.

Emergency financial measures were swiftly introduced by the government to support ailing businesses. Operators began to furlough staff and emergency business rates relief was announced for retail, leisure and hospitality businesses. Despite initial fears that the gambling industry would not be able to benefit from rates relief, on 25 March 2020, the Betting and Gaming Council confirmed that following discussions with the government, the relief would apply to betting shops, bingo halls and casinos.

Lockdown has clearly impacted gambling operators in different ways, with remote operators being the biggest beneficiaries. The financial impact of Covid-19 on gambling operators is now becoming clearer. On the whole, share prices have recovered some ground from their historical lows of late March. However, prospects for operators who are heavily reliant on land-based gambling will remain negative for some time.

On 6 April 2020, GVC provided an update to the market about its Q1 trading and Covid-19 planning. Despite a strong start to the year, GVC stated that closure of its retail outlets and cancellation of sporting events had significantly reduced its revenue from mid-March 2020 onwards. GVC outlined the mitigating action it had taken, including furloughing staff and seeking business rates relief. It had also reduced its online sports marketing, sports content and trading costs in an effort to reach a break-even cashflow objective. GVC announced that it would cancel its interim dividend to save £103m.

888 Holdings is exclusively a remote operator. On 24 March 2020, it notified the stock market that, despite sporting event cancellations impacting its betting revenue, it was experiencing increased activity in casino and poker, which would partially compensate for sports betting disruption. 888 announced its 2019 final results on 15 April 2020, showing a 6% increased group revenue. The Board stated that, as a purely online operator, with diversified brands across geographies and a strong balance sheet, it was confident that 888 could manage the challenges presented by Covid-19.

The Rank Group Plc is heavily reliant on land-based bingo and casino premises.  On 17 March 2020 it estimated that closure of its gambling premises would result in monthly net cash outflows of £25m per month before taking mitigating actions and £17m per month with mitigation.  On 20 April 2020, Rank released its quarterly trading statement. It reported that it had furloughed 7,000 of its 7,600 UK employees and would save £8m per month from furloughing schemes and £1m per month from the business rates holiday. As a result of mitigating measures, it estimated that its monthly cash outflows would be reduced from £25m to £10m and that it would continue to meet its banking covenants. Rank assumed that all of its venues would remain closed until 30 June 2020, but that it was “preparing for difficult trading conditions when we reopen our venues”.

For online operators, there has been evidence of migration to other forms of betting to fill the sports betting void.  Following the success of the Virtual Grand National, betting on virtual sports and esports has certainly grown in prominence during lockdown.  The Online Gambling Quarterly Survey reported that, as a result of sporting cancellations, betting markets were down by 93%, but esports bets were up by 61%. It remains to be seen whether virtual betting will maintain this growth once the sporting calendar resumes, but the survey indicates a belief that the crisis will lead to a long-term migration from offline to online gambling.

Following six weeks of lockdown, there is now light at the end of the tunnel as UK daily death rates from Covid-19 continue to fall. Across Europe and the US, attention is turning to a phased easing of restrictions, aimed to avoid a fresh outbreak, while allowing businesses to resume activity. Pubs, bars, restaurants and other leisure businesses may be some of the last to re-open. Early indications are that consumers will be hesitant to rush back to leisure venues.

Re-opening of casinos in Macau has shown that the route to normality will take time. Closure of Macau, the world’s biggest gambling hub, led to a $3.3bn cashflow hit for its six gambling operators. After a 15-day shutdown, Macau’s casinos were permitted to re-open on 20 February 2020 with measures in place such as chip cleaning, mandatory wearing of face masks and social distancing in place.  However, footfall at Macau’s casinos was down 92% in March 2020 year-on-year.

In Las Vegas, where casinos have been shut since mid-March, the Nevada Gaming Control Board has asked casinos to start preparing re-opening plans, requiring them to comply with all local, state and federal Covid-19 health requirements.

June 2020 is now looking like the most likely date for the lockdown to be eased in the UK. The government is preparing a “comprehensive plan” for getting back to work. Re-opening of leisure premises will require strict social distancing and cleaning regimes and doubts remain whether customers can be persuaded to return in such numbers to make re-opening viable. In the meantime, land-based gambling operators may find their customers continuing to ebb away to online operators. Covid-19 is likely to accelerate the trend from real-life to online spending in many areas of our lives and it’s likely that a significant number of betting shops and gambling premises will have to be closed as the UK recovers from the crisis.